THE FRENCH government's recent withdrawal of a new employment contract for young people following a wave of demonstrations and strikes has once again focused attention on the problem of unemployment in Europe. The first employment contract for people under the age of 26 was intended to make hiring and firing young employees easier, in the hope that this would help them get a foothold on the employment ladder. In France, youth unemployment is a particularly serious problem. The overall rate of youth unemployment is more than 20 per cent and in some deprived areas it is believed to be as high as 50 per cent. As the wave of riots in cities across France last year showed, this is not just an economic problem. The high levels of unemployment in some European countries are widely considered to be the result of failed economic policies. Many economists argue that one of the key problems is the lack of labour market flexibility in countries such as France and Germany, where hiring and firing is difficult. This discourages employers from recruiting new workers because of the bureaucracy involved in hiring. Employers also face high hiring costs as they have to factor in social security charges along with salaries and consider the tight restrictions on firing workers, especially in the case of mass redundancies. Hiring new employees is almost the last resort for many companies and many often prefer to invest in machines. The debate on this issue has often focused on the difference between the continental European social market typified by France and Germany and the liberal economics of the Anglo-Saxon model followed by Britain and the United States. Many economists argue that the flexibility provided by lower levels of worker protection boost growth and helps keep unemployment low. But, as the French example shows, governments in some European countries have found it very difficult to challenge existing employment protection and welfare benefits. One way out of this impasse is the flexisecurity system that the so-called Nordic model offers. This alternative has been widely debated in Europe recently, and even in France, where analysts have recognised that the existing system cannot be maintained. Advocates of the flexisecurity system say it offers a way to reform the existing social market without adopting what are perceived to be the brutal economics of pure market forces. The Nordic model apparently manages to combine generous welfare benefits with flexible labour markets, which results in low levels of unemployment. Denmark is the country widely considered to represent the success of the flexisecurity model. In recent years, Denmark's gross domestic product growth rate has consistently outperformed leading EU economies such as France and Germany. Last year, the GDP growth rate for Denmark was 3.4 per cent, compared to only 0.9 per cent in Germany and 1.5 per cent in France. Denmark is also superior to many of the other European economies in employment levels. In contrast to most of Europe in the past decade, unemployment in Denmark has been on a downward trend. Last year, the unemployment rate in Denmark was 4.9 per cent, lower than the European Union average of 8.7 per cent, and well below the level of 9.5 per cent in France and Germany. The unemployment rate in Denmark is now roughly similar to rates in Britain and the US. Under the flexisecurity system in Denmark, it is easy for companies to fire workers, but the unemployed receive generous benefits. In some cases benefits might cover more than 90 per cent of the person's previous income, but there are strict limits on how long such benefits will last. The key to flexisecurity is the stipulation that the unemployed are required to actively look for work and upgrade their skills. This is done through activation programmes, which are organised by the government to help job seekers find work. Jobless people are required to report to the employment service on the first day of unemployment and add their resumes to a national database. They also have to engage in regular meetings with job placement services and take part in training. Job seekers who have been out of work for more than a year are required to participate more or less full-time in the activation programmes. Failure to take part in such programmes leads to a withdrawal of the welfare benefits. Activation programmes provide education and training, and assistance in seeking work. Also, there are subsidies that can be given to employers who take on unemployed workers, and also part-time jobs in the public sector. The result of the Danish system is that the unemployed are pushed towards finding jobs with the help of the government. According to one formulation, the aim of the Danish system is to replace job security with employment security. Rather than trying to protect employment in an existing job, the policy aims to maximise the chances for workers in Denmark to be employed. The economic effect of this system is that every year in Denmark many jobs disappear, but this is balanced by a high rate of job creation. The effects can also be seen in the fact that Denmark has high levels of job turnover. On average, about 30 per cent of employees change jobs every year and they have much shorter tenures in their jobs than employees in most other European countries. The policy of active labour market programmes originated in Sweden and has been applied with variations in other Nordic countries. By most standards they are considered to have helped shape successful economies. Not only do such countries generally have strong growth and low unemployment, but they are also rated as being among the world's most competitive economies. How far this success can be transferred to other economies is open to debate. The Danish employment system has evolved over many decades and a key element is the tradition of co-operation between workers, represented by unions, employers and the government. This tradition of consensus does not exist in other European countries. Resistance to change in some European countries is high, as the example of France has shown. Even the promise that reforms will help jobless people find employment may not convince people who seek the guarantee of a job for life. In Germany, limited reforms were introduced after much debate by the previous government, led by Gerhard Schroeder, to increase labour market flexibility, although they had little impact on the unemployment rate before he was defeated in an election last year. The new government of Chancellor Angela Merkel is expected to continue pushing reform and recently there have been signs that the German economy is improving. For all the talk of the need for new policies to tackle unemployment in Europe, there has been no real breakthrough. While there have been cautious labour market reforms in Germany, the introduction of any change in France remains blocked by public resistance and the inability of politicians to formulate any decisive policy. Despite the apparent success of the Danish model and its widespread discussion among academic circles and policy think-tanks across Europe, so far there is little sign it has made a real difference to the policies adopted in countries where unemployment remains a serious problem. Duncan Freeman is a freelance journalist based in Brussels
