Flexicurity

Flexicurity (a portmanteau of "flexibility" and "security") is a welfare state model with a pro-active labour market policy. The term was coined by the social democratic prime minister of Denmark Poul Nyrup Rasmussen in the 1990s.

The term refers to the combination of labour market flexibility in a dynamic economy and security for workers.

The Government of Denmark views flexicurity as entailing a "golden triangle" with a "three-sided mix of (1) flexibility in the labour market combined with (2) social security and (3) an active labour market policy with rights and obligations for the unemployed".

The European Commission considers flexicurity as an integrated strategy to simultaneously enhance flexibility and security in the labour market. Flexicurity is designed and implemented across four policy components: 1) flexible and reliable contractual arrangements; 2) comprehensive lifelong learning strategies; 3) effective active labour market policies; and 4) modern social security systems providing adequate income support during employment transitions.

It is important to recognize that the flexicurity concept has been developed in countries with high wages, besides clear progressive taxation, as in for example, Denmark.

The Danish flexicurity model has its roots in the nineteenth century, when negotiations among employers and trade unions during the so-called September Compromise of 1899 (also called Labour Market Constitution) laid the ground for a mutually beneficial (profitable and secure) state. The 'Constitution' was revised in 1960 and renamed Basic Agreement. It settled the freedom of trade union association as well as the managerial prerogative to manage and divide the work including the right to hire and dismiss the labour force at any time necessary. "It is thus important to understand that the Danish model of labour market regulation, including the right to form associations, is based on these voluntaristic principles and that legislation or interference of the state is kept on a minimum. The right of association and the recognition of labour market associations are based on the mutual recognition of conflicting interests." The Danish tripartite agreements amongst employers, workers, and the state are supported by an intricate system that allows for an active response from the state, which supports the 'activation' of workers.

In the early 1990s, Danish policymakers established a fiscal policy aimed at breaking the unemployment trend of the time and was further coupled to the first active labour market policy (ALMP) of 1994 which sought to reduce structural unemployment. Although some believed that the natural unemployment rate had simply increased, the Danish government sought to improve the situation by implementing what came to be called the flexicurity model. The policy shift thus came about with the 1994 and 1996 labour market reforms, when the introduction of flexibility was linked to security through the continued provision of generous welfare schemes as well as the 'activation' of the labour force through a set of ALMPs. Activation in Denmark is regarded as "a right and an obligation". The effects expected from this combination were twofold: qualification effects of the labour market policies (LMPs) as well as motivational effects through the welfare schemes.

The unemployment benefits and training provision that this system entail place a higher burden of taxation upon the higher-earning members of the Danish society. Denmark currently has high taxation rates which in part pay for generous social benefits. Flexicurity may thus favour low- to middle-income earners. However, this might partially be offset by Denmark's high-output growth which is coupled to low unemployment figures (2.8% in 2008) and similarly low social-exclusion rates. In recent years, Danes have been consistently ranked as the happiest nation on Earth, which has in part been attributed to aspects of Denmark's flexicurity model.