Policy Article

The Danish way to fight unemployment: a blueprint for other countries? (original publication German only)

Die Weltwirtschaft, 1999 (2): 207-233

In the early nineties Denmark like many other Western European countries experienced a severe rise of the unemployment rate - reaching a peak of more than 10 p.c. in 1993. But in contrast to the development on the European labor markets on an average the Danish unemployment rate dropped by the half until 1998. It is analyzed to what extent the 1993/94 labor market reforms contributed to this improved labor market situation. The analysis mainly focuses on the contribution of the new active labor market policy instruments and the early retirement schemes. It is demonstrated that the unemployment rate rises significantly when it is broadened by the unemployment reducing effects of the various programs. Moreover the analysis reveals that due to the dominant weight of early retirement schemes and other program characteristics the Danish labor market policy does not promote the reintegration of unemployed into the regular labor market sufficiently. However, it is not surprising that Denmark´s expenditures on labor market policy exceed the corresponding expenditures in other OECD countries distinctively. Nevertheless, it has to be recognized that since 1994 the registered unemployment was falling while the hidden unemployment only increased slightly in absolute terms. This positive development can be explained by measures taken against the misuse of the unemployment insurance and other social security schemes, a more productivity related wage finding process, liberal labor market laws, the 1994 tax reform and growing public and private investment activities.

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