Friday, 24 April 2009

Protect the worker, not the job

Jonathan Hopkin has a couple of good posts on job security, welfare, and the labour market here and here. He discusses the Danish solution to the problem that:
  • Countries with flexible labour markets tend to grow faster, but
  • Flexible labour markets produce large amounts of individual unhappiness when jobs are lost. They also tend to result in discrimination against some classes of worker, such as the over 50s.
The slogan of the Danish solution is the title of this post: protect the worker, not the job. That is, Denmark combines labour market flexibility - easy hiring and firing, with relatively little job protection - with relatively lavish welfare systems, education opportunities, and state pensions. It sounds like the best of both worlds - Italian fashion and Swiss trains in the terms of yesterday's post - but as Hopkin points out (and I elaborate) there are some things that you need to make it work. These include:
  • An open, meritocractic job market, supported by strong anti-discrimination legislation (rather than in Hopkin's delightful jargon, the political-clientelistic system of much of Southern Europe);
  • An extensive network of out-placement and other job seeker's services, and in particular a good adult education and retraining system;
  • Generous unemployment benefits;
  • Portable pensions and other work benefits which encourage a portfolio approach to careers rather than a job for life culture;
  • Infrastructure which supports workers, like a good transport system, readily available child care, and good public health care;
  • High levels of social trust so that the unemployed are genuinely job seekers.
In other words, you can't just say let's be like Denmark without doing a lot of politico-social systems engineering to make that possible. I very much doubt that however much Italy, say, wanted to emulate Danish success, they could (and of course the success of the ultimate political-clientelist, Berlusconi, suggests strongly that Italy does not want to do that).
Thinking that you can just change employment conditions and automatically get a Danish style success is the same class of error as the UK made in imposing student loans, or many countries are making with self select pensions. Even if rationally the policy solution makes sense, without education, culture and support systems around it to explain how to use it, the policy may well fail. Thus borrowing on a student loan may well be rational, but in the context of a (prudent) culture of avoiding debt, and perhaps a sense that university is not for the likes of us, the imposition of loans leads to higher education becoming a middle class ghetto. Similarly making people responsible for their retirement might be good classical economics, but how many of them have the financial education to make sensible choices?

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