Why Is Low Paid Work so Rare in Denmark?

As highlighted in the most recent version of the OECD Jobs Study, Denmark has recently managed to combine a very egalitarian distribution of wages and incomes with excellent employment and economic performance. The Danish “flexicurity” model gives the great majority of workers decent wages and working conditions, achieved though very high levels of unionization, very high unemployment benefits as a percentage of previous earnings, and widespread access to training and skills development over the life course. For their part, employers face few restrictions in terms of imposed job security or state regulation of the workplace, and benefit from ready access to a skilled workforce as well as a stable and generally co-operative labour relations regime.

Denmark stands at one pole of a continuum of labour market regimes or varieties of capitalism. It also figures as a particularly interesting case study in a major, comparative study of low wage work in advanced industrial countries which has been commissioned by the Russell Sage Foundation. The study examines five sectors in each of six countries. A synthesis volume will be published soon.  The recently published Danish volume is Niels Westergaard- Nielson  (Ed.) Low Wage Work in Denmark. Russell Sage Foundation. New York. 2008.)

The Danish study shows that a high ‘wage floor’ – set by collective bargaining – makes a real difference for workers in sectors that are low wage in other countries. Set at about $20 Canadian per hour (14 Euros per hour in 2005), the minimum wage floor negotiated centrally between employers and the unions means that the incidence of low wage work in Denmark is just 8.5% of the workforce  compared to 25% in the US and 22% in the UK. (Low wage work is defined as earning less than two-thirds of the national median wage, so the low incidence in Denmark means that those at the bottom of the wage ladder are much closer to the middle than in other countries.)

In all advanced industrial countries, there are strong downward pressures on wages on working conditions at the bottom of the job market since low skilled workers are easy to replace, and lack ready access to better employment alternatives. Some European countries choose to set a relatively high wage floor by statute or by collective bargaining. The Danes have chosen the latter route. Almost 90% (86%) of Danish workers are unionized, and, while unionization is lower in low wage sectors and a small group of low wage workers remains, the study shows that the centrally bargained wage minimum still generally prevails,

In two of the sectors which are studied – retail trade and house keeping work in hotels – the overall structure and functioning of the industry and the way in which work is organized do not seem to be radically different from in Canada or the US.  There is intense competition between large chains which increasingly dominate the sector, and employers seek to compete in part by “flexibly” hiring many part-timers on variable hours.

Danish unions are not especially strong in these sectors, particularly at the workplace level, but the wage floor is still generally maintained and working conditions and work schedules seem to compare extremely well with North American standards,  notwithstanding employer demands for increased flexibility. These jobs tend to be held by transient workers such as students, and many work in the sector for only short periods of time. One interesting facet of low wage work in Denmark is that it is rarely a continuing condition, with most low wage workers managing to find better jobs over time. The most notable exception are immigrants.

The retail sector study emphasizes that those people who seek a career in retail trade usually manage to acquire managerial jobs quite quickly, moving rapidly from sales associate, to assistant manager, to manager. Training for these job ladders is provided by large chains.

While the minimum wage floor is probably the key reason why there is such a low prevalence of low wage jobs in Denmark, there are also indications that work in what would be low wage sectors in a North American context is structured quite differently in such a way as to raise wages. As Robert Solow notes in his introduction to the volume,  raising productivity in low wage sectors can both improve the quality of jobs, and increase the output of the whole economy. Employers can, as in the US and Canada, follow a low road of using disposable low pay/low skill workers, or they can organize the work differently so at to improve productivity and pay while earning a similar rate of profit.

Two of the Danish case studies bear out this argument that decent wages can lead to higher productivity as well as better jobs

While a low wage industry in the US in the wake of a frontal attack on unions,  Denmark’s relatively large food processing sector has pursued a classic ‘high road’ strategy, raising productivity and producing high quality products by investing in new equipment, processes and worker skills. There has been a major shift from manual work to automation in meat processing and other sub sectors, with skills rising as a result. The workforce – which includes many recent immigrants – is highly unionized which helps sustain not just decent pay, but also safe working conditions. An industry focus on high quality as well as on high productivity has helped maintain strong national brands, and a large share of the domestic and European market.

In health care, low wage work has been virtually eliminated not just through high unionization, but also through a concerted strategy to raise worker skills at all levels and to create coherent and well-planned ladders to better jobs. Given shortages of very highly skilled workers, physician work has been shifted to nurses, from nurses to nursing assistants (two levels of which exist) and from nursing assistants to a new category of ancillary workers. At the lowest level of the job ladder, a category of “hospital service assistant” have jobs which combine cleaning and food preparation tasks with some tasks formerly performed by the the lower level of nursing assistants. They receive training in a range of tasks, and have the opportunity to train so as to take on more basic nursing assistant tasks.

Many of the workers who were previously employed in the lowest nursing assistant category have been re-trained to work at the level requiring higher skills. In short, a concerted attempt has been made to create job ladders so those at the bottom of the ladder can and do move up. As a result, very few workers remain at the bottom of the ladder. Such programs exist in a North American context, but they cover almost the entire Danish health care sector.

In summary, this set of studies shows that higher wages at the bottom can and do raise skills and productivity in such a way as to make a decent wage floor an economically viable proposition. Work in food processing and in ancillary health care seems to be organized quite differently in Denmark than in a North American context, with gains to workers and to productivity and efficiency. In retail and hotels, the differences in work organization do not seem to be especially marked, but workers certainly benefit from higher wages and better working conditions than exist in North America. The studies do not go into great detail, but higher wages at the bottom in these sectors are likely paid for by relatively lower wages for managers, and some combination of higher prices and lower profits compared to North America.