Security and labour market flexibility: an alternative view from Denmark

In the face of the economic and financial crisis, several European countries have
implemented a number of structural reforms to increase employment and the flexibility of the labour market, in particular by reducing employment protection in an effort to deregulate labour markets. Reform proponents believe that a reduction of the gap between the protection of regular and non-standard contracts will decrease the alleged disincentives to offer permanent contracts, which should then lead to an increase in open-ended employment contracts and, thereafter, to greater productivity and consequently higher employment. Conversely, reform opponents claim that this view builds on a misguided view of labour market dynamics. They do not believe that such reforms will lead to job growth, asserting that such reforms are as likely to reduce as to increase employment and that they will lead to growing inequality and labour market segmentation.
In Denmark, employee protection in terms of notice periods and dismissal compensation, which is mainly regulated by collective agreement, is among the lowest in the EU. Unemployment was, before the crisis, among the lowest in the EU but the crisis also negatively affected employment in Denmark. However, there have been no major moves to deregulate employment protection; probably because flexibility is already high in the so-called Danish flexicurity model and because much of employment protection is settled in the collective agreements.