Why Denmark Is Less Afraid Of AI-Linked Job Losses And Can India Follow

As fears around artificial intelligence replacing jobs continue to grow globally, one small European country keeps appearing in economic conversations for a very interesting reason. Denmark's workers seem significantly less terrified of disruption that AI may cause than much of the world. 

And the reason has a lot to do with a model called 'flexicurity' (flexibility + security) that Denmark came up with in the 90s. The idea is surprisingly simple. Companies are given the flexibility to hire and fire workers relatively easily to trial new technologies like AI. In return, the government provides workers with strong financial protection, unemployment benefits and retraining support if they lose their jobs.

In Denmark, laid-off workers can receive unemployment support covering up to 90% of previous wages in some cases, often for as long as two years, while also being helped to retrain for new careers. This 90% is capped at a strict maximum monthly rate set at DKK 22,041 (around Rs 3,30,000) by the government.

According to Nobel-winning economist Peter Howitt, "Various studies have shown that the Danish workers are, in many senses, less afraid of the consequences of new technologies than our workers in other countries. So I think that's a great model for every country to follow." The 'every country' aspect may not be so simple to follow after all though. But let's get to the India context in a bit.

The World Economic Forum (WEF), which recently highlighted the Danish system while discussing AI disruption, describes it as a "golden triangle" balancing labour market flexibility with worker security. It's called a "golden triangle" because it tries to balance three difficult things at once: giving companies flexibility, protecting workers financially and helping people retrain for new careers.

"Today we're living through the introduction of a new general purpose technology that's affecting every sector of the economy," says Howitt.

"These new technologies have tremendous potential for creating new jobs and making people wealthier. But when they first arrive, what's most obvious is that they're going to replace a lot of previous technologies."

He warned that AI could render many existing skills redundant before the benefits of the technology become fully visible.

"The creative effects of new technologies open up worlds of new possibilities," he says. "The thing is that when the technology first arrives, it's not clear where those opportunities are."
That uncertainty is precisely what Denmark has been trying to cushion since the 90s.

Can India Ever Build Something Similar?

This is where the conversation becomes far more complicated. Because replicating Denmark's model in a country like India may be far easier said than done.

Economist Abhirup Sarkar believes India already has one half of the equation - flexibility, but almost none of the security.

"The flexibility to hire and fire is there. The security is not there," Sarkar tells NDTV.
"And the majority of India's labour force is in the informal sector where there is no job security anyway."

According to Sarkar, even sectors once considered stable are increasingly shifting toward contractual employment structures. "Even in the corporate sector today there is little job security. Even if you look at government jobs now, it's moving to a contractual model," he says.

That means India may already be experiencing the disruptive side of flexicurity, without the welfare protections that make the Danish model politically and socially sustainable.

And that is largely because Denmark and India operate on completely different economic scales. "I don't know if the Indian government can afford a flexicurity model here," Sarkar says.

"Denmark is a small country with high tax collection. They can do it. India still has huge infrastructure responsibilities, subsidies, agriculture support and food security commitments."

In other words, building a Scandinavian-style social safety net for AI disruption inside one of the world's largest and most complex labour markets would be extraordinarily expensive.

AI Anxiety Is Not New

One of the most interesting parts of the current AI panic is that economists have seen versions of it before.

When mechanisation transformed industries during the Industrial Revolution, millions feared permanent unemployment. Entire professions disappeared, protests erupted, workers smashed machines. And for long periods, things genuinely were painful.

"When mechanisation happened in England, there were huge job losses," Sarkar says. "For nearly 100 to 150 years, the job market was very bad before things picked up in a big way."

The arrival of computers, however, created a somewhat smoother adjustment. "At that time too, many people feared jobs would disappear," Sarkar says. "But new kinds of opportunities emerged that people had not expected."

That does not mean the AI transition will be painless. Far from it. 

Howitt warns that countries resisting technological progress altogether often end up falling behind economically in the long run. "Countries that fight off new technological progress tend to go into long-run decline," he says.

Sarkar believes AI-driven disruption is now effectively "inevitable." "In the long run it will do a lot of good to society."

But he also acknowledged that the short-term adjustment costs could be severe for many workers. "There is always a trade-off," Sarkar says. "In the short run, some people will suffer."

Still, he believes technological disruption historically tends to create economic churn rather than permanent collapse. "As the churn happens before the good starts to show I am sure the government will also take various measures to protect the wellbeing and security of citizens in some way."

Sarkar remains optimistic about the future without wanting to comment on how long the churn in the job market may last. "As AI adoption increases and companies become more profitable, that money will eventually get reinvested into the economy and new opportunities will emerge again," he says.

The bigger question may therefore not be whether AI changes the labour market; that part already seems unavoidable. The real question is whether countries can build enough economic cushioning before the disruption fully arrives.

And right now, Denmark may be one of the few places where workers believe the system will actually catch them if they fall.