Case Study

Denmark’s flexicurity

Employers can dismiss workers with relative ease, and workers rarely fear unemployment.

Denmark

The Danish labor market operates on a model known as flexicurity, a portmanteau of flexibility and security. The term originated in the Netherlands in the mid-1990s, but it was Social Democratic Prime Minister Poul Nyrup Rasmussen who shaped the concept into Danish policy through the labor market reforms of 1994 and 1996, combining flexible hiring and firing for employers with generous income protection and retraining programs for workers.1

The system rests on what the Danish government calls a golden triangle. The first side is labor market flexibility. Employment protection legislation in Denmark is relatively low by OECD standards, meaning employers can shed workers with limited notice and low severance costs.2

The second side is social security. Workers who join an unemployment insurance fund, known as an A-kasse, receive up to two years of unemployment benefits after losing their jobs. The third side is active labor market policy, including retraining programs, job-search assistance, and counseling designed to return unemployed workers to employment quickly.3

The roots of the model lie in the September Compromise of 1899, when Danish trade unions and employer associations, after three months of strikes, agreed to recognize each other's legitimacy. Employers gained the right to hire and fire. Workers gained the right to organize. The agreement has been revised and updated, but its foundational logic persists.4

1899

Year of the September Compromise between Danish employers and unions, the foundation of the model.

Denmark spends more on active labor market programs per GDP than any other OECD country.5 There is no legal minimum wage. Wages are set through collective bargaining between unions and employer associations. A majority of Danish workers are union members, and major strikes are relatively infrequent.

Youth unemployment in Denmark has remained among the lowest in Europe, a result attributed in part to the flexicurity model's combination of low barriers to entry and strong support during transitions.6 The European Union adopted flexicurity as part of its employment strategies in 2007, drawing directly on the Danish experience.7

Timeline

1899

September Compromise establishes the foundational bargain between Danish employers and unions.

1994

Labor market reforms introduce active policies that define the flexicurity model.

2007

European Commission adopts flexicurity as part of its employment strategy.

Endnotes

1 Torben M. Andersen and Michael Svarer, "Flexicurity: Labour Market Performance in Denmark," CESifo Economic Studies 53, no. 3 (2007).

2 OECD, Employment Protection Legislation Index, Denmark country profile.

3 Government of Denmark, "The Danish Labour Market Model," official documentation.

4 Per Kongshøj Madsen, "The Danish Model of 'Flexicurity': Experiences and Lessons," Transfer: European Review of Labour and Research 10, no. 2 (2004).

5 Claus Thustrup Kreiner and Michael Svarer, "Danish Flexicurity: Rights and Duties," Journal of Economic Perspectives 36, no. 4 (Fall 2022).

6 CEPR, "The Danish Flexicurity Model in the Great Recession," VoxEU, 2011.

7 Council of the European Union, "Towards Common Principles of Flexicurity: Council Conclusions," 16201/07, December 2007.