LABOR MARKET REFORM AND DEREGULATION

Early this morning, I came across the article published in Wall Street Journal where Daniel Schwammenthal writes about the agony of unemployment in Europe, especially in Germany where the official unemployment rate is well over 10 percent, and where it seems that jobless German are about to become new "Gastarbeiter" (guest workers). The author also highlights how successfully Denmark deregulated its labor market by removing the rigidities of hiring and firing practice. Despite high tax burden, Denmark steadily reformed the labor market to fight ever higher unemployment.

Practically, there are almost no hiring/firing obstacles in Denmark from the international point of view. The average non-wage labor cost equals 0,7 percent of the salary while firing costs equal 10 weeks of wages compared to the OECD average of 31 weeks of wages as a firing cost which employer has to bear. In IMD's World Competitiveness Yearbook in 2004, Denmark scored 7,79 out of 10 points in measuring the level of deregulation of the labor market where 1 means fully regulated labor market while 10 means completely deregulated labor market.

Further reading:
A new road map against unemployment: Reassessing the Jobs Strategy, OECD Observer (link)