Gwenn PARENT, Economist OECD - Directorate for Employment, Labour and Social Affairs

Back to Work: DENMARKImproving the re-employment prospects of displaced workers Launch OECD report

Ministry of Employment - Danish Economic Council - OECDCopenhagen, 15 December 2016

1. Background: OECD review on displaced workers

2. The labour market situation of displaced workers in Denmark

3. Policies to assist displaced workers: strengths, weaknesses and possible ways forward

- Prevention and early intervention

- Income support and re-employment assistance

4. Main recommendations

Outline of the presentation

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Phase 1: Analytical report focussing on comparable statistics on job displacement and its consequences in Employment Outlook 2013

Phase 2: Nine country case studies: Korea, Canada, Japan, Sweden, Australia, Finland, the United States, Denmark and New Zealand

Phase 3: A synthesis to be published in the OECD Employment Outlook 2017 (July)

OECD policy reviews on displaced workers

Definition of job displacement: Displaced workers are defined as employees with strong labor market attachment loosing their job because of economic reasons such as plant closings, business downturns and changes in technology.

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THE LABOUR MARKET SITUATION OF DISPLACED WORKERS

IN DENMARK

Labour turnover is high in Denmark: 1 in 5 Danes separate from their job every year

Among those with stable labour market attachment, 2.7% lost their job every year as a consequence of mass dismissal or firm closure (2000-12).

Some workers are particularly vulnerable to displacement: o Low-educated o Youtho Short job tenure

Job displacement in Denmark: key facts

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o Transportation and other serviceso Elementary occupationso Working in small firms

Job displacement in Denmark is below the average of OECD countries with similar data

Job displacement rates in Denmark and selected countriesPercentage of employees aged 20-64 who are laid-off from one year to the next

6

Japa

n

New

Zeal

and

Fran

ce

Cana

da

Russ

ian

Fede

ratio

n

Unite

d St

ates

Aust

ralia

Kore

a

Germ

any

Swed

en

Portu

gal

Unite

d St

ates

Finl

and

Unite

d Ki

ngdo

m

Self-defined displacement Firm-identified displacement

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

% %

2003-08 2009-10

Denm

ark

Source: OECD (2016), Back to Work: Denmark: Improving the Re-employment Prospects of Displaced Workers, OECD Publishing, Paris.

Up to 5.2% in 2009 due to the global financial crisisCrisis hit particularly hard the manufacturing sectorUneven recovery across sectors

The Danish labour market reacted promptly to the global financial crisis in 2008-09

0 1 2 3 4 5 6 7

01234567

Firm closure, Denmark Mass dismissal, Denmark SwedenFinland

% %

Source: OECD (2016), Back to Work: Denmark: Improving the Re-employment Prospects of Displaced Workers, OECD Publishing, Paris.

Job displacement rates in Denmark, Sweden and Finland

Denmark is among the better performing countries in terms of re-employment rates

Re-employment rates in Denmark and other selected OECD countries

Percentage of all displaced workers, averages 2003-2008 and 2009-2010

8

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0102030405060708090

100

Fran

ce

Kore

a

Cana

da

Japa

n

Russ

ianFe

dera

tion

Unite

dSt

ates

New

Zeala

nd

Austr

alia

Portu

gal

Unite

dKi

ngdo

m

Germ

any

Unite

dSt

ates

Swed

en

Finla

nd

Self-defined displacement Firm-identified displacement

%%

Self-defined displacement Firm-identified displacement

Denm

ark

Re-employed within one year

(2003-08)b

Re-employed within two years

(2003-08)b

Re-employed within one year

(2009-10)c

Source: OECD (2016), Back to Work: Denmark: Improving the Re-employment Prospects of Displaced Workers, OECD Publishing, Paris.

Job displacement induce significant and long-lasting earnings and wage losses

On average, reduction in annual earnings by 5.5% due to lack of wages received during periods of

unemployment For long-tenured workers, reduction in hourly wage

(by 2.3%) More than one displaced worker out of four faces an

wage loss of at least 10% Losses are higher and more persistent for older workers,

and the age gap is more pronounced in Denmark than in its neighbouring countries.

Job quality worsens following job displacement9

POLICIES TO ASSIST DISPLACED WORKERS: STRENGTHS, WEAKNESSES AND POSSIBLE WAYS FORWARD

Employment protection for permanent workers is close to OECD average, balanced between flexibility for employers and security for workers: Third-lowest level of difficulty to dismiss permanent

workers (comparable with US, Canada and UK); relatively low statutory severance payments

Rigid notification procedures and consultation requirements including with trade unions when starting the dismissal process

Early notification gives the necessary space and time for dialogue between the social partners, negotiation and intervention at an early stage

Legislation and collective bargaining protect workers without hampering labour market dynamism

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Advance notice periods defined by legislation (white collars) or collective agreements at the industry level (for blue collars) → much shorter advance notice for blue-collar than for white-collar workers

Distinct industry-specific collective agreements

Large disparities between blue and white-collar workers

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Preventing “unnecessary” layoffs

Targeted measures to prevent job losses are not as developed as in other countries

Prevention of displacement is limited to temporary solutions for temporary changes in market demand: short-time work (STW) scheme which acted as a

countercyclical measure during the GFC (easing of regulations implemented in 2009)

rely on retaining employment by shaping the skills and employability of employees (take up only 10%)

Þ The usual risks of overuse (deadweight cost and displacement effects) are maintained to a low level

Þ Need to enhance vocational training and formal education with the possibility for publicly-funded training subsidies.

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Early implementation of warning pools in cases of mass dismissal (advance notification to their regional labour market authority, ordinary warning pools, supplementary warning pools), and additional support through the European Globalisation Adjustment Fund for 10 large firms

Reaching soon-to-be displaced workers at the earliest possible stage, providing them with tailored assistance and counselling so as to: Ease transition into new jobs

Enhance skill-enhancing opportunities (work-sharing, adult apprenticeship, up-skilling through the Jobrotation scheme)

Main challenges: Early intervention remains concentrated on large dismissals from

large firms Early help for workers displaced from small firms or

experiencing individual or small-scale dismissals is limited

Denmark has strong early intervention policies for some workers

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Collective bargaining in Denmark improved skills development during the notice period

Several job changes over a working life call for continuous upgrading of workers’ skills and employability

Various trade unions putt skills up-grading at the centre of the collective bargaining discussions in 2014

Innovative collective agreements: industry sector: training for a minimum of one week

during their notice period, paid from the employer-funded competence development fund

transport sector: two weeks of training during their notice period, extending the notification period proportionally

Using the notice period for additional vocational training and retraining => one of the good practices recommended by the OECD 15

HQ Sharp in Japan: network of subcontractors of the same employer, helps preventing displacement of employees whose skills are still in demand within the network.

Continuous-Entry Reclassification Committees (CREC) in Quebec: similar to warning pools but open to all displaced workers in an area regardless of the size of the firm or the number of dismissals

Job Security Councils in Sweden: based on collective agreements at industry level, JSC distribute the risk and costs of restructuring among its members while allowing access to workers in small and medium enterprises: provide advice and consultation to employers and trade unions provide transition services and guidance to laid-off workers financed by employers, contribution determined within collective

agreements (0.3% of payroll).

Early intervention policies : good practices from other countries

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Unemployment insurance coverage is high in Denmark but unevenly distributed

UI is a voluntary scheme: only members of a UI fund can be insured against unemployment

Three employees out of four are insured (around EU average), but uneven distribution across income levels

Only one Danish unemployed (ILO definition) out of two actually received UI benefit during his unemployment spell in 2012.

Income support as a safety net for displaced workers

Limited role of severance payments Unemployment insurance system provide security to workers:

high benefits for a rather long period of time reduces the poverty risk after displacement

Great pressure on the income support system during the crisis

Inequality issues due to combination of two facts: voluntary scheme tax-financed system, with only a small part of the costs covered by

the members’ contributions to the UI fund. Þ Non-insured workers pay taxes but do not benefit from the UI systemÞ Security provided mostly to those less flexible, leaving behind:

young workers, low-skilled, low-wage workers

Strengthening income support

Recent reforms reduced benefit generosity and increased activation requirements to ensure sustainability of the Danish income support system: UI duration progressively shortened from four to two years (with

several temporary extensions to smooth the process) Re-entitlement conditions to UI benefit tightened Social assistance reformed towards more activation

UI reform (2017): innovative measures to foster the acceptance of short periods of work while on UI benefit: flexible extension of the benefit period for up to one year (one

day work = two days benefits) consumption of UI benefit rights in hours instead of weeks additional waiting period conditional on short periods of work benefit levels no longer adjusted during unemployment spell

Denmark has a strong activation strategy with considerable programme spending

Third pillar of the Danish flexicurity model: Frequent contacts with a caseworker Participation in active labour market programmes (ALMP): 10 to 15% of

all still unemployed displaced workers are in ALMP Profiling tool (classifying jobseekers based on their distance from the

labour market) with different rights and obligations apply to each of the three match groups

Strict job-search monitoring with some inefficient overlap of responsibilities (Jobcenter/UI funds)

Denmark remains the world champion of ALMP spending (1.8% of its GDP in 2013), despite a slight decrease over the past decade

2015 employment reform implemented a tighter activation process most ALMPs have positive employment effects during boom periods

but much lower effects during recessionary periods (Danish Economic Council, 2012) => regular contact and meetings

MAIN RECOMMENDATIONS

Ease access to early intervention reserved for collective dismissals to: dismissing firms in the supply chain or in regions facing

multiple redundancies.workers displaced in small-scale and individual

dismissals Provide a level playing field for blue-collar workers:

by making notice periods equal or at least more similar to those of white-collar workers

to improve access to early intervention measures before dismissal.

Making early intervention accessible for all displaced workers

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Increase UI benefit coverage for low-wage, low-skilled workers either:By making the system universal By changing the financing structure to make

insurance attractive also for low-wage earners Remove differences between blue-collar and white-collar

workers (interaction between severance pay and unemployment benefit entitlements).

Unemployment reform (2016): better incentives to accept short-term, fixed-term and part-time jobs (stepping stone).

Making the unemployment benefit system available for all workers

Bring the recognition of prior learning forward in time

Involve employers in this recognition process

Rigorously evaluate active labour market programmes and training schemes (with special focus on their effectiveness for displaced workers)

Reinforce training and pre-training counselling to ensure people choose and get the right training at the right time and avoid costly but ineffective training

Making active labour market policies effective for displaced workers

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For further information:

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OECD Directorate for Employment, Labour and Social Affairs: www.oecd.org/elsOECD work on displaced workers: http://www.oecd.org/els/emp/displaced-workers.htmOECD Employment Outlook: www.oecd.org/employment/outlook

@OECD_Social

Contact: gwenn.parent@oecd.org or christopher.prinz@oecd.org