Introduction

At the beginning of the 21st century, Denmark ranks among the European countries that have recovered quite convincingly from the employment crisis. Around 1980, Denmark was described as balancing on the edge of the abyss, but 20 years later, it is sometimes held up as a ‘model country’ for a European third way in a globalised economy (Auer, 2000). Indeed the Danish experience has demonstrated that there are alternatives to the market-oriented reforms advocated by OECD (1994c, 1997b) and others. The Danish experience also seems to speak against the very idea of structural or a natural level of unemployment as a guide to policy – or at least against the estimation and interpretation of it. Until the mid-1990s, structural unemployment was normally estimated at around 10% (Finansministeriet, 1993, 1996, 1999; OECD, 1997a), indicating that nearly all unemployment was structural. From 1993 to 1998, however, the standardised unemployment rate declined rapidly from 9.6% to 4.9% (Chapter Two, Table 2.1 of this volume) without inflationary consequences. And the improvement has been stable – by mid-2002, the unemployment rate was 4.2%.

As this economic turn has happened concurrently with the adoption of new labour market policies, it would be tempting to suggest a relationship. However, whereas the Danish experience clearly seems to speak against the necessity of die-hard market oriented reforms, it is contested what exactly explains the improvements:

• • Active labour market policy (as emphasised by the Social Democratic government)?

• • Tightened eligibility criteria (equally important, according to the Ministry of Finance)?

• • Danish ‘flexicurity’ – the combination of liberal employment protection and generous protection of the unemployed (Madsen, 2002)?

• • Employment-friendly financing of welfare almost exclusively through general taxes, without social contributions (Scharpf, 2000)?

• • The switch to ‘sound’ economic policies (Goul Andersen, 2002c)?

• • Innovative technology (for example environmental technology), and organisation (modern corporate governance)?

• • Luck (Schwartz, 2000) – including quite significant oil revenues?

There are counter-arguments against most of these explanations. Individuallevel evaluations of activation effects have been rather negative (Larsen, 2002a), tightening has after all been quite moderate (see below) and the problem with explanations referring to ‘flexicurity’ or ‘employment-friendly financing’ is that these characteristics were also there during the crisis ten years earlier.