Trade Adjustment Assistance, Part II
November 18, 2019
In the absence of a China talks breakthrough, or collapse, as of this writing, I’m going to go ahead and complete my two-part commentary on adjustment assistance. Last week I talked about the U.S. Department of Labor’s new proposals on that subject, and I said I would be meeting with the Danish minister for employment and would next talk about the Danish program, which is widely acknowledged to be the world’s best. That meeting happened—we gathered a group of workforce experts to meet with Minister Peter Hummelgaard to discuss the Danish program and its applicability to the situation in the United States.
It was an excellent meeting, and I think everyone, including the minister, learned a lot. For the Americans present, the main lesson was that our two economies are structured in some very different ways. First, Denmark is, proudly, a welfare state. Danes pay high taxes and get substantial services. Education, for example, is free, and benefit packages for the unemployed are generous. Second, there is considerable churn and mobility in their economy, which contributes to its health. More than one-third of Danish jobs turn over every year. That creates lots of opportunities. Workers are not reluctant to leave a job because the benefits during a period of unemployment are generous. Employers are not reluctant to hire because they know it is also easy to fire workers. Third, the relationship between labor, management, and the government is cooperative rather than adversarial and has been for more than 100 years.
This last difference is particularly important if you look at their adjustment programs. Sixty-four percent of Danish workers are in trade unions, and 83 percent are covered by a collective agreement unlike in the United States where union members make up just 10.5 percent of workers, and most companies belong to associations that represent their interests. Fundamental labor decisions like pay and working hours are largely set by collective agreement. There is no statutory minimum wage. Issues are resolved through tripartite cooperation between labor, management, and the government. Denmark pursues what it calls an active labor market policy, which a government fact sheet describes this way:
The primary purpose of active employment measures is to contribute to a well-functioning labour market by assisting unemployed people to find work, to provide services to employers seeking labour or wishing to retain employees, and to support people with special needs, or a reduced ability to work, to find work.
Active employment measures are thus an important part of the Danish flexicurity model. Education, guidance and upgrading of skills are key factors in this effort.
The Danish system for adult education, continuing training and education (VEU) gives adults several options. These include the option to achieve basic skills in a field, to get vocational education and to be able to upgrade one’s skills, as the labour market changes to new skill requirements.
The VEU system is available for both employed and unemployed persons.
The adult vocational training programmes are moreover subsidized by the state, both the educational expenses and the benefit and wage compensation.
The social partners* play a major role in the management, priority setting, development, organisation and quality assurance of adult vocational training programs.
[*The social partners are labor unions and management associations.]
To implement this approach, the government has established a wide range of state-supported programs. I won’t detail all of them, but they include short courses for those receiving unemployment benefits in fields where there are labor shortages, other vocational educational programs to help that same population move from unskilled work to skilled work, subsidies for apprenticeships, and subsidies to companies to hire unemployed workers temporarily while their permanent workers are participating in continuing education programs. The budget for those and other programs is approximately $520 million for a workforce of 2.8 million people.
Where the program falls short is with immigrants, particularly those from non-European countries. There are the inevitable social and cultural differences that make assimilation difficult, but one of the most significant issues is language. Danish is not the easiest language to learn, and, unlike English, newcomers are not likely to have been exposed to it in their home countries. Immigrants compound the difficulty by staying together in communities and keeping their young children at home, so when the latter starts school at age six, they arrive with little Danish speaking capacity and are, from the beginning, behind in their studies. The government is attempting to deal with this through the equivalent of a Head Start program, but it remains a challenge.
So, while there are similarities in the assistance programs, the salient difference with the United States seems to be in the attitudes of the participants. In Denmark, labor and management cooperate to address problems they see as common, and both appear to take into account the overall national welfare above and beyond their immediate economic interests. Of course, it is easier to do that when you have a generous package of benefits, but after more than 100 years, the idea of cooperative problem solving is built into the national psyche, which, in this area at least, gives them an advantage over the more competitive U.S. approach.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2019 by the Center for Strategic and International Studies. All rights reserved.