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Social-Democratic Denmark Shows How to Respond to Coronavirus

The US and UK responses to coronavirus have failed miserably. But Denmark has moved swiftly to help workers by protecting wages and preventing layoffs — showing yet again, in the midst of a pandemic, that we’d all be better off living in a social democracy.

Denmark's prime minister, Mette Frederiksen, gives a press statement to comment on the situation concerning the spread of the novel coronavirus, in the prime ministry in Copenhagen, on March 10, 2020. Liselotte Sabroe / Ritzau Scanpix / AFP via Getty

While Britain remains stubbornly open for business (and contagion), Denmark is preparing to deal with the economic fallout from the coronavirus recession.

This Sunday, the Danish government struck a historical deal with trade unions and employers’ associations to stop mass layoffs during the quarantine. During the next three months, the state will cover 75 percent of the wages of workers threatened by job loss, up to $3,300. Companies will cover the remaining 25 percent, while workers will give up five days of paid vacation time — in other words, work five days for free.

The deal covers companies who would have to lay off at least 30 percent of staff, or fifty staff or more. In return, companies commit to not lay off any staff for economic reasons while they’re receiving state compensation.

Covering 75 percent of wages may seem like a huge investment for the state, but it is much smaller than it seems. Layoffs mean lost tax income and expenses to unemployment benefits. Instead of losing the money, subsidizing wages provides the state with an opportunity to spend it. Rather than a handout to companies, it’s an investment in maintaining economic confidence and an attempt to avoid a more costly economic crisis.

Initially, money has been set aside to cover 2.5 percent of all non-public employees, but the Social Democratic government is willing to put the full financial power of the state behind the deal: “There is no ceiling,” finance minister Nicolai Wammen said as the deal was unveiled this Sunday.

The Danish Model

This deal shows the resilience of the Danish model of tripartite employment relations, which has been declared dead on many occasions during the last decade. However, even though it gives a boost to Denmark’s social democratic version of corporatism, it remains under attack.

Currently, collective bargaining agreements are being negotiated on unusually uneven grounds, as the coronavirus leaves unions without the threat of industrial action. Many unions demand a suspension of negotiations until after the quarantine, but the Social Democratic government has so far ignored them.

The deal also shows some of the weaknesses of the Danish model: the self-employed, owner-managers, and people on casual and zero-hour contracts are not covered. They are already among the hardest hit, but poorly represented by interest organizations. Meanwhile, the quarantine drains the limited benefits of the unemployed.

What will happen after three months remains an open question. Many employers, especially in the hospitality industry, expect a much longer downturn. Such employers would rather lay off workers than pay 25 percent for staff they don’t and won’t need. However, the resolute commitment of the government and the popularity of these measures may open the door for similar policies in the future.

“The echo of what we are doing now will be heard into the future. Now we are laying the tracks for companies and employees to get well through the crisis,” said prime minister Mette Frederiksen.

A New Paradigm?

From an international perspective, this is interesting, especially given how deeply the failure to contain the pandemic in the UK and United States is connected to the wish to keep the economy going. Denmark, with its protection of employment and its solidary sick-pay rights, looks much better suited to weather the economic storm.

These policies also make people and companies more likely to respect the quarantine: workers’ rights aid conditions are also a matter of public health. In other countries, many will face evictions and be unable to self-quarantine unless moratoriums are put in place or effective rent and mortgage strikes organized.

The question is whether this deal is merely a temporary return to classical social-democratic corporatism, or a step toward a new post-neoliberal economic paradigm. To build something more lasting, the Danish government would have to reckon with the fact that a new paradigm will have to be adapted to conditions of negative or zero growth, and effectively aim to distribute — or redistribute — losses.

In the recent decade, the Danish Social Democrats have often taken a page from New Labour’s playbook: blame those who are seen as “undeserving,” such as the unemployed, non-citizens, and the youth. The policy of protecting employment provides a more solidary way to distribute losses, even if many vulnerable groups are still left out.

Yet maintaining the existing structure of employment presumes that the crisis is temporary and exogeneous, a result of the non-economic shock of COVID-19. In fact, the extreme impact of the virus reveals the preexisting vulnerability of the global economy.

Low or zero-interest rates reveal that capital would rather pay to deposit money with states than invest it. Growth and profit rates will not return to the levels that facilitated classical social-democratic class compromises. Conflict will increase.

In terms of employment, some jobs are unsustainable, either for economic or ecological reasons. Protecting all such jobs would be both unsustainable and undesirable. But it remains to be seen if unions are ready to prioritize the fight for a just transition to a green economy.

In the coronavirus crisis, the Danish government has been an early mover, both in terms of public health measures and employment protections. It has revealed how much can be done when the political will is there. However, in the coming global crises, bolder politics will be needed to respond to the deep recession by transforming employment relations and the economy more profoundly.