Nordic ‘dual-earner’ post-industrialism and the case of Denmark

The most conspicuous characteristic of the Nordic regime has been its combination of generous income maintenance benefits, well-developed public social services and active labour market policies, which sustain high participation rates for both men and women. Social services not only provide large-scale and often flexible employment opportunities in the public sector, but also decent jobs for modestly skilled workers. Publicly funded higher education and vocational training foster innovation and increased productivity in the high-tech sector, which in turn provide employment opportunities in private sector skilled work. The cost, of course, is a very high tax rate. In addition, the Nordic model is under constant pressure to keep balanced budgets, especially in the wake of European monetary integration.

Still, the performance of the Nordic regime, in spite of all difficulties and political criticisms, is remarkable. Not only were the Nordic countries capable of recovering from monetary and economic crises, they also managed to restore balanced budgets and economic dynamism, while maintaining high employment levels and low poverty rates (cf. Ryner, Reference Ryner2007: 66). One important reason for this is that the Nordic welfare states were already well prepared for the ‘new social risks’ of post-industrial society (Bonoli, Reference Bonoli2007), socialising the risks associated with aging societies, changing household structures and the transition to the knowledge economy. In line with its normative foundation in a productivist work ethic, the social investment strategy comes clearly to the fore as the Nordic regime is moving even further away from passively compensating unemployment to actively promoting employability.

The presence of basic income guarantees is a safeguard not only against poverty and exclusion, but also against the penalties deriving from spells out of work and broken or composite careers. The availability of a wide array of services allows Nordic welfare states to respond more effectively to the care needs of families and to socialise their costs, including the cost of children. Moreover, high rates of labour-market participation alleviate the financial strains on pension systems. Furthermore, the Nordic countries invest heavily in labour market training (a crucial policy for knowledge-intensive economies) and their education expenditure ratios are the highest in Europe. Investment in training and labour market activation has increased so as to balance out a move to a more individualised, less-redistributive pension system. Sweden, Denmark and Finland spent between 0.3 and 0.5 per cent of GDP on labour market training and 0.2–0.3 per cent of GDP on re-entry facilitation (Bonoli, Reference Bonoli, Morel, Palier and Palme2009: 61).

The Danes have gone furthest in the social investment strategy, particularly with respect to activation policies. A series of labour market reforms in the 1990s gradually implemented a right and a duty to activation. This included the introduction of mandatory, individual action plans that activate the unemployed within three to five months and the abolishment of a system that passively accorded generous benefits (Albrechtsen, Reference Albrechtsen and Pascual2004: 224). The repertoire of active labour market policies was expanded and jobseekers received earlier and better access to publicly subsidised employment opportunities, education and training measures, rehabilitation courses, as well as sheltered employment for persons with permanently reduced working capacities. In addition to these supply-side measures, a number of leave schemes were temporarily used to reduce artificially the demand for work during the 1990s. It was the introduction of these ‘active’ elements into the Danish labour market that gave rise to the flexicurity model. This model triangulates ‘flexible labour markets, generous unemployment benefits, and active labour market policies – all coordinated to reduce unemployment and improve the quality and supply of workers to the labour market’ (Campbell and Hall, Reference Campbell, Hall, Campbell and Hall2006: 30; see also Madsen, Reference Madsen, Campbell, Hall and Pedersen2006). The 1990s also witnessed the expansion of services for children and the elderly, the expansion of parental leave opportunities and the introduction of specific activation instruments for mothers returning to work. These policies were targeted at improving the working opportunities for women and were coupled to the creation of 50,000 public sector jobs between 1995 and 2001 (Dingeldey, Reference Dingeldey2005).

Alongside the introduction of these enabling activation measures, the eligibility criteria for social assistance were tightened. In 1990, the government introduced Denmark's first compulsory activation measure, requiring eighteen- and nineteen-year-old social assistance claimants to participate in a youth allowance scheme in return for social assistance payments. Subsequently, compulsory activation measures were gradually expanded to reach all social assistance recipients, timetables were tightened and participants in municipal activation schemes no longer (re-)qualified for unemployment benefits. The duration of unemployment benefits was gradually reduced. However, with the exception of young people with no qualifying education, generosity did not decline. In addition, the so-called ‘passive period’ without the right and duty to activation was reduced sequentially from four years in 1990 to six months for under-thirty jobseekers and nine months for adult jobseekers in 2007 (Kvist et al., Reference Kvist, Pedersen, Köhler, Eichhorst, Kaufmann and Konle-Seidl2008: 227). In this way, Denmark adopted a ‘work first’ approach, emphasising benefit control, availability tests and job guidance.

The liberal way and the British case

The UK has been taking a new tack roughly in line with the social investment paradigm, albeit it with clear liberal traits. Still, activation policies have been widely expanded to strengthen the market economy, while trying not to increase poverty. The activation policy moves away from passive, means-tested schemes towards in-work benefits.

Since 1997, successive British governments have departed from the strictly liberal path by developing a liberal version of the idea of social investment, the so-called ‘enabling’ welfare state (Gilbert, Reference Gilbert2004) that makes most of its provisions contingent upon paid employment (see Clasen, Reference Clasen2005; Hills et al., Reference Hills, Sefton and Stewart2009) and balances rights and responsibilities. The flagship example has been the introduction of the New Deal in 1998. The New Deal partly built on the requirement that the unemployed actively seek work in exchange for benefits. The New Deal envisioned a new labour market policy that would offer the unemployed efficient job centres, more personalised support services and core skills training such as literacy, numeracy and self-presentation (Weishaupt, Reference Weishaupt2010).

For this purpose, the government sought to offer training or jobs to 250,000 young people, spending more than £3 billion on young people alone (http://archive.treasury.gov.uk/pub/html/budget97/hmt2.html). Accordingly, by far the largest New Deal program has been the New Deal for Young People. It offers four options to the unemployed: subsidised employment in the private sector; subsidised and temporary work in the voluntary or environmental sectors; full-time education; or training. There is, however, no ‘fifth option’ of passively living on benefits, and failure to comply with the rules can lead to a loss of benefits and eventual suspension. The scheme has been extended to unemployed adults and additional target groups, such as lone parents, chronically disabled persons and older workers.

Another pillar of the ‘make work pay’ strategy concerned a relatively generous Working Families Tax Credit in October 1999. Rewarding those in work through an almost ten-fold increase in tax credits, it sky-rocketed from £1.4 billion in 1999 to £11.5 billion in 2004 (Nachtwey and Heise, Reference Nachtwey and Heise2006: 6). It has subsequently been extended to adults without children and, if applicable, also covers parts of childcare costs. Taken together, the tax credits and minimum wage have had the result that anyone working at least thirty hours a week received an income above the poverty line (Brücker and Konle-Seidl, Reference Brücker and Konle-Seidl2006: 5). Moreover, a variety of legislation was initiated to promote the reconciliation of work and family life (more childcare places, paid maternity leave, a leave entitlement for fathers and an extension of flexible working time (Clasen, Reference Clasen2005)).

Tackling Britain's occupational skills deficit also became part of the social investment agenda. An essential part of Britain's skills strategy has been the introduction of instruments intended to improve the qualifications of less-skilled workers. The ‘Train to Gain’ scheme offers less-skilled workers fully paid access to training and offered employers subsidies to compensate for the loss in working time (Page and Hillage, Reference Page and Hillage2006). In 2006, a legal right for adults to obtain a certain level of qualifications free of tuition was introduced (Weishaupt, Reference Weishaupt2010). As part of an overhaul of the apprentice system, age limits for publicly funded places were removed, a new program for fourteen- to sixteen-year-olds still at school introduced, pre-apprenticeships made available, and access to apprenticeships for older workers significantly expanded.

Reversing the continental syndrome of ‘welfare without work’ and the German and Dutch cases

The continental welfare state has been described as a ‘welfare without work’ system (Esping-Andersen, Reference Esping-Andersen1996). Historically, the prevalence of Christian ‘familialism’ encouraged women to stay home rather than to participate in the labour market and induced a high family wage for male breadwinners (Van Kersbergen, Reference Van Kersbergen1995). High wages, in turn, reduced employment creation, especially in the area of low-productivity and low-skill services. Aggravating matters, industrial restructuring in the 1970s and 1980s was accommodated through a major expansion of early retirement schemes, catalysing those labour-shedding inclinations already connected with globalisation and deindustrialisation. The resulting self-reinforcing negative spiral has had a heavy impact on less-skilled workers, the young and women. Budgetary pressures for retrenching popular and generous income replacement schemes contrast sharply with new demands for social protection, resulting from both the decline of traditional family structures and failure to expand public and private service sectors.

This continental syndrome has generated a complex reform agenda: containing social spending by trimming ‘passive’ benefits, introducing ‘active’ incentives in other cash benefits, expanding childcare and parental leave, increasing means-tested benefits and reducing payroll charges. However, the continental welfare states, because they were very much disconnected from the idea of social investment, probably have undergone the most dramatic and path-breaking reforms in their adoption of the social investment paradigm.

Expanding employment levels among women, low-skill groups and older workers was seen as a sine qua non for the long-term sustainability of the welfare state. As a result, most continental welfare states have been increasing spending on active labour market policy. Higher pressures on the unemployed to accept suitable job offers or participate in education have strengthened activation programs. Since the early 1990s, steps have been taken to reduce early exit via tightened eligibility criteria, benefit reductions, stricter controls and, in the early 2000s, the abolishment of early retirement schemes altogether.

De facto the continental welfare states are saying farewell to the traditional family ideal and opting for reforms that enable women to participate in the labour market. Parental leave schemes were expanded and care for the frail elderly and sick children was introduced. Childcare has expanded since the late 1990s in particular (Morgan, Reference Morgan, Morel, Palier and Palme2009: 47). Governments have increased spending and pushed for more flexible childcare facility opening hours in order to enlarge the number of available and affordable childcare places, although this has not gone so far as to indicate a commitment to a ‘service state’ (Morgan, Reference Morgan, Morel, Palier and Palme2009: 52).

Still, also on the Continent, activation programs based on individual guidance and training opportunities, primarily targeting ‘outsiders’ like the young, female or low-skilled workers, have gained momentum over the past two decades. These reforms have begun shifting privileges away from insiders (male breadwinners and their dependents) by opening insurance benefits to outsiders, introducing paid maternity leave and improving social rights for part-time workers and minimum income protection.

Until the mid-1990s, the German welfare state was infamous for its disinclination to radical reform (Bönker and Wollmann, 2001; Obinger and Starke, Reference Obinger, Starke, Holzinger, Jörgens and Knill2007; Stiller, Reference Stiller2010). Since then, however, it has made a dramatic turn towards activation. In 2001, for instance, the Job-AQTIV Act expanded public employment and opened up broad, early access to training programs. In 2004 and 2005, the influential Hartz reforms expanded the low-wage sector through new tax and contribution exemptions and reductions. While most measures were related to active labour market policies, the most controversial elements brought major changes to unemployment policy. These changes involved drastically shortening benefits durations for all unemployed, most recently also including the long-term unemployed with disabilities (Rauch and Dornette, Reference Rauch and Dornette2010), hiking the early retirement age for elderly unemployed from sixty to sixty-three, tightening requirements to accept suitable jobs, simplifying insurance regulations, and merging unemployment assistance with social assistance. The latter implies that only those unemployed who fulfil certain qualifying conditions are entitled indefinitely.

Whereas such reforms addressed the changing skill requirements of the German labour market, a second strand of reforms tackled the post-industrial social risks associated with the massive entry of women into paid employment. To help reconcile work and family life, childcare and parental leave arrangements were expanded. Leave schemes came to include part-time workers and to offer two ‘daddy months’ for working fathers and quadrupled the maximum working benefits of the late 1990s. In addition, all-day childcare facilities for children under the age of three have been expanded (Morgan, Reference Morgan, Morel, Palier and Palme2009).

In contrast to Germany, the Dutch welfare state of the 1990s was widely praised for its recovery from a severe inactivity crisis in the 1980s and for managing to do so without suspending minimum income protection. This development was based on a long-term strategy of organised wage restraint, restriction of access to (and curtailing heavy misuse of), disability pensions and sickness insurance and promotion of part-time work (Visser and Hemerijck, Reference Visser and Hemerijck1997). In 1995, agreements between the social partners struck a winning balance between flexible employment afforded by safeguarding social security and the legal position of part-time and temporary workers, in exchange for a slight loosening of employee dismissal legislation (flexicurity). The 2000 Working Hours Act now gives part-timers an explicit right to equal treatment in all areas negotiated by the social partners (Hemerijck, Reference Hemerijck2003).

Between 2003 and 2006, the Netherlands took major steps to bolster activity rates, and, as in Germany, policy makers opted for both carrots and sticks. As of 2004, older unemployed people are required to look for work and employers are no longer obliged to pay premiums for disabled employees aged over fifty-five. In 2005, the government significantly reduced disability benefits for partially disabled individuals who do not work, but also expanded training opportunities and created wage subsidies for partially disabled workers and their employers. Also, tax benefits for pre-pension schemes were replaced by a life course scheme that stimulates employees to accrue 210 per cent of their annual salary by saving a yearly maximum of 12 per cent of their annual income. This enables employees to receive 70 per cent of their annual salary while away on leave (parental, educational, sabbatical or early retirement) for three years. In order to further reconcile work and family life, those using the life course scheme during periods of parental leave are granted an additional payment worth 50 per cent of the minimum wage. Furthermore, since 2005 additional child care facilities were created at schools and were subsidised. Still, in terms of participation in formal childcare (2008), especially of children not yet three years old, the Netherlands remains a laggard (www.oecd.org/els/social/family/database).

In sum, the continental welfare states have transformed more considerably than have their Nordic and liberal counterparts. The adoption of the idea of social investment required the adjustment of the two core policy values of the continental welfare state: status maintenance in social policy and support for the traditional family. In their stead came the promotion of equal opportunities via labour market participation and poverty reduction. We observe a development towards an activating welfare state that enhances the social rights and employability of women and low-skill groups in particular.