The Wall Street Journal

March 21, 2006

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Soft Landing
For the Danish,
A Job Loss Can Be
Learning Experience

Ambitious Retraining Program
Keeps Unemployment Low,
Even Amid Mass Layoffs
A Drawback: Very High Taxes
March 21, 2006; Page A1

HJORRING, Denmark – After graduating from high school, Susanne Olsen spent 10 years at the local slaughterhouse hacking ham off dead pigs. It was arduous, unskilled work that left her ill-equipped for most other jobs.

Then the slaughterhouse closed down last year, leaving 500 people without jobs in a small town that had recently lost its biscuit factory and its mobile-phone factory. All three employers were striving to cut their labor costs amid rising competition from low-wage Eastern Europe and Asia.

[Susanne Olsen]

But unlike millions of laid-off workers in similar circumstances elsewhere in Europe, Ms. Olsen was sure she was going to find a new job. Now she's an apprentice golf landscaper, with her salary subsidized by the state while she takes four years of training paid for by the government and her new employer. "I miss my old colleagues, but I don't miss the pigs at all," Ms. Olsen says.

Most of Western Europe is fighting to hold on to its traditionally strong job protections while in some cases cutting jobless benefits, as the region struggles to compete in a globalized economy. Denmark has gone the other way.

The government allows liberal hiring and firing as in the U.S. And it has imposed limits on the duration of its high unemployment benefits. But it also invests more than any other country, as a percentage of its gross domestic product, in retraining the jobless -- a combination it calls "flexicurity." Its unusual mix of the free market and big government has helped Denmark cut its unemployment rate in half, from about 10% in the early 1990s to U.S.-style levels of under 5% now. The economy has been relatively robust, growing 3.4% last year. Meanwhile, France and Germany are at or above the Danish jobless rate of a decade ago.

Even though Danes are among the most easily laid-off workers in Europe, polls show the country's workers are the most secure about their future. The European Commission now holds up Denmark as a model for other countries to try to follow. Politicians from other EU countries have made numerous study trips to Copenhagen. France has cited Denmark as a model for its own more modest labor-law reforms, which in recent days have touched off mass public protests.

Meanwhile, Danes change jobs more frequently than any workers in the developed world except Americans and Australians, says the Organization for Economic Cooperation and Development. But fewer than 10% say they're concerned about job security, compared with nearly 40% in Germany and more than 60% in Spain. Most Danes believe they can always find work in their fluid labor market. In the interim, they get security from a dole that replaces up to nine-tenths of their last wage, the highest level in Europe.

Critics say the experiment might not be easy to replicate. For one thing, Denmark is small, with just 5.4 million people. And close-knit Scandinavian countries historically have had a higher tolerance for taxes. The system isn't cheap: Denmark spends about 4.4% of its GDP every year on supporting and retraining the jobless, the most expensive labor-market policy in the world. That and Denmark's other welfare generosity keep income taxes sky-high. Tax revenues take up half of gross domestic product, second only to Sweden.

Not everyone benefits equally. Annabeth Garvold, a university graduate who was jobless for much of 2003, says the state computer-training course she took was too basic to be useful, though the program did place her in three months of subsidized work at a tech company, through which she found a job. Workers retrained for new industries also aren't guaranteed to find salaries as good as their old ones. Ms. Olsen's golf-course wage, which started at $20 an hour, won't rise as high as the nearly $30 an hour she made butchering pigs, she says.


Meanwhile, immigrants, including many Muslims, have significantly higher unemployment rates and are unemployed for longer than the native-born, just as in other European countries. Such tensions boiled over when a Danish newspaper published provocative cartoons of the prophet Muhammad, a controversy that has become global.

Denmark has long been accustomed to flexible hiring and firing, agreed between unions and employers back in 1898 in exchange for unions' rights to organize and strike. Rising prosperity in the post-World War II era allowed the state to pay generous benefits to the jobless, the sick, early retirees, parents, and anyone who wanted to take a break from work.

But by the early 1990s, Denmark, like many European welfare states, found itself supporting a rising number of working-age people who lived comfortably on welfare and had little incentive to find jobs. Social problems grew: The children of the unemployed grew up to be unemployed. "Welfare dependency developed into a social state of mind," says Helle Seerup, a labor-market expert at the Danish trade union confederation.

In 1994, the center-left government of Prime Minister Poul Nyrup Rasmussen scrapped indefinite benefits for the unemployed, who suddenly faced state pressure to actively seek work. The prime minister's close ties to trade unions helped him to win acceptance for the change.

The present center-right government, under Prime Minister Anders Fogh Rasmussen, has tightened the system further. If a person hasn't found work after a year, their consultant "activates" them, proposing specific training or work experience -- and reducing benefits if they don't comply.

Denmark's different regions run the policy with variations, constantly experimenting and tweaking the system as officials learn what works. The nationwide success rate: About two-thirds of Danes who are laid off have a new job within a year, say labor-market specialists.

The state is so determined to get Danes off the dole that it sometimes designs and funds entire new college courses just to fill a small number of jobs. In the cramped corridors of the Public Employment Service for the Copenhagen area, labor consultant Kim Jorgensen has arranged for a business school to run three courses in the past three years in how to program the business software system Microsoft Axapta, at a cost of $160,000 to the taxpayer. In total, 16 unemployed people were trained this way to fill specific vacancies.

Mudassar Qureshi, 28 years old, couldn't find a job when he graduated from university two years ago. He says his computer-science diploma was too general for employers, who wanted specialists. The Axapta course led to a job at a local software company, HOB Business Solutions, which taught part of the course. For the first half-year at HOB, almost 40% of Mr. Qureshi's starting salary of $3,700 a month was paid by the state. The subsidy led HOB to hire two subsidized trainees instead of one expensive veteran. "It helped to bridge the mental jump of taking on two guys who are inexperienced," said the company's chief executive, Hasse Bergman.

[Jorn Katballe]

In the same cramped Copenhagen building as the consultants, Kirsten Thomsen prepares the "bottleneck analysis" that makes Denmark's peculiar hybrid possible, in which a big, active government helps the free labor market to flow better. Every three months, Ms. Thomsen has the U.S.-based polling firm Gallup survey employers in the Copenhagen area on what jobs they will need in coming years, and uses the feedback to identify the next labor shortages. Right now they're short of lots of skilled workers, from hospital X-ray technicians to "smorrebrods maids" -- women who prepare Denmark's traditional version of the smorgasbord.

The consultants who deal directly with unemployed people use her reports in picking training courses for individuals. "In our system, we can make supply and demand match," Ms. Thomsen says.

The true test is how the system deals with low-skilled, manual laborers in declining industries. The staff at Ms. Olsen's slaughterhouse in Hjørring, in Denmark's thinly populated far-north, tried hard to persuade the plant's owner, Danish Crown, to keep it open. They even released a protest song called "You Can't Slaughter Us," which made it onto national TV, and features 200 burly meatpackers in blue overalls singing en masse with a rock-band backing.

But Denmark's easy layoff rules meant the plant was doomed. Local workers cost the company more than $32 an hour. Rival German slaughterhouse labor costs only $16 an hour, while Polish workers cost only $6 an hour, according to Danish Crown. Even German slaughterhouses increasingly use migrant Polish meatpackers to keep their costs down. In recent years Danish Crown has opened two slaughterhouses in northern Germany, at which it employs teams of Poles.

Finding new work for the 500 laid off at Hjørring in the May 2005 shutdown was a double challenge. Most of the workers didn't want to leave their home town. Danes are very rooted people, says Jan Winther, Danish Crown's director of human resources: "If a new job is more than an hour away, Danes say it's too far." In addition, the meatpackers weren't qualified for new employment, says Jim Jensen, a negotiator for the Danish foodworkers' union NNF. "Slaughterhouse workers are not skilled, except that they can get up early and work hard," he says.

Danish Crown went beyond state requirements and paid shop steward Jorn Katballe to stay at Hjørring for a year and help his laid-off colleagues find new jobs. To Mr. Katballe, the task seemed huge at first. "People who've given 20 or 30 years and they've not learned anything else, it's difficult to get them out into the real world," he says.

Standing before the desolate single-story redbrick slaughterhouse, Mr. Katballe looks mournfully at the boarded-up gap in the wall where the pigs used to be brought in. "Normally, by this time in the morning, there were hundreds of people around," he says. He's still up at 5 a.m. each day himself by habit of his old job. "It's like a light in my head that goes 'ding,' " he says.

Despite Hjorring's spate of large-scale factory closures, new vacancies keep appearing in Denmark's flexible labor market. Working with the public-labor consultants, Mr. Katballe has been sending his ex-colleagues in ones and twos to new employers.

Where qualifications are lacking, the state pays for courses at vocational colleges, often sharing the cost with a new employer, and in a few cases even with help from the old employer, Danish Crown. The company invested $9,800 to pay for a one-year diploma in hairdressing for a female former employee. Hairdressing was not on public officials' list of job bottlenecks, but there was a vacancy in town.

In most cases the Public Employment Service was willing to pay for new qualifications because of the scale of the town's layoffs. Two of the former meatpackers, including Ms. Olsen, have ended up working at golf courses. Another became a carpenter. Several have gone to work in Denmark's large wind-energy industry. Two were trained as oil workers on North Sea platforms. Others have become gardeners, security guards, and even computer technicians

Finn Larsen, 46, is training to be a school teacher in math, physics, chemistry and sports. His former job was to slit pigs' throats with knives. "It was tough work on the slaughter line, but we had a good team spirit," Mr. Larsen says.

Even though he will be 49 when he qualifies as a teacher, the state agreed to pay for his books and other costs at Hjorring's teacher training college. The state is paying Mr. Larsen benefits of $2,400 a month for four years to help support his family while he retrains. Although there are no vacancies in Hjorring now, other teachers' retirement will create a shortage by 2009, according to labor officials' bottleneck analysis for the area.

Since becoming a meatpacker 12 years ago, Mr. Larsen has had little use for math, other than helping his two daughters with their homework. "Of course I am a bit rusty," he says. But Mr. Larsen is already being deployed in schools as a trainee teacher, recently teaching algebra to 14-year-olds for several weeks' work experience.

Ten months after the slaughterhouse closed, some 300 ex-workers have found new professions in addition to the 80 who got other jobs as meatpackers. Others from Hjørring are in full-time education, or chose retirement where close to the age of 60. Today, only 60 of the 500 laid-off workers from Hjørring are still on unemployment benefits.

Write to Marcus Walker at marcus.walker@wsj.com1

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