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The Lego experience: "Putting flexibility and security together"

Workers who are facing layoffs may want to know why employees at Danish toymaker Lego don't worry too much if their jobs are outsourced. It has to do with what the International Labour Office and others call "flexicurity". ILO Online reports from the Lego toy factory in Denmark.

Article | 13 January 2006

BILLUND, Denmark (ILO Online) - Although Lego received the award "Toy of the Century" in 2000, Lego production worker Charlotte is facing an uncertain New Year. In 1999, the company had suffered its first financial loss since 1932 when a Danish carpenter invented the famous bricks.

the company had suffered its first financial loss since 1932 when a Danish carpenter invented the famous bricks.

As one of the world's most successful toymakers the company employs some 5,600 people worldwide. But even Lego is not immune to the upheavals of globalization. The last few years have seen layoffs for hundreds of their workers and there will be more in 2006 as Lego out-sources its distribution to the Czech Republic.

But Charlotte is not too worried. "I'm not particularly concerned if I should lose my job.... They are good at taking care of you at Lego if you are fired ... they don't just leave you on your own", she says.

That's because Lego is based in Denmark, where a flexible labour market, broad social security and retraining form the building blocks of a model called "flexicurity".

"You can compare it to three sides of a triangle, where one is the flexible labour market - we say it's easy to hire and fire people", explains the Danish Employment Minister, Claus Hjort Frederiksen.

For Charlotte, it means she can put her daughter in a state-run nursery, part of a strong social security system. For Lego, it means they can respond to changing markets.

"There is a balance here, but if that balance should shift, then the entire Danish system collapses. So as a union we are highly conscious that there is a connection, that flexibility leads to security which the state supplies", comments Hans Jensen from the Federation of Danish Trade Unions (LO).

Strong support from the social partners is the basis of the Danish flexicurity model and in the view of the ILO this is essential. A tripartite approach based on social dialogue with consultations and negotiations between the government, employers and workers is the key for finding the solutions needed in the labour market for both enterprises and their employees.

Lego has signed an agreement with trade unions and the local employment office to retrain workers for jobs in the service sector. The 'From Industry to Service' agreement reached with the major Danish trade union in November 2005 aims at retraining production workers with a view to taking jobs at the theme park 'Legoland' and Billund airport. Many of the 200 Lego workers concerned have already signed up for training and education programmes.

"If the case is that we have to let people go, we help them have the best chance they can have to get a better job", explains Conny Kalcher, Vice President of Communications at Lego. The Danish employers strongly support this kind of agreement: "A flexible labour market gives companies the possibility to increase, restructure, or decrease, depending on the market relations", says Jørn Neergaard Larsen from the Confederation of Danish Employers (DA).

The Danish example illustrates the link between job security, labour market flexibility and social protection. Each year, some 30 percent of Denmark's workers change jobs, a rate outpaced only by the United States and Britain. And Danish unemployment now stands at 4.7 per cent, or just half of the euro-zone average of 8.6 per cent.

At over 5 per cent of the country's gross domestic product (GDP), Danish expenditures on labour market policies are the highest in the European Union. Though more than half of this expenditure is on passive measures, the Government has placed considerable emphasis on the participation of the unemployed in active training and educational programmes.

After a period of passive receipt of benefit, unemployed workers participate in such programmes to improve matching in the labour market. Although employment stability in Denmark is relatively low - in 2001 workers had stayed on the average 8.3 years in the same job, Denmark ranked second in the job security feeling rankings of the Organization for Economic Co-operation and Development in 2000, out of a total of 17 countries.

According to a recent ILO study (Note 1), Denmark is a good example of a policy of "protected mobility" on the labour market which seeks to combine both flexibility and security. High mobility in the labour market does not necessarily contradict people's sense of security. When there is a system of social protection in place, which includes unemployment benefits, this eases the burden of being dismissed. Social protection mitigates the negative effect for the individual employee when an enterprise needs to restructure its activities, decrease its production or outsource.

"The world Lego comes from the Danish 'leg godt' which means 'playing well'. It also means 'I put together' in Latin. What is the case in the Danish labour market and as seen in the Lego experience is that flexibility and security can go together. In Denmark, there's a consensus that flexicurity can work for everyone. It's a matter of having all the building blocks in place, and for this to happen it is very important that you have a strong and capable organizations such as DA and LO to represent both the employers as well as the workers", concludes Jean-François Retournard, Director of the ILO Bureau for Employers' Activities.

Note 1 - Is a stable workforce good for productivity? by Peter Auer, Janine Berg and Ibrahim Coulibaly, International Labour Review, vol. 144/3, ILO, Geneva, 2005.