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The Role of Unemployment Insurance in Modern Labour Markets - Unemployment Insurance and Flexicurity Tallinn, February 2007 Thomas Mølsted Jørgensen National Directorate of Labour Denmark. Main functions of Unemployment Insurance. Income security for unemployed

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The Role of Unemployment Insurance in Modern Labour Markets - Unemployment Insurance and Flexicurity

Tallinn, February 2007

Thomas Mølsted Jørgensen

National Directorate of Labour

Denmark

main functions of unemployment insurance
Main functions of Unemployment Insurance
  • Income security for unemployed
  • Flexibility on labour Market
  • Macro economic stability
ui benefits in various situations
UI-benefits in various situations:
  • Cyclical or seasonal unemployed
  • Modern expansions of classical UI:
    • Short period between two jobs
    • Temporarily laid off
    • Newly graduated
    • UI-benefit at holidays (after unempl.)
unemployed with benefits and then goals of modern labour market policy
Unemployed with benefits - and then ? Goals of Modern Labour Market Policy

Return to previous / same type of job

OR

Achieve competence to new job ?

ways of financing ui benefits
Ways of Financing UI-benefits:
  • Members fee (flat rate or other)
  • employers contributions or
  • general tax

Affects:

Income distribution

Wage increase (?)

Macro economic situation

acceptance of flexibility depends on
Acceptance of Flexibility depends on:
  • Easy access to UI-benefit
  • High replacement rate
  • Low fee / employees contribution to Unemployment Insurance
  • Long duration possible
but easy access to high benefits could result in
But easy access to high benefits could result in:
  • Less incentives to work
  • Wage-inflation
  • Abuse of benefit-system
  • Black economy
  • High expenditures
some solutions
Some solutions:
  • Strict rules on availability
  • Active Labour Market Policy:
  • Right and duty to accept offers
  • Job offers and activation as test of availability
  • Monitoring job seeking
more contribution to solutions
More contribution to solutions:
  • Realistic sanctions
  • Threat of loosing membership
  • High replacement rate only with low wage
  • Often adjustments of schemes to avoid unintended use
the danish flexicurity triangle
The Danish Flexicurity Triangle
  • Low employment protection

Flexible labour market

Unem-ployment benefits

Active LMP

3. Employment security

2. Income security

the components of the triangle
The components of The Triangle
  • The Labour Market
    • Easy hire-and-fire – low/no job protection
    • High flexibility and many job openings
    • High job and worker-mobility
    • Rapid structural changes
  • Unemployment Insurance
    • High replacement-rate (but with max.)
    • Long duration
    • Individual benefit – no means test
  • Active Labour Market Policy
    • Emphasis on upgrading skills
    • Strict rules on availability
    • Right and duty to accept offers
    • Activation as test of availability
summing up ui in modern labour market flexicurity
Summing up UI in Modern Labour Market - Flexicurity
  • Unemployment Insurance must work together with ALMP
  • Employability enhancement is the overall goal, achieved by both flexibility and education/training for unemployed and employed
  • Flexibility and security for the employees are not necessarily contradictions. Requires enforced availability for work
  • Flexicurity arrangements can strengthen overall institutional competitiveness by promoting structural change
  • Regular review and revision of schemes etc. is necessary
  • Flexicurity is not a simple recipe – nor a universal medicine
  • It works in Denmark – but it requires many resources.