By Ioannis Dedes,
The mixed economy model that Denmark developed has been classed as a high-income economy by the World Bank, ranked 10th in nominal GNI per capita worldwide and 6th most competitive economy in Europe, according to a World Economic Forum Report of 2018.
Many readers might think that this is a result of a manufactured model, and as seen in many other cases, the numbers show only the positive aspects of the Danish economy. Nonetheless, the people of Denmark are amongst the happiest people in the world, according to the “World Map of Happiness” of 2007, even with some of the highest taxes in the world.
Not only is the economy not structured so that the rich are getting richer and the poor are getting poorer, but the case is even more optimistic. The unemployment rate is among the lower in the European Union, the poverty rate is the third-lowest in the world, and the equality in income distribution is the second globally.
The term “Flexicurity”
The million-dollar question is, how is that even possible? How did Denmark construct such an efficient financial model? Why does it manage to outperform some of the biggest economies in the world? Does it accomplish a great way of living in the process?
The answer: “Flexicurity”.
Nevertheless, this is not even a real word. How does this answer an inquiry in most of today’s governments?
Let me explain in simple and understandable terms. “Flexicurity” combines the terms “flexibility” and “security”.
So let us understand the first part of the term. Flexibility. This is a word that comes from the respect shown to the workers and the people that facilitate the production of goods and the provision of services. The labor market is based on flexibility so that workers can be quickly fired with little prior notice. However, they can also be even more easily hired.
You might ask, however, how is this feasible? Aren’t there any costs included in the firing of the workers?
Moreover, the answer is yes. The cost is minimal.
It permits workers to seek better and higher jobs every year. If one wants to understand this through specific numbers, the significant turnover rate in the labor market surpasses 35% every year.
The role of the Danish government
Another question that you might have as a reader, is what happens if someone does not find a better job after getting fired. That is where the government plays a huge role along with the second part of the “flexicurity” term; security.
The government makes great efforts to secure the interests and the income of the workers, even after getting fired, through a social protection system that functions by great and generous unemployment benefits.
How does this work? Suppose a worker is fired by a company they worked for quite some time. In that case, they will receive up to 90% of their previous wage through unemployment benefits provided by the government, which are limited to 3 years. Until then, the unemployed worker will be paid a certain amount. In the meantime, they will be eligible to search for a new job.
Denmark’s government also provides training and education services for workers who want to increase their opportunities and search for better and higher jobs. Structural unemployment is also reduced since fewer people do not have the education and the ability to be chosen for new jobs.
This security part for the workers and the guaranteed help for unemployed citizens follow the free provision of education from primary school to university, free health care, pensions for retired workers at the maximum level of 85%, and other government subsidies for low-income earners and businesses.
In more general and understandable words, the primary factor in “moving” the economy was the market orientation, the free-trading system, the healthy competition, and the limited government intervention in most new financial projects. It is essential to notice that one can open and start a business at a minimum cost in some hours.
Progressive taxation and Denmark’s business empowerment
The lack of intervention provides people with ways to avoid the endless bureaucratic procedure. This is why Denmark has the shortest start-up time for new projects and businesses in the European Union.
The case with the high taxation and the good feeling of happiness for the people of Denmark is also essential and should be mentioned. The country has progressive taxation, which is very positive for development and wealth, even though it has one of the highest tax rates in the world, with even 50% of the income on average.
The progressiveness, however, makes the citizens better off since, depending on their situation and salary, they pay taxes respectively. A person making 5,000 euros per month will pay a greater tax than someone making 2,500 euros as the salary of 30 days.
This is why people are happy since they do not have the same tax burden regardless of their salary. Most importantly, this prevents income inequality.
Through this equal distribution of taxation and understanding of the people, the incomes from what is paid by the people work to increase the government’s revenue, and therefore it is spending, for the great unemployment benefits discussed above. The tax burdens for the businesses are also comparable with many other Europeans.
The whole market-oriented system of Denmark’s economy and the term “flexicurity” has permitted excellent development for the country, which respects the workers and functions through their achievements.
Their understanding of the firing cases and the high taxation makes them happy, and they are aware that the government will not let them down in any case of unemployment. This is not the only reason why Denmark is among the most outstanding economies of the European Union. However, this system for the workers at the “steering wheel” is one of the primary keys to success.
References
- Schmieder, Johannes F.; von Wachter, Till (2016). “The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation”. Annual Review of Economics. 8 (1): 547–581.
- “Flexicurity and the Economic Crisis 2008–2009 | READ online”. OECD iLibrary. Retrieved 2018–12–14.
- Kvist, Jon (July 2017). “Denmark: A new unemployment insurance scheme for the future labour market”. European Social Policy Network.
