Flexicurity (a portmanteau of flexibility and security) is a welfare state model with a pro-active labour market policy. The model is a combination of easy hiring and firing (flexibility for employers) and high benefits for the unemployed (security for the employees). It was first implemented in Denmark by the social democratic Prime Minister Poul Nyrup Rasmussen in the 1990s.
The term refers to the combination of both labour market flexibility in a dynamic economy as well 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 concept developed in Denmark, where 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, following many years of economic underperformance compared to European Union counterparts and culminating in a sharp fall in the value of the Danish Krone and subsequent exit from the European Exchange Rate Mechanism, Danish policymakers and economists began to question Denmark's strong position as a traditional socialist state. They established a fiscal policy aimed at breaking the unemployment trend, 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 active LMPs. Activation in Denmark is regarded as “a right and an obligation”. The effects expected from this combination were twofold: qualification effects of the LMPs as well as motivational effects through the welfare schemes.
Denmark’s current low unemployment figures (2.8% in 2008) and its low social exclusion rates, coupled to output growth of over 3% have led the European Union to adopt flexicurity as its leitmotiv in its European Employment Strategy. In particular, Guideline No.21 of the Integrated Guidelines for Growth and Employment for the period 2005-2008 calls on Member States to “…promote flexibility combined with employment security and reduce labour market segmentation, having due regard to the role of the social partners”. Unlike the controversial youth labour laws proposed in France, this strategy does not discriminate against youth, but rather holds the same expectations for all Danes: an unemployed person is required to constantly seek employment or further education in order to receive full benefits. Flexicurity strategies have been implemented in other European countries, such as Finland and The Netherlands.
The high benefits and training provision that this system requires also require a higher burden of taxation upon the higher earning members of the society. Denmark currently has the highest total taxation of any country in the world.