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Low-Wage Work in Denmark

Low-Wage Work in Denmark

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n Low-Wage Work in Denmark, a team of Danish researchers combines comprehensive national registry data with detailed case studies of five industries to explore why low-end jobs are so different in Denmark. Read the full book: http://bit.ly/vmiAL5
n Low-Wage Work in Denmark, a team of Danish researchers combines comprehensive national registry data with detailed case studies of five industries to explore why low-end jobs are so different in Denmark. Read the full book: http://bit.ly/vmiAL5

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Published by: Russell Sage Foundation on Nov 07, 2011
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CHAPTER 1
Low-Wage Work in Denmark 
Niels Westergaard-Nielsen 
T
his book attempts to describe the functioning of the Danish labormarket mainly from the perspective of a low-wage earner. In de-scribing conditions for low-wage workers in Denmark, the contribu-tors to this volume focus especially on labor market institutions.There are many differences between being a low-wage worker inDenmark and a low-wage worker in the United States. The low-wagelevel in Denmark is measured in this book at and below two-thirds of the median earnings, which by coincidence is just at the level of themedian hourly earnings in the United States. If we adjust for lowerpurchasing power in Denmark, the Danish low-wage threshold is of course reduced. The main reason for this equality is that the wagedistribution in Denmark is much more compressed than in theUnited States, which means that the difference between being in thelowest earnings decile and being in the highest is much smaller inDenmark. There are other important differences between Denmarkand the United States: all Danish low-wage earners are covered byhealth insurance, and the effective marginal tax even for low-wageincome earners is about 44 percent. In the United States, low-wageearners do not pay federal tax, and they often receive an income sub-sidy when they have a family to support, the Earned Income TaxCredit (EITC). In Denmark, there is a small tax deduction that worksin the same way; in addition, most public services are free of chargebecause they are paid out of the public budget and financed by hightaxes. Most importantly, education and health care are almost alwaysfree in Denmark.Although the wages of low-wage Danish workers are high com-pared to the median wage in the United States, the average Americanstill earns more than the average Dane because he or she workslonger hours—on average about one-fifth more. Danes work a littleless than the average European, and in Europe only Germans work
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fewer hours. The low number of hours worked in Denmark is a resultof gradual reductions of weekly hours and increases in vacation time.Moreover, Danes tend to retire later than the average European butearlier than the average American. However, the number of workinghours for each Danish household is higher than in most Europeancountries because of the high female labor force participation rate.The first two chapters of the book describe Danish institutions andhow they influence the conditions in Denmark’s labor market. Thisfirst chapter introduces the themes we cover, and the next chaptergoes into more detail about Danish institutions and legislation andtheir effect on outcomes for low-wage workers. These first two chap-ters are based on public statistics and government register–based sta-tistics on individuals. The remaining chapters in the book are basedon interviews with workers in selected industries that in other coun-tries are known for employing many low-wage workers: the food in-dustry, the retail sector, hotels, hospitals, and call centers.
LOW-WAGE WORK IN THE DANISHCONTEXT 
Low-wage work has long been a central issue in Danish welfare poli-cies at different levels. Trade unions, political parties, and a long suc-cession of governments have contributed to the debate over this issuein different ways. The generally accepted policy has been to let the la-bor market pay the salaries that can be justified from the value of pro-duction while the government provides social assistance and makesother welfare transfers to people who cannot support themselves byworking. Maintaining this welfare system has over time become ahigh-priority issue for most political parties, with the result that to-day no Danish political party is making serious attempts to limit wel-fare policies. The trade unions have been key advocates for low-wageworkers; for many rounds of central bargaining, the unions’ goal wasto push up the lowest wages, in particular the wages of women. Re-lated efforts were the introduction of a minimum tariff (wage) andthe adoption of an equal pay act for men and women.In the following, we take an introductory tour through the institu-tions that are important for low-wage Danish workers. More thor-oughly documented in chapter 2, these institutions play importantroles in the case reports in subsequent chapters.
Low-Wage Work in Denmark 
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BACKGROUND
Denmark has a long tradition through its welfare policies of support-ing those who cannot make a decent living in the market. Thus, con-ditions for low-wage earners and the provision of income transfersthrough welfare policies aimed at them are closely related in Den-mark. Before the end of the nineteenth century, the state was subsi-dizing old-age pensions at a low level and also subsidizing the sick-ness insurance systems that prevailed at the time.The first public old-age pension was based on an applicant’s need,which was evaluated by the authorities, but anyone over the age of sixty-five could apply, regardless of previous work experience andcontributions. Finally, in 1957, everyone over the age of sixty-sevenwas granted the right to a minimum pension irrespective of theirprior income or the income they might have been receiving alongwith the pension. The minimum pension could be supplementedwith means-tested extra benefits related, for example, to health,housing and heating, and that system is close to what is still in placetoday.Sickness insurance and unemployment insurance were originallyorganized as private insurance based on guild membership, so priorto the twentieth century it was available only to the few and mainlyto high-wage workers. Sickness insurance specifically for the poorand mandatory work accident insurance was introduced before theturn of the century. In 1907 a law creating an unemployment insur-ance (UI) system was passed in the Parliament. The law included astate subsidy and provided for a substantial trade union influence onthe management of UI funds. Indeed, because management of the UIfunds was based on the old privately organized system, a strong rela-tionship was maintained between the trade unions and the public UIsystem. Unemployment insurance has remained more or less thesame over the years, with only two major changes: sickness insur-ance has been taken over by the state, and in the late 1960s daily paywas increased to a maximum of 90 percent of an individual’s previoussalary, though a relatively low upper absolute ceiling was also estab-lished. These benefit amounts have since been regulated according toeither a wage index or the consumer price index. All benefit pay-ments are now also subject to taxation.For low-wage workers, this system has resulted in a relatively highreplacement ratio in the event of unemployment or sickness.
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Low-Wage Work in Denmark 

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