Danish Labour Market Research Articles

Immigrant over-education: evidence from Denmark

Anecdotes abound in the Danish public debate about well-educated immigrants that are in jobs they are formally overqualified for. Using a 1995-2002 panel data set based on Danish registers, this study attempts to find out how large a problem immigrant overeducation is in the context of the Danish labor market. More specifically, three questions are posed: First, to what extent are immigrants overeducated and are they more likely to be so than native Danes? Second, why are some immigrants more likely to become overeducated than others? And finally, what are the consequences of overeducation for individual wages? The authors find that among wage earners with at least a vocational education or higher, 25 percent of male non-Western immigrants are overeducated. The same applies for 15 percent of native Danes. Particularly immigrants with a foreign-acquired education risk becoming overeducated - here the share is 30 percent among those with a vocational education or higher. The authors find that Danish labor market experience is extremely important in reducing the likelihood of becoming overeducated. Years spent in the country without accumulating labor market experience do not improve an individual's chances of an appropriate job-to-education match. In terms of earnings consequences, the study concludes that years of overeducation do increase wages for immigrants, but much less so than years of adequate education. This is also true for native Danes, but the relative penalty for overeducation is much larger for immigrants than for Danes.

Wage Dispersion and Decentralization of Wage Bargaining

This article studies how decentralization of wage bargaining from sector to firm level influences wage levels and wage dispersion. We use detailed panel data covering a period of decentralization in the Danish labor market. The decentralization process provides variation in the individual worker’s wage-setting system that facilitates identification of the effects of decentralization. We find a wage premium associated with firm-level bargaining relative to sector-level bargaining and that the return to skills is higher under the more decentralized wage-setting systems. Using quantile regression, we also find that wages are more dispersed under firm-level bargaining compared to more centralized wage-setting systems.

The Danish Apprenticeship System, 1931–2002: The Role of Subsidies and Institutions

This paper provides an overview of the evolution of the apprenticeship system in a country, which provides large-scale employer-provided training for new entrants on the labour market. The overview includes institutional traits of the Danish labour market which help sustain the system by alleviating failures in the market for training. Estimation results indicate a highly significant and substantial impact of the cost variable on the inflow of apprenticies. Employment subsidies thus appear at face value to be effective in furthering training. Subsidies to employ apprentices have been an important part of the Danish educational system since 1970ies. The results of the paper might be relevant in the assessment of the relative merits and costs of similar schemes in other contries. To the extent that cross-border comparisons are relevant in the evaluation of the relative merits of educational systems, there are very few countries to look at concerning full-scale apprenticeship systems. JEL Classification: J24, J31, I2

Wage Dispersion and Decentralization of Wage Bargaining

This paper studies how decentralization of wage bargaining from sector to firm level influences wage levels and wage dispersion. We use a detailed panel data set covering a period of decentralization in the Danish labor market. The decentralization process provides exogenous variation in the individual worker's wage-setting system that facilitates identification of the effects of decentralization. Consistent with predictions we find that wages are more dispersed under firm-level bargaining compared to more centralized wage-setting systems. However, the differences across wage-setting systems are reduced substantially when controlling for unobserved individual level heterogeneity.

The Effect of Receiving Supplementary UI Benefits on Unemployment Duration

We consider the consequences of working part-time on supplementary unemployment insurance benefits in the Danish labour market. Following the timing-of-events approach we estimate causal effects of subsidized part-time work on the hazard rate out of unemployment insurance benefit receipt. We find evidence of a negative lock-in effect and a positive post-treatment effect, both of which vary across individuals. The resulting net effect on the expected unemployment duration is positive for some groups (e.g. married women) and negative for others (e.g. young workers).

Differences in sickness absence in Sweden and Denmark: the cross national HAKNAK study

To investigate potential differences in sickness absence among public sector employees in Sweden and Denmark, and to what extent a difference was associated with age, gender, physical and psychosocial work environment exposures, lifestyle factors, self-rated health or work ability. In 2000, two cross-sectional samples of 8562 public sector employees in Sweden and Denmark were surveyed. The study outcome, self-reported number of sick-leave days the year preceding interview, was dichotomized into 7 days or less, and more than 7 days. Chi square test was used to analyse distribution of dependent and independent variables in the two sub-cohorts. Stratified logistic regression analysis was performed to identify causes for absence within the two sub-cohorts, and logistic regression analysis was performed to study differences in sickness absence levels between the two sub-cohorts. More subjects from the Swedish study population reported more than 7 days of sickness absence. Factors associated with sickness absence were largely similar in the two countries. The difference in absence level between Sweden and Denmark was not associated with differences in age, gender, skill level, lifestyle, psychosocial or physical work environment, musculoskeletal symptoms or self-rated health, whereas work ability score decreased the difference in sickness absence level. The results could indicate an increased retention of employees with health problems in the Swedish labour market compared with the Danish labour market. A possible explanation for the differences in sickness absence ascertained in this study could be due to differences in the sickness insurance legislation.

Competence and Commitment: Employer Size and Entrepreneurial Endurance

We develop and test a theory of entrepreneurial endurance, or the likelihood that an entrepreneur will continue an entrepreneurial venture from one period to the next. Conceptualizing entrepreneurial endurance as a function of the entrepreneur's competence in and commitment to the entrepreneurial role, we argue that both factors should be shaped by the entrepreneur's prior employment. We focus on the effects of employer size on the prospective entrepreneur, and argue that employer size has a negative effect on both entrepreneurial competence and commitment. This implies that entrepreneurs from small firms should have superior economic performance and, for a given level of performance, be less likely to exit entrepreneurship. We find support for these predictions in analyses of entrepreneurs in a unique dataset characterizing the Danish labor market.

Are You Experienced? Prior Experience and the Survival of New Organizations

This paper investigates the relationship between the level of pre‐entry experience of managers and founders, and the survival of their new firms. Using a comprehensive dataset covering the entire Danish labor market from 1980 to 2000, we are able to trace prior activities of all employees working in all Danish start‐ups with at least one employee. We examine whether spin‐offs from surviving parents, spin‐offs from exiting parents or other start‐ups are more likely to survive. Moreover, we investigate whether firms managed and founded by teams with higher levels of industry‐specific experience have a higher chance of surviving. We find that spin‐offs from a surviving parent and to a lesser degree industry‐specific experience positively affects the likelihood of survival. We also find that spin‐offs from a parent that exits are less likely to survive than either spin‐offs from surviving parents or other start‐ups.

Danish Labour Market Activation Policies

Under the heading of flexicurity, Danish labour market activation policies are receiving international attention because of their perceived ability both to curb unemployment and to boost employment. Indeed, the objectives, target groups and design of activation policy have undergone a remarkable transformation over the past fifteen years. From the initial curbing of unemployment among the insured unemployed through standard activation offers, the aim today is also to increase labour supply among non-economic active groups using individually tailored programmes. Danish activation policies thus embrace not only active labour market policies but also social and integration policies. Despite widespread popularity and belief in the positive effects of activation, little is actually known about its overall impact on the Danish economy.

Costs and benefits of Danish active labour market programmes

Since 1994, unemployed workers in the Danish labour market have participated in active labour market programmes on a large scale. This paper contributes with an assessment of costs and benefits of these programmes. Long-term treatment effects are estimated on a very detailed administrative dataset by propensity score matching. For the years 1995 – 2005 it is found that private job training programmes have substantial positive employment and earnings effects, but also public job training ends up with positive earnings effects. Classroom training does not significantly improve employment or earnings prospects in the long run. When the cost side is taken into account, private and public job training still come out with surplusses, while classroom training leads to a deficit.

Unemployment, Employment and Inactivity in Denmark: An Analysis of Event History Data

In this paper I estimate a discrete time hazard model for the exits from the different labour market states - unemployment, employment and inactivity (or OLF) - in the Danish labour market. I find that women and individuals over fifty are more likely to experience the long-term unemployment and inactivity. The less educated and unskilled workers are found to be another risk group to face the marginalisation from the labour market. Being previously employed reduces the risk of OLF, and increases the re-entry to employment probability, while living in the biggest Danish cities makes persons disadvantaged. These give the evidence that the Flexicurity model makes the weakest individuals disadvantaged in the Danish labour market. And finally, I find that those, who survived in a job one year, tend to remain employed, while persons, longer than one year inactive, face much higher risk of marginalisation.

Dynamic neo-corporatism - regulating work and welfare in Denmark

This article describes how the interaction between the state and the social partners in Denmark has developed in four welfare-related policy areas (pensions, activation, continuous training, and maternity/paternity leave) and to what extent the interaction has led to corporatist arrangements. It is argued, first, that corporatism continues to play a role in Danish labour market and welfare state regulation, mostly in the form of ad hoc agreements on policy formulation and permanent involvement in implementation within specific policy areas and, secondly, that the ‘grey zone’, where the division of responsibilities between state and social partners is unclear, has been extended. The state and the social partners therefore have to define a new division of responsibilities.

Duration of UI periods and the perceived threat effect from labour market programmes

In this paper, we study whether the prospect of compulsory programme participation motivates individuals to leave the unemployment insurance (UI) system prior to participation. In some systems, individuals may experience very different risks of enrolment even when they face identical formal rules. If individuals learn that programme enrolment does not deterministically follow regulations, estimated effects based solely on institutional regulations may be downward biased. This means that the true effect of potential enrolment may be underestimated. We analyse data from the Danish labour market which includes information on a series of reforms that have enforced programme participation in return for unemployment benefit entitlement. First, we find that unemployed individuals do indeed have different risk of compulsory enrolment even when regulations indicate that the risk should be identical. Second, we find that individuals do react strongly and significantly to the prospect of programme enrolment. However, since individuals experience different risks of programme enrolment, the resulting response observed in individuals' hazard out of unemployment is also different as the unemployment spell progresses.

A Reappraisal of the Virtues of Private Sector Employment Programmes

In this paper, we evaluate the employment effects of Danish active labour market programmes aimed at welfare benefit recipients. We estimate an econometric model with treatment effects and discrete outcomes and we allow the responses to treatment to vary among observationally identical persons. The empirical analysis is based on a register-based dataset that gives information on participation in labour market programmes and subsequent employment. Using a latent variable model, we estimate commonly defined treatment effects, and in particular, the distribution of treatment effects. We do not find any significant mean effects of participation in private sector employment programmes compared to participation in other programmes, but we find evidence of heterogeneity in the treatment effects.

Reversing the Trend from “Early” to “Late” Exit: Push, Pull and Jump Revisited in a Danish Context

Denmark is a low exit country in EU-25. As such, the Danish experience contradicts most wisdom in mainstream research on the causes of early exit/retirement. The Danish labour market is one of the most brutal vis-a-vis older workers in Europe, while the Danish early retirement schemes are among the most generous in Europe. For these reasons one should expect Denmark to be a high exit country. The contrary is true. With this background, it is argued that cultural and social–psychological factors play a far stronger role in shaping retirement patterns than we tend normally to assume. Accordingly, in recent years Denmark has employed cultural steering based on the voluntary participation of firms and other social partners in attempts to raise further the employment rate of older workers. Cultural steering has been supplemented by the introduction of “positive” incentives, that is, individuals and municipalities are rewarded economically if retirement is postponed.

Innovation in Tourism from a Welfare State Perspective

When ‘welfare’ and ‘tourism’ are mentioned together, paid holidays most often come to mind. Subsidised facilities for the less advantaged, can also be considered as core welfare ideology of the 20th century. From a broader perspective, however, welfare ideologies also have very complex indirect impacts on tourism. This paper addresses the influence of the welfare state, the impact welfare state interventions have had, and still have, and further implications in terms of product and service innovations. The Danish Labour Market Holiday Foundation has enforced innovations. Ever since it was established, the Foundation has set new standards in the Danish tourism sector. Its impact during the first phase included architectural and landscaping achievements, and it has helped in the development of new (edutainment) tourism attractions. The foundation was continually influential due to the rather plentiful resources, and because of close links with key actors in government, unions and employers' organisations. Co‐operation with commercial tourism was, however, limited. In recent years, the ideologies have been challenged dramatically. There is no longer such a good fit between the needs for accumulation and legitimation. Only an international approach to the idea of social tourism can re‐establish the formerly so favourable innovative trajectories.

The Importance of Institutional Regimes for Active Labour Market Policies — The Case of Denmark

The aim of this paper is to evaluate the Danish labour market policy as an example of ‘transitional labour market’ (TLM) and ‘flexicurity’ arrangements, and to assess what general lessons, if any, can be learnt from the Danish example. That is, it seeks to determine whether any implied and express conditions were prerequisites for its success. The article begins by taking a close look at the political history of the Danish labour market, with a brief description of Danish industrial relations and an assessment of its importance for labour market policy. This is followed by a brief historical overview of labour market policy developments. The argument is that policy design as such is not the linchpin -it is, rather, the institutionalisation of the implementation of policy (with a public framework for social dialogue on labour market policy) that is crucial.

Endogenous wage dispersion in a search-matching model

In this paper, we extend a job search-matching model with firm-specific investments in training, originally developed by Mortensen (Equilibrium Unemployment with Wage Posting: Burdett–Mortensen Meet Pissarides. In: Bunzel et al. (Eds.), Panel Data and Structural Labour Market Models, Amsterdam, North-Holland, 281–292), to allow for different offer arrival rates in employment and unemployment. The extension allows for extra flexibility when the model is confronted with real data. We subsequently estimate the parameters of the model on Danish labour market data using a structural nonparametric estimation procedure. We find that the model provides a good characterization of some empirical features of the labor market.

From Excess to Shortage - Recent Developments in the Danish Labour Market

The Danish labour market has undergone a remarkable change during the 1990s, with a reduction of the unemployment rate from about 12 per cent in 1993 to less than 6 per cent at the turn of the century. This reflects both a turn in the business cycle and also structural changes related to shifts in labour market policies. The focus of labour market policies has been changed from passive measures towards more active measures and there have also been important changes in the unemployment insurance system. This paper offers an overview of the developments in the Danish labour market during the 1990s, and reviews the major policy shifts, as well as possible explanations of the remarkable reduction in unemployment.

Danish Labor Market Policy: Is it Worth it?

Denmark has been quite successful in reducing unemployment. At the same time the costs of creating activation and other schemes have been very high. OECD judges that total costs are about 5% of GDP, which is the highest amount among OECD-countries. This paper presents a comprehensive description of the recent Danish labor market policies. The paper goes through all the different programs and shows that most of the measures introduced have increased the reservation wages of job seekers. The result was a sharp growth in the number of participants on a number of new programs for the unemployed and for those seeking alternatives to work. The total number of people on some sort of passive or active scheme rose until late in the 90's where admission to programs was restricted and a strong economic upswing created new demand for labor. A final analysis of the probability that an unemployed person becomes employed, based on individual transition data, shows that the new labor market policies introduced after 1993 did not increase the probability that an unemployed person would get a job. However, there is a positive effect in 1997 and 1998 coinciding with the attempts to tighten admission to labor programs.