The Danish Flexicurity Labour Market During the Great Recession

Can the Danish flexicurity model cope with a deep recession, or will long-term unemployment increase and the social safety net become overburdened? The Danish economy has experienced a boom-bust pattern ending with a large drop in GDP and thus labour demand. So far, the flexicurity model has coped with the Great Recession in the sense that gross flows in the labour market remain high, most unemployment spells are short, and there are no strong indications of increases in long-term unemployment. There are thus no signs that the large and prolonged aggregate demand shock is causing an increase in structural unemployment. Active labour market policies and fiscal space to accommodate the crisis are important in accounting for the performance of the model.