As its name suggests, the active apparatus of social protection by the state primarily operates by facilitating the entry into the labour market for the unemployed and those out of the labour force. The social democrats have expanded the active apparatus primarily through introduction of new active labour market programs (ALMPs) as well as increases in the volume, scope, and financial resources for these programs. Although diverse in design, mechanism, and target population, ALMPs do share the common characteristic of making an offer to the unemployed, which could range from a temporary training scheme, education opportunity or job apprenticeship to direct placement in new jobs created in the public sector or subsidized in the private sector. In addition, all ALMPs to different extents couple the offer of activation with an obligation on the unemployed to respond actively, ranging from showing up for interviews with labour market officers or demonstrating job searching activities to compulsory acceptance of job or training placements. Apart from the ALMPs, two other important types of active measures are often used as supplements: in-work incentives and flexicurity measures. Both types offer a passage into the labour market more indirectly. On the one hand, unlike the ALMPs, they don’t directly create the physical and
hand, were this interaction to occur, they should increase its financial returns, or decrease its family-related personal costs, for the working individuals. Measures serving these purposes are in-work incentives, which can encompass not only tax credits, minimum wages, reductions in social security contributions, but also the provision of adequate childcare places or individualization in taxation or benefit payment. Alternatively, some supplementary labour market measures can also increase the possibility of interaction between the labour market and individuals, especially for those individuals who cannot work in a normal condition or on regular schedules, by making necessary adjustments to the operational routine of the labour market. For those atypical workers who enter the labour market, their job security is protected, and for those temporarily excluded from the labour market, they are offered protection through the social security system. Measures serving these purposes can be called labour market flexicurity measures, a combination of flexibility and security. Regardless of whether it is ALMPs, in-work incentives or flexicurity measures, as part of the active apparatus all these policies have undergone expansion during third way activation reforms under social democratic governments. Although active and passive measures are treated separately in the book for the purposes of clearer focus, it is important to bear in mind that social democratic expansion of the active apparatus, especially ALMPs, is intrinsically linked to corresponding changes to the passive apparatus of social protection. Very often, an offer of ALMP to the unemployed remunerates the individuals for their participation in the form of increased welfare benefits; meanwhile, increasingly the conditionality of participation in activation offers is attached to entitlement to benefits.
Among the various components of the active apparatus, the ALMPs are, not surprisingly, not only the most dominant one in terms of policy volume and financial commitment, they are also the most theoretically interesting and innovative one in terms of activation strategies. This is not only because ALMPs often involve direct increases in public expenditure as the source of financing, but also because they directly offer a passage into the labour market. The ALMPs bring the labour market next to the door of the unemployed, saving them the often impossibly difficult task of reaching out on their own in search of the labour market. In addition, the making of an activation offer by the state creates the first substantial opportunity for policy makers to explicitly combine rights and duties to work and fine-tune the balance between the two, not only in actual policy implementation, but also in deeper programmatic philosophy. Therefore, it is usually in the evolutionary process of the ALMPs that social democrats reveal the most explicit evidence of philosophical or ideological shift from income replacement to income regain. In other words, the active apparatus, and the ALMPs in particular, is the place where a shift of paradigm, were it to occur, is most likely to be observed. For this reason, not only does this chapter devote a considerable amount of attention to the comparative examination of the active apparatus as policies, it also surveys, at the beginning of each country case, important shifts in overall policy paradigm, especially around the period of major power shift in government, in order to see if politics really matters in third way reforms.
As is the case with every other aspect of third way reforms, within each welfare regime type there are trendsetters who made the greatest expansion in their active apparatus, as well as laggards who made limited changes. For each regime type, we start with the
trendsetters as they are where the action is, and then the laggards are introduced as well. Similarly, for different social democratic governments, there were different emphases on which part of the active apparatus was deployed most. For this reason, this chapter also focuses on the part of the active apparatus where the greatest change has been detected, and then introduces the other parts where changes are comparatively more limited. Since the comparative focus is on the period since the early 1980s, it is important to recognize at the outset that trendsetters as well as laggards are therefore relative to this period only. Over a longer time span, what looked like a laggard by the late 1990s might be the hidden trendsetter of all. Where this shift of perspective is necessary, it will be addressed in the case studies, which now start with the Nordic welfare regimes.
The relativity in the concept of trendsetter versus laggard gets its most thorough representation in the Nordic welfare states. Since the early 1990s, the Danish social democrats have very much been the leader in its expansion in ALMPs, whereas the Swedish social democrats, while retaining their high level of ALMP expenditure, by comparison took fewer initiatives in further expansion. However, even after a decade of Danish activism, Sweden still commits more public expenditure to ALMPs than any other country in the world, as it has been doing for several decades. With this perspective in mind, we can now turn the focus to the reform experience of the third way pioneer since the 1990s, the Danish social democrats.
Denmark
Shift of Paradigm through the Shift of Power
Like most other countries which have carried out significant third way reforms, Denmark’s shift to successful labour market activation has gone through each of the three orders of changes identified by Hall (1993), ranging from minimal changes in policy setting, through limited changes in policy instruments, to fundamental changes in policy goals. During the period of bourgeois government between 1982 and 1993, there were few signs of fundamental changes towards labour market activation in policy principle, and active labour market measures remained limited in practice. The bourgeois parties were largely successful in steering the direction of economic policy from a primarily demand side strategy to one based on supply side measures. However, in terms of the social security system, the centre- right impulse to cut social expenditure or introduce private market into the delivery of services completely failed to materialize. Throughout its tenure, the bourgeois government reacted to the escalating unemployment situation by further reducing the supply of the labour force in order to alleviate the pressure on the labour market. There was only very limited retrenchment to the social security system within the overall framework of continuing generosity in social protection for those not in employment. Overall, between 1982 and 1993 the bourgeois parties slowed down the speed of expansion in the social security system and rationalized the provision of social services to a limited extent, but simultaneously they also
of the bourgeois rule, the trend in Danish social security generosity continued to be steady improvement, although at a reduced speed compared with the previous social democratic era (Torfing 1999: 14; Torfing 2001: 299 Cox 1998: 11; Goul Andersen 2000: 73-75). Throughout the bourgeois period, the Danish expenditure on labour market programs remained highest in Western Europe, but most of that expenditure was on passive measures, especially the very generous unemployment benefits, which were paid to all insured wage earners, at a level of 90 per cent of the previous wage and up to 16,000 Kroner a year, for up to seven years. Reflecting a kind of “ultimate universalism”, by the early 1990s the Danish unemployment system had become very much like a basic income system, whose overall purpose became the maintenance of the unemployed in a non-stigmatizing unemployment benefit structure. During the bourgeois period the only significant ALMP was a program which provided job offers and training support, specifically for those unemployed who were planning to start self-employment (Cox 1998: 11-12; Torfing 2001: 302; Loftager and Madsen 1997: 124; Goul Andersen 2002: 151, 154).
While efforts to activate the labour market stalled under the bourgeois parties, gradual evolution of policy beliefs was taking place among the social democrats in opposition. During the 1970s and most of the 1980s, the social and labour market policies of the social democrats were based on the traditional notion of social rights: the main aim of the party in government was to maintain people as full citizens, regardless of their labour market status. If people are unemployed, the primary task of the government would then be to maintain them in the benefit system, by avoiding the stigmatization associated with social assistance, and by maintaining equal social rights for those with and without work. Gradually into the
late 1980s and early 1990, against a background of escalating fiscal and unemployment difficulties, the policy framework of the Danish social democrats began to shift, corresponding with the developments in the Danish economy and social security system at that time. Most significantly, there was growing recognition by Danish policy makers of the structural nature of the unemployment problems plaguing the country since the late 1970s. Because of growing mismatch between the growth in wages and productivity, the main options for the Danish social democrats became either lower wage and unemployment benefit levels or stronger incentives to work (Goul Andersen 2002b: 66-67). For a labour movement, this choice was not particularly difficult to make, given that the securing of decent wages for its members was more or less its main raison d’être. Therefore, the Danish labour movement avoided lower minimum wages as well as unemployment benefits by accepting stronger incentives, either negative (obligations) or positive (rights), to work. Under the social democrats, active labour market instruments were to be deployed in order to improve skills and qualifications, so that differences in employability can be reduced to a level compatible with the traditionally small wage dispersion delivered through Danish incomes policy. This characteristically strong emphasis on skills in the social democratic activation outline can also be explained by the small and open nature of the Danish economy dominated by small businesses. For these kinds of economies, upgrading of skills and qualifications is particularly important in surviving external competition (Torfing 1999: 17- 19). The gradual maturation of this new employment-centred policy outlook became substantively meaningful as the social democrats were returned to government in 1993.
On the actual policy level, the shift of paradigm first materialized in 1994, when the social democrats in government unveiled its ambitious three-phase labour market reform, which lasted until the end of the 1990s. All citizens were now expected to work or risk falling into poverty, and at the same time, state officials were correspondingly expected to be more interventionist in dealing with their clients. The new social democratic government made the first formal step in switching policy emphasis from retrenchment and reduction in labour force to restructuring the labour market, and from a policy of “welfare without work” to “work for welfare”. In a contrast to the past bourgeois practice of clearing the labour market and reducing labour supply, since 1994 the social democrats had set as its goal the increasing of labour supply by some 4 per cent over the next decade. From a virtually basic income system, the reforms under the social democrats have pushed Denmark to the level of Sweden in terms of the requirements on the duty to work. (Cox 1998: 11-12; Torfing 2001: 302; Benner and Vad 2000: 458; Goul Andersen 2002: 156). Although the duration of unemployment replacement remains higher in Denmark than in Sweden, the pressure to work as a result of strengthening ALMPs has significantly contributed to the active profile of social and labour market reforms under the Danish social democrats. Up to the early 1990s Denmark’s high expenditure on labour market measures was still completely dominated by passive measures, but since the labour market reform in 1994, passive expenditure has decreased while active expenditure kept growing rapidly. As a result, after almost ten years of reform under the social democrats, Denmark has one of the highest expenditures in active as well as passive measures in Europe, second only to Sweden. Whereas in the 1980s Denmark was relatively passive in social and labour market policy profile when compared
with other Nordic welfare states, a decade of social democratic reforms in the 1990s has made the country a front runner in labour market activation, almost on a par with Sweden (Madsen 2003: 77; Dahl et al. 2002: 14; Hespanha and Moller 2001: 57).
Changes in ALMPs
In Denmark, the very first tentative attempt to formally link rights and duties to labour market activation can be traced back to 1990, when the then bourgeois government introduced a Youth Allowances Scheme. Primarily targeted at those unemployed younger than 24 years of age, this scheme required social assistance recipients to participate in activation in order to be eligible for benefits (Rosdahl and Weise 2001: 160). However, this measure was very much the exception rather than the norm, and labour market policy in Denmark continued to be dominated by labour-force-reducing and other passive measures, until the labour market reform of 1994.
With the 1994 reform, for the unemployed individual there was now both a very explicit obligation to participate in ALMPs and the right to do so in an individualized plan drawn up between the individual and the local labour market office. Up till the early 1990s, the traditional Danish social security system offered members of the unemployment funds the privilege to receive benefits as right when unemployed, with the only condition being that they are available to the labour market on normal conditions. There was a very narrow interpretation of labour market mobility with regard to both skills and geography, and normal conditions in the context referred to the same conditions which apply for every one else on the labour market (Hespanha and Moller 2001: 58; Loftager 1998: 14). Since 1994, the
unemployed individual has to accept ALMP offers not on normal conditions but on conditions decided by the labour market authority, which can potentially imply not only lower wages and but also limit to rights previously available in a normal working contract, such as the right to wage negotiations, holidays, unemployment insurance or membership of a trade union. As well as enforcing the obligation on the unemployed, the new activation line also emphasized the responsibility of both the state and private enterprises in providing sufficient ALMP job opportunities for the unemployed (Ploug 1999: 96-98; Rosdahl and Weise 2001: 160; Loftager 1998: 14).
During the 1994 reform, the social democrats severed the connection between job training and the unemployment benefit system, so that participation in ALMPs would no longer give entitlement to unemployment benefits if the individual comes out of the training period still unemployed. This move finally reversed a long trend started under the social democrats themselves in 1979, when the party in government introduced a Job-Offer-Scheme. With the Job-Offer-Scheme, a job of at least seven months was guaranteed to all long-term unemployed. However, because of insufficient job demand in both the public and the private sector, people who were offered a temporary job were rushed out of it right after seven months in order to make way for the next eligible long-term unemployed. By the 1980s, this recycling trend had intensified, as the unemployed in general were entitled to unemployment benefit for three years, including six months of participation in a job training program, which in turn led to the entitlement for three new years of benefits. Now, the government’s reform in 1994 once and for all ended this practice of recycling the unemployed through the benefit system and ALMPs (Kvist 2000: 21; Kildal 2001: 7; Abrahamson and Oorschot 2002: 8).
Under the social democrats, the duration of unemployment benefit was split into one passive period followed by one active period. During the passive period the state offers individualized counseling to the unemployed to help them draw up an individual action plan about participation in ALMPs and reintegration into the labour market. During this phase the unemployed have a lot of discretion in choosing the preferred activation methods from the available options, and one crucial stated objective of these plans is to achieve an appropriate balance between the wishes of the individuals and the local market demands. During the active period which follows, the state is obliged to make ALMP offers based on the action plan drawn up during the passive period, and correspondingly the unemployed individuals are obliged to accept these offers. The ALMP offers from the state can encompass a very wide range of activities including specialized individual job training, pool jobs, job rotation, leave schemes, as well as training or education in the ordinary education system (Madsen 2003: 75; Bjorklund 2000: 155-156; Etherington 1998: 153-154; Dahl et al. 2002: 21; Dingeldey and Linke-Sonderegger 2004: 13). Just as the total duration of unemployment benefit was being reduced, the passive component of the benefit duration was also gradually crowded out by the active component. In 1995 the active period kicked in after four years of benefit, but by 1996 the lag was reduced to only two years and by 1999 to one, and the active period must involve activation for at least 75 per cent of the time. The reduction in the passive period was extremely steep for the young, already down to six months by 1996. For social assistance recipients, on the other hand, as of January 1994 they were required to be activated after only one year on social assistance. With these reforms, Denmark was well on
its way to implement by the end of 2000 the European Union employment guidelines calling for early activation for both young and adult unemployed persons.