Danish Model of Employment Relations - Case Study Example

DANISH MODEL OF EMPLOYMENT RELATIONS Student’s Name Course Tutor Institution Date Introduction The Danish model of employment relations is believed to be one of the best systems of industrial relation in Europe. It is quite unique owing to its perfect combination of security and flexibility in the regulation of the labor market. Although such a model is much adored, in the wake of globalisation, even the Danish model has not escaped labour pressure. The pressure is then believed to emanate from European Union regulation; from different parties at the commercial level and political system. The organized collective bargaining system that was much viewed as the perfect remedy to the escalating competitive pressure therefore appear to have reached its maximum and hence has to be replaced by a system that advocates or promotes multi-level regulation ( Traxler, 1995). A system of employment relations consist of a relationship between employees and employers that are perpetually managed by the means of cooperation and conflict. As shown by the Danish system, a sound labour relations system exhibits employees and management as well as their representatives on one side and the state or government on the other side. This is expected to create cooperative and harmonious as opposed to conflicts and therefore creates a viable environment that is appropriate to economic prosperity and the productivity, motivation and development of the human resource so as to generate employee mutual trust and loyalty. The main actors in the employment relations system According to Streeck (1992), social In any employment relations, there are three key parties that are directly involved in labour relations thus employers, employees and the state or the government. Employers have certain rights as far as labour ic concerned. They therefore have the powers to hire labour as well as firing them. Employers can also interfere with the interests of the employees by exercising their authority to close down, merge or even relocate the business premises. On the other hand workers or the employees should work hard to ensure improvement in the conditions and terms of employment. They are expected to be accorded a good share of decision making in the management of the organisation. This goes hand in hand with the exchange of views with the employers. More often than not as is a characteristic of civilised nations, employees generally form bargaining power unions against the employees so as to articulate their concerns and agitations. The final and main actor in the employment relations is the central government. It duly influences and also regulates labour relations through agreements, regulations and laws. At times it also encompasses labour, tribunal courts and third parties (Finegold & Soskice, 1988). The scope of Danish employment relations The concept of employment relations has diverse meanings and in not so wider sense, it relates to the employee-employer relationship and the day to day running of an organisation. In its wider perspective, labour relations encompasses the mutual relationship between an employer and employee in the daily running of an organization that may transgress to the areas of marketing, quality control, price fixation as well as profit disposition. Since the scope of labour relations is very wide, the key issues involved therefore include: Collective bargaining Machinery for settlement of labour disputes Standing orders Employees participation in management Unfair labor practices (Scheuer, 1999). Collective Bargaining National level bargaining provides a suitable platform for much of the Danish system of industrial relations. Conditions of work and pay are negotiated between unions’ officials and the employers at the level of the industries, although of late, complementary negotiations that take place at the company level are gaining popularity and significance. It is estimated that about 80 percent of the Danish workforce are effectively covered by collective bargaining. In Denmark, collective bargaining takes place within a well defined labour structure. At the apex of the negotiations are found the framework agreements between Danish employers' federation (DA) and the labour unions that set the necessary rules for issues of interest to the labour system. Such set up of rules are not common in other European countries as it is the work of labour laws to provide the appropriate direction for solving labour disputes. The single most vital agreement at this point is referred to as the general agreement. It covers the right to organise, rights on industrial disputes and dismissal. The cooperation agreement, which has undergone several revisions since it came into force, also got signed at the same level. Agreements that cover pay and condition that were mostly pegged to the national level in 60s and 70s are now executed at the level of individual firms. The agreements at the industry level also provide some room for further meaningful negotiations at the level of the company. As noted in the recent past in the country, this level of bargaining has tremendously grown in significance. A good example of the indication of the significance of negotiations at the company level is shown by the fact that just a paltry 17 percent of all private sector employees have their remuneration wholly set by negotiations at the industry level. In the Danish public sector domain, the key collective agreements are witnessed between employers on one hand and cartels of unions on the other side. Since the late 1990s, local bargaining has effectively gained popularity in the determination of the pay of public sector employees. This in effect shows that the collective bargaining coverage is generally high. A study carried out in 2010 using material from the statistical office of the country as well as the employers’ federation revealed that about 71 percent of the private sector employees and about 100 percent of the public sector employees were fully covered by collective bargaining in the year 2007. This therefore translates to an average coverage level of about 80 percent. Another factor that determines the outcome of the negotiations is the degree of intervention of the state conciliator, as appointed by the central government to assist in labour dispute resolution. Danish labour negotiations At national level, the key parties involved in the framework agreements that stipulate the obligations and rights of the employers and employees are the Danish employers' confederation DA and the labour organisation. At industrial level, collective agreements that deals with conditions and pay are generally reached between associations of employers and unions or even union cartels that are grouped together so as to effectively cover diverse industrial sector of the country. The negotiations at the company level are generally between the representatives of the trade union and management of companies. Agreements basically last for quite a number of years, for example, two years in the past and most recently for a period of three years (Lind, 2000). The employment relations negotiations As already pointed out, Danish labour negotiations cover a variety of issues that are dealt with by laws in other countries. It is also noted that since late 80s, industry level bargaining has covered a wide variety of issues such as increased flexibility in working hours, pensions so as to provide adequate negotiation platform for local agreements. For most people working in the private sector, only the minimum wage rates are under the jurisdiction of the industry level negotiations and due to that the actual earnings largely depend on the outcome of the negotiations both at the workplace and the company (Jørgensen, 2002; Rasmussen & Lind, 2003). A diagram of a Danish employment relations collective bargaining Danish system of industrial relations The origins of the Danish industrial relations system can be well traced back to the famous September compromise that took place in 1899. This was followed by a bitter struggle that was well referred to as the ‘Hundred days’ wars between the freshly formed employers’ association (DA) and the union confederation (LO). They were established in 1896 and 1898 respectively. The main aims of the two organizations included the need for union recognition and bargaining power centralization in the management of prerogative. After 1899, unions and employers put pressure on the central government to provide legal backing to the industrial court system referred to as Arbejdsretten. This was to include the systems of arbitration such the procedures of renegotiation of expiring agreements (Fajertag & Pochet, 2003). According to Wilkinson (2003), in the Danish system of labour arbitration, the early emergence of a strong players meant that most of the areas of working life are governed by collective bargaining. The main advantage of such a system is that it is viewed as more flexible compared to the legislation based one. The players in the collective labour market have the avenue of adjusting rules as needs be in relation to the demands as well as to the needs of local conditions and specific sectoral demands. The Danish model has been shown to combine a lot of elements that results in low unemployment levels. Crouch, Finegold, and Sako (1999) notes that the most striking one is the dynamic labour market where about one-third of the Danish workforce change jobs. This illustrates that there are quite a number of job openings. It also shows that there is highly flexibility of regulation of the labour market. Instead of adopting a well developed and an intrusive network of regulations that follows the labour laws, agreements based on collective decentralization between the social partners offers a leveled field for wage establishment, work conditions and scheduling at establishment level (Coates, 2000). The industrial structure of Denmark In quite a number of ways the strong economic performance of Denmark doubled by its high GDP is astonishing in the sense that its industrial set up is not overwhelmingly dominated by successful state of the art firms. According to Katzenstein (1985), it should be acknowledged that Denmark has clusters of small but successful firms and some big companies in high tech industries. Most importantly, the economic foundation of the country is based on small and medium enterprises (SMEs) that dominate the low and medium tech sectors. However, the ability to compete globally is due to the flexibility and adaptability of most of the Danish companies. This has been made possible due to the workforce capability and networking between companies that encompasses the labour unions (McLaughlin, 2006). As far as the capabilities of the workforce are concerned, the training and vocational education system is very crucial in the development of the labour market. A high rate of mobility of employees between firms, together with so many small companies, demonstrates that there are quite a number of disincentives in relation to training in the economy of the country. This has been amicably solved by the adoption of a coordinated approach in terms of training. This is an approach that has ensured that the country has one of the highest training levels per employee in the OECD (OECD, 2003; 2005). Even though training and vocational education system is mostly financed by the central government, the employers and unions also make their financial contributions thus forms one of the areas that is open to negotiations in the bargaining stages. Employers therefore make their contributions through a system referred to as levy-grant, in which funds are mostly used in compensating companies for the time when trainees attend vocational training (Crouch and Streeck, 1997). Further more, the inclusion of social partners provides a good ground for schemes of training certification to be encompassed in the bargaining systems, and hence for wages to have a close relationship with the results. While several similarities between the Danish system and the German system can be cited, one of the distinguishing factors is found in the relative levels of job security in the country. In the German situation redundancy is fundamentally a very expensive option as it is also viewed as an additional incentive for firm managers and owners to invest in workforce training during economic hardships. In Denmark, there have been no remarkable problems with redundancy as it is relatively easy. Job security has been perfectly replaced by income security characterised by unemployment insurance funds hence a major contributor to the high rate of movement of employees. Due to the high rate of mobility, there is need for a coordinated approach to labour training (Confederation of Danish Employers (DA), 2008). Related to the training system are found extensive mechanisms of coordination employers and unions. The coordination between the union and the employer is both bipartite and tripartite. Training councils and vocational education operates at various levels which bear a lot of impact in the policy of active labour market as well as issues related to employee training. Workers and employers actively participate at the local level by sitting on the management boards of institutions that offer vocational training so as to develop training programmes that can provide a good match with the required skills in the labour market as forwarded by Bosch and Charest (2006). In relation to cooperation and networking of firms, there is existence of extensive mechanism of industry and regional network in order to share some of the best industrial practices to help in solving industrial issues. Such initiatives are overwhelmingly aided by informal relationships and kept in motion by a high level of trust. One of the great results of such a network of high trust is witnessed in the development and diffusion of ideas and new technology that has over the years contributed to high productivity of the country’s companies. The diffusion process has also been facilitated by various arms of the government initiated industrial policy institutions and associations of employers (Rhodes, 1998; Due, Madsen & Jensen, 1997). Workplace representation Denmark has a system known as a single channel of workplace representation that primarily empowers trade unions by giving them the responsibility of adequate representation of employees at their work stations. In Denmark, the critical channels of representing employees at the level of workplace are the representation at workplace level is the Cooperation Committee and shop stewards. Such work councils or committees consist of the same number of representatives of management and employees. The representatives of employees and shop stewards are democratically elected. Other vital channels for representation of employees include Health and Safety Committee (Fulton, 2011). In relation to the public sector, the Cooperation Committees includes the health and safety system thus a one-tier system compared to a two-tier system with health and safety committees and cooperation committees as seen in the private sector. The co-determination and co-influence system is generally based on a structural agreement. Co-determination Committees president of the public sector is more often than not a municipality or county director and the assistant is the overall shop steward (Nielsen & Kesting, 2003). Conclusion The effectiveness of the Danish model of labour relations can only be subjected to the test of time. EIRO (2006) demonstrated that as there are signs of success of the model, so are for the weaknesses. Any outcome does not only have the national concern but also a lot of global relevance, since Denmark is viewed as the industrial model in the world. As a matter of interest and concern, the development of the Danish model is a barometer of the industrial relations of the future labour prospects. As mentioned by Thelen (2004), the Danish model has demonstrated that unchecked neo-liberalism and deregulation are not essential parts of a successful competitive strategy when it comes to small but open economies. Instead, it ideally illustrates the potential impact of social dialogue in consensus building as well as adaptation to dynamic economic conditions (Hall & Soskice, 2001). This is very essential in the parameters of coordination so as to deliver non-market goods that are vital for the construction of a high productivity and high wage economy. The puzzle of whether the Danish model can be replicated or exportable to other places still remains unknown. Denmark is a tiny country that is dominated by relatively high levels of trust between the social partners. Larger nations characterized by weaker employment market organizations and are fundamentally opposed to each other therefore brings to the fore different problems. Bibliography Bosch, G & Charest, J. 2006. ‘Vocational training systems in ten countries and the influence of the social partners’, in ‘Social Actors, Work Organization and New technologies in the 21st Century’, Proceedings of the IIRA 14th World Congress, p302. Coates, D. 2000. Models of Capitalism: Growth and Stagnation in the Modern Era,Cambridge, Polity Press. Confederation of Danish Employers (DA), Arbejdsmarkedsrapport 2008 [Labour market report 2008], Copenhagen, 2009. Crouch, C and Streeck, W. 1997. Political Economy of Modern Capitalism, London, Sage. Crouch, C, Finegold, D & Sako, M. 1999. Are Skills the Answer? The Political Economy of Skill Creation in Advanced Industrial Countries, Oxford, Oxford University Press. Due, J, Madsen, J. S. & Jensen, C, 1997. 'Major developments in Danish industrial relations since 1980', in M. Mesch (ed.) Social Partnership and Industrial Relations in Europe, Aldershot, Edward Elgar, pp.127-159. EIRO, 2006. 'Danish labour market model under pressure’, European Industrial Relations Observatory Online. F. Traxler. 1995. 'Farewell to labour market associations? Organized versus disorganized decentralization as a map for industrial relations', in C. Crouch and F. Traxler (eds.) Organised Industrial Relations in Europe: What Future? Aldershot, Avebury, pp.3-19. F. Wilkinson, F. 2003. 'Productive systems and the structuring role of economic and social theories', in B. Burchell, S. Deakin, J. Michie and J. Rubery (eds.) Systems of Production: Markets, Organisations and Performance, London, Routledge, 2003, pp.10- 39. Fajertag, G & Pochet, P. 2003. Social Pacts in Europe: New Dynamics, Brussels, ETUI, 2000; M. Regini 'Tripartite concertation and varieties of capitalism', EJIR, vol. 9(3), pp. 251- 263; Finegold, D & Soskice,D. 1988. 'The failure of training in Britain: Analysis and prescription', Oxford Review of Economic Policy, vol. 4(3), pp. 21-53. Fulton, L 2011. Worker representation in Europe. Labour Research Department and ETUI (online publication). Hall, P & Soskice, D. 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford, Oxford University Press. Jørgensen, H. 2002. Consensus, Cooperation and Conflict: The Policy Making Process in Denmark, Cheltenham, Edward Elgar. Katzenstein, P. 1985. Small States in World Markets: Industrial Policy in Europe, Ithaca, Cornell University Press. Lind, J. 2000. 'Recent issues on the social pact in Denmark', in G. Fajertag and P. Pochet (eds.) Social Pacts in Europe: New Dynamics, Brussels, ETUI, pp.135-160. McLaughlin, C. 2006. ‘Achieving efficiency with equity: A labour market analysis of Denmark, Ireland and New Zealand’, Unpublished Doctoral Thesis, The University ofCambridge. Nielsen, K & Kesting, S, 2003 ‘Small is resilient – the impact of globalisation on Denmark’, Review of Social Economy, vol. LXI (3), pp. 365-387. OECD, 2003. Employment Outlook, Paris, OECD. OECD, Economic Outlook, Paris, OECD, 2005. Rasmussen, E & Lind, J, 2003. 'Productive employment relationships: European experiences', NZJIR, vol. 28(2). Rhodes, M (1998). Globalization, labour markets and welfare states:A future of 'competitive Corporatism'?' in M. Rhodes and Y. Meny (eds.) The Future of European Welfare: A New Social Contract? Basingstoke, Macmillan, pp.178-203. Scheuer, S., 1999. ‘The impact of collective agreements on working time in Denmark’, British Journal of Industrial Relations, No. 3, pp. 465–481. Streeck, W. 1992. Social Institutions and Economic Performance: Studies of Industrial Relations in Advanced Capitalist Economies, London, Sage. Thelen, K. 2004. How Institutions Evolve: The Political Economy of Skills in Germany, Britain, The United States, and Japan, Cambridge, Cambridge University Press, pp. 5, 9-10. Read More