Employment strategies for Europe: lessons from Denmark and the Netherlands

Abstract

Labour market reform has become a central policy issue for many European countries, and there are lessons to learn for the further development of the New Deal in the UK. We discuss reforms in Denmark and the Netherlands, and look at their implication for employment and earnings. The Dutch started a sequence of reforms in the early 1980s based around wage moderation. Real wages per person hour rose less rapidly than elsewhere in Europe, and employment rose more strongly. Other reforms made the labour market more flexible, and many part-time jobs were created. The Dutch can claim to have succeeded in improving their labour market preformance. The Danes started serious reforms in the 1990s, and individuals on social benefits have a right and a duty to be activated. Registered unemployment has fallen sharply as a result of these New Deal style policies, but only some of these individuals have moved into employment. Increased flexibility, moderate real wage growth and active support for job-seekers all seem to help reduce unemployment and raise employment. Evidence from Denmark and the Netherlands suggests that making work relatively more rewarding helps to reduce inactivity and unemployment.