How does a Danish McDonald's worker make 20$/hour, without a minimum wage law?
Denmark has a low unemployment rate, but ensures workers good wages. How can a country with no actual minimum wage law, accomplish such a feat?
A Danish McDonald's employee makes at minimum 20$/hour. This is stunning, compared to the mere average wage of 8.90$ for an American McDonald's worker (Source: NY Times). What is even more surprising, is that there is no official minimum wage law in Denmark.
How is this possible?
In Denmark, employers and employees meet and negotiate work conditions and agree on a base wage. This is done without intervention from the government. This is called “Den Danske Model” (The Danish Model), and has its roots in “Septemberforliget” in 1899, which was a deal between the union coalition (LO) and the employers coalition (DA).
The Danish Way
The deal lead to the following rules in the Danish labor market (Source: Den Store Danske):
That the employers recognised the right of employees to organise themselves in unions, and that employees adversely recognised the right of employers to lead and distribute labor.
This meant that employees were guaranteed a strong voice in negotiations and a great part of the work force were members of unions. To date, two thirds of Danish employees are organised in unions.
Compromise, compromise and compromise.
What does this high union participation mean when put to practice? It means that employees rarely strike in Denmark. This is due to the strong tradition of comprise between the employers and the employees.
Compare this to France, where only 8% of employees are organised in unions. Here, strikes are rather the rule than the exception. This is due to that the unions consist of the politically most left-leaning part of the labour force. Therefore, when the two parties negotiate employee conditions and wages, the distance between the two is gargantuan.
Therefore, it's in the best interest of the Danish employer to give his employee better conditions, so that one may avoid strikes. Reversely, it's in the employee's interest to have reasonable demands to the boss, so that this deal stays intact.
As long as both parties perceive their condition as improving and they manage to talk with each other, the government doesn't have to interfere.
When it's easy to fire, you can hire.
It is extremely easy to fire an employee in Denmark. This sounds counterintuitive, why would such strong unions accept such conditions? There is an easy answer to this, and it is the following principle: protect workers, not jobs. The term for this principle is flexicurity.
Flexicurity is the combination of flexibility and security.
The flexibility lies in that, if a company suddenly experiences a loss of profit, it can lay off employees. Compared with countries where former employees can sue the earlier employer (France), companies do not have to be worried about dire consequences when firing staff.
The security is guaranteed by the state. When you are fired, you receive funds until you find a new job. If you wish to work in a different sector or your former job has become automated, the state funds re-education.
A system for the future
And the point about automation, makes the Danish labour market so much more interesting. In the near future, a massive amount of jobs will become automated*.
Think of bus-, cab-, train- and truck-divers. With the automation of driving, all of these jobs will evaporate.
The prime goal of all states will be to rapidly retrain employees whose qualifications have become obsolete. Alternatively, a state could try to preserve certain jobs (but then lose the advantage of an increase in productivity).
The luck of the Danish example, is that it already has solved this problem to a certain extent. Remember the motto- protect workers, not jobs. Workers will have to a greater extent switch from job to job, and these jobs will require great skill. Re-education and funds to sustain one's family will have major importance in the future's hyper-flexible labor market.
The Danish labor market is certainly one of the world's most adaptable. A trait, which's importance will only rise in the years to come.
*This is further discussed in Yuval Noah Harari's book “21 lessons for the 21st century”.