The United States is the quintessential example of an economy of the latter kind, as its employees do not enjoy any extensive income or welfare protection. The extraordinary flexibility of the American labor market stems from a combination of factors. First and foremost, American legislation greatly simplifies the dismissal process: Accepted legal doctrine holds that an employer can fire a worker at any time and for any reason, so long as there is no contract between the parties that explicitly prevents him from doing so.³⁰ Second, American legislation does not require the employer to provide a dismissed employee with severance pay, unless compensation of this kind is included in a written agreement between employer and employee.³¹ Third, the practice of tenure is uncommon in the American labor market, and the average seniority of the American worker is significantly lower than that of his European counterpart.³²

Furthermore, in order to encourage people to work, eligibility for unemployment payments in the United States is limited to twenty-six weeks. In addition, in order to receive them, an unemployed worker needs to meet several requirements: He must, for example, demonstrate that he was not responsible for his dismissal and that he is actively seeking employment. The guidelines for this program are set by the United States Department of Labor and limit the term of eligibility, which different states may shorten but not lengthen. Like the practice in other countries, including Israel, unemployment benefits are not uniform. The actual sum is calculated according to the applicant’s salary during the fifty-two weeks prior to filing the request and according to the number of quarters of the business year during which he was fully employed. In this manner, if a worker’s income was low in the time period prior to his dismissal, he discovers that the safety net offered by unemployment benefits is not sufficiently generous to replace, even temporarily, a salary earned on the job—motivation enough to find new employment quickly.³³

These practices are largely responsible for the high turnover rate in the American economy, and they are the main cause of the sizable gap between the unemployment rate in the United States, which has fluctuated between 5 and 6 percent over the past few years, and the much higher rates characteristic of European economies.³⁴ In 1992, following decades during which the European countries suffered from an average unemployment rate of 10 percent, the OECD initiated a comprehensive study to investigate the causes of this problem and suggest ways to alleviate it. The study’s findings, published two years later, received widespread attention. The report found that unemployment in Europe was a structural phenomenon stemming from difficulties in adapting to globalization. In addition to reforms in the education and welfare systems, its authors recommended restricting the scope of collective agreements and decreasing the level of job protection in order to expand the ability of the labor market to absorb new workers.³⁵

Despite the fact that in recent years European countries have implemented a series of measures designed to reduce unemployment on the continent, the job security reforms that were implemented were only partial and somewhat indecisive. They tended to focus on increasing the availability of part-time and temporary employment opportunities while leaving standard employment arrangements unaltered. The reason for this, at least in some cases, was a general fear of union reaction. An excellent example of this problem is France’s failed attempt to reduce its unemployment level—which in 2006 stood at 23 percent among youths under the age of twenty-five—through the relaxation of some protections against dismissal.³⁶ Early in the same year, French prime minister Dominique de Villepin proposed legislation that would create a new form of association between employer and employee. Called the First Employment Contract, the law allowed employers to hire workers under the age of twenty-six for a two-year trial period during which they would be permitted to dismiss them without having to justify their actions or pay high severance costs. The public outcry against the initiative was dramatic. A coalition of trade unions, leftist organizations, and students protested the law through mass civil disobedience, bringing over a million protesters into the streets. The intense pressure created by the demonstrations had its desired effect: On April 10, 2006, French president Jacques Chirac retracted the law and announced that it would be replaced with “other measures.”³⁷

Several European countries, however, most notably Denmark, have more effectively tackled the problem of an inflexible labor market. Like other welfare states on the continent, Denmark also experienced an extended period of economic hardship, but it has managed to overcome this challenge with astounding success. The testimony of the man who was largely responsible for this accomplishment, former prime minister Paul Nyrup Rasmussen, speaks to the magnitude of the achievement:

Why was Denmark able to succeed where other welfare states have failed? The answer lies in the unique employment model it adopted in the 1990s. The Danish model, termed “flexicurity,” combines a flexible employment policy on the one hand with social security on the other. This combination is achieved through coordination and cooperation between the major players in the Danish economy—parties who, in another country, would be bickering with one another.

It must be stressed that Denmark’s labor market is one of the most organized in the world. Approximately 80 percent of Danish workers are organized into trade unions. Collective agreements regulate working conditions for all public sector employees and for nearly 80 percent of private sector employees. Nevertheless, legislation regulating employment is minimal. Denmark has avoided restrictions on freedom of association between employers and employees. Under such conditions, negotiations over collective agreements can easily become a battleground between competing interests. But the situation in Denmark is unusual. Dialogue between employers and labor unions is founded on mutual understanding and a shared sense of responsibility for the state of the economy. As a result, both parties are committed to avoiding unilateral actions, such as strikes.³⁹ This kind of cooperation enables Denmark to engage in long-term economic planning, control inflation, and limit spending while still safeguarding employment conditions.⁴⁰

According to an understanding reached between Danish employers and labor unions, managers are permitted to dismiss workers quickly and without exceptional expenses. This allows the Danish labor market to be heavily unionized while remaining one of the most flexible in Europe. The average seniority of a Danish employee is one of the lowest on the continent. The Swedish average, for example, is 50 percent higher. While Denmark’s high turnover rate results in the dismissal of a relatively high number of employees each year, the relative simplicity of the process also allows for the swift creation of new jobs. This greatly increases the proportion of dismissed workers who are soon rehired elsewhere. In fact, between 25 and 35 percent of the Danish workforce changes its workplace each year.⁴¹

On the surface, the dynamics of the labor market in Denmark resemble those of the United States, but there the resemblance between the two ends. Denmark has not ceased to be a welfare state. It has increased the flexibility of the labor market while simultaneously bolstering the social safety net that grants generous unemployment benefits to the unemployed. Moreover, the state has established employment-training centers that teach unskilled workers—or those seeking professional retraining—the tools they need to be quickly re-employed. In order to avoid weakening the incentive to work—a chronic problem in other European welfare states—Denmark has also shortened the period of eligibility for unemployment benefits, but it has not reduced the size of the benefits themselves. Although the cost of this safety net is high and requires correspondingly high taxation levels, Danish employers willingly accept it, because it reinforces their collaboration with the labor unions, ensures their freedom to hire and fire their employees, and enables them to promote their initiatives efficiently.⁴²

In the final analysis, the Danish “flexicurity” model benefits the general public without discriminating against the poor. It supports those who have lost their source of income or lack the ability to support themselves, yet more readily allows for the integration of underprivileged groups into the labor market. This policy is psychologically beneficial as well. Surveys demonstrate that Danish workers feel a greater sense of security in comparison with their counterparts on the continent. A study conducted in 1997, for instance, found that the average proportion of European workers who were apprehensive about their income stood at a massive 70 percent. In contrast, only 43 percent of Danish respondents reported similar anxieties.⁴³ A survey conducted ten years later found that only 5 percent of Danish workers felt insecure about their jobs.⁴⁴

The Danish example demonstrates that “managerial flexibility” and “job security” are not necessarily incompatible. A competitive market economy can adopt dynamic employment regulations that allow for high turnover rates, while simultaneously maintaining the country’s humane character and its basic commitment to the welfare of its citizens. Why not attempt the same experiment in the ailing Israeli labor market?

 

No one disputes the fact that job security, in and of itself, is a worthy cause. Employment fulfills workers’ material and spiritual needs: It provides them with the means required for life and enhances their stature in their own eyes and the eyes of their peers. The ability to earn a respectable living is not a luxury, but a fundamental human right that every just society should recognize and protect.

Security, however, does not have to mean inflexibility. A labor market that has become overly rigid as a result of tenure arrangements, strong labor unions, and the high cost of firing workers creates, at best, an illusion of stability. In reality, it impedes economic development, impairs the general standard of living, and sabotages the ability of the underprivileged to integrate into the workforce. Moreover, it motivates employers to search for alternative hiring models that exploit the distress of the unemployed. In a world of fierce global competition and ever-accelerating technological advances, a lack of managerial flexibility may produce devastating economic and social consequences.