Denmark: Recent Economic Developments

This paper describes economic developments in Denmark during 1990–96. After a prolonged period of stagnation in the second half of the 1980s and early 1990s, GDP rose by 4¼ percent in 1994, reflecting a surge in domestic demand and recovery in export markets. The expansion of GDP slowed to a 2¾ percent pace in 1995 as domestic demand moderated and as exports decelerated sharply. The slowing of external markets intensified in the course of 1995 with the result that GDP in the fourth quarter was barely above its first quarter level.

Abstract

This paper describes economic developments in Denmark during 1990–96. After a prolonged period of stagnation in the second half of the 1980s and early 1990s, GDP rose by 4¼ percent in 1994, reflecting a surge in domestic demand and recovery in export markets. The expansion of GDP slowed to a 2¾ percent pace in 1995 as domestic demand moderated and as exports decelerated sharply. The slowing of external markets intensified in the course of 1995 with the result that GDP in the fourth quarter was barely above its first quarter level.

II. Labor Market Developments

To reduce the high unemployment rate—which had reached 12¼ percent by 1993—and to enhance the flexibility of the Danish labor market, the authorities introduced a broad range of labor market measures over 1994-96. Before the new labor market policies were introduced in 1994, Denmark had already a number of active labor market programs, which consisted mainly of temporary subsidized job offers (mostly in the public sector), job training and entrepreneur allowances.1 These programs were, however, considered to have negligible effects in raising the effective supply of labor and in lowering the structural rate of unemployment.2 The main focus of the new labor market strategy was to raise the level of education in the work force, strengthen job search incentives and minimize the social and economic costs of long-term unemployment.

The reforms, which had broad political and public support, did not challenge the social welfare objective of a fair income distribution. An overall reform of the transfer system, to enhance job search incentives for those out of work, was not part of the authorities’ labor market strategy. With the exception of unskilled youths, there has been no attempt to reduce replacement rates in the unemployment insurance and social assistance systems. These rates are high by international standards (see Annex 1). Notably the headline replacement rate in the unemployment insurance system is 90 percent. This, however, is subject to a maximum that is equivalent to about 60 percent of the average production wage. Thus the effective replacement rate is very high for unskilled workers, but declines steadily as one moves up the earnings scale.3

Section 1 reviews the key labor market measures introduced between 1994 and 1996. Section 2 examines the effects of the measures on labor market developments. Section 3 provides revised estimates of potential output.

A. Labor Market Initiatives

The new approach to the labor market was formulated in measures included as part of the Finance Act for 1994, adopted by parliament in late 1993. Modifications to these measures and some new initiatives were incorporated in the Finance Acts for 1995 and 1996.

In the 1994 Finance Act, leave schemes (child-care, education and sabbatical) were introduced for the unemployed and employed; these were initially intended to expire in 1996. They played a central role in the authorities’ labor market strategy with a view to fostering skill acquisition both by those in formal training programs and by allowing the unemployed to gain work experience by rotating through temporarily vacated positions. The compensation rates were set at (up to) 80 percent of the maximum unemployment benefit rate for both parental and education leave and (up to) 100 percent for education.4

The 1994 Finance Act also introduced some tightening in eligibility for unemployment insurance. A formal limit of seven years was placed on the duration of unemployment benefits; participation in active labor market programs, with the exception of the paid leave schemes, could no longer prolong the unemployment benefit period.5 In addition, activation (i.e, participation in an approved training, education program or job offer) was made mandatory after four years of benefits and the allowance under activation was set equal to the unemployment benefit level to which the unemployed person was entitled 6

Another prominent step was to delegate decisions on activation and education to the regional level to better meet the demands of the local labor market. Each regional labor market council was made responsible for formulating activation measures for the unemployed, for designing the educational courses to meet the demands of the local market, and for monitoring the labor market performances in its region.7 Individual action plans were also introduced. In formulating such plans, the Public Employment Service (PES) office, which implements activation policies, was to take the wishes of the unemployed persons and the needs of the labor market into account. The plan was to be designed before activation took place and made binding once the unemployed person was activated. The PES could also accelerate activation of an unemployed person considered to have a high risk of remaining unemployed over a longer period (e.g., unemployed without a formal education or with an extreme record of repeated unemployment spells). In such a case, an action plan could be worked out within the first months of unemployment.

Activation measures were also tightened for young uninsured unemployed who do not qualify for unemployment benefit insurance and thus receive cash benefits under the social assistance system (subject to means testing). Youth unemployed (18 and 25 years) receiving social assistance were required to participate in activation after 3 months of unemployment, with a minimum duration of 6 months, while their allowances were lowered and brought in line with those for students in the education system or those serving apprenticeships.8

With the strong economy and employment growth raising concerns about labor market bottlenecks by the end of 1994, the authorities adjusted the labor market programs in the 1995 Finance Act. The compensation rates for parental and sabbatical leave were reduced to 70 percent of the maximum unemployment benefit level while the compensation rate for educational leave was kept unchanged at 100 percent. At the same time, the parental and educational leave schemes, which were originally planned to expire in 1996, were made permanent while the sabbatical leave program was extended to 1999. In addition, the transitional allowance scheme, which had been launched in 1992 for unemployed between 55-59 and extended to those between 50-54 in 1994, was closed to new intake at the end of 1995. This scheme offered long term unemployed (more than one year) the possibility of retiring early, avoiding work availability requirements while at the same time accepting a 20 percent cut in their unemployment benefit.

In the 1996 Finance Act further changes were made to the unemployment insurance system and to the active labor market programs, mainly with the aim of strengthening work incentives. The maximum duration for unemployment benefits was shortened to 5 years and participation in education leave and any other form of education while on unemployment benefit could no longer be used to extend the unemployment benefit period.9 Qualification rules for unemployment benefits were raised from 26 weeks of non-subsidized work to 56 weeks within the preceding three years; this was to take effect at the beginning of 1997. In addition, mandatory activation in either job training or education was advanced from 4 years to 2 years. Implementation of the new rules on activation began in mid 1996 and are planned to be fully phased in by end 1998. By then around 50,000 to 60,000 long term unemployed are expected to be activated.

Several measures were targeted at the young (18-25 years): the minimum age for admission to an unemployment insurance fund was raised from 16 to 18 years, implying that young persons could not qualify for unemployment benefits until they reached 19 years of age. With effect from April 1996, unskilled youth unemployed without a formal education and unemployed for at least six months were required to participate in an eighteen month educational program while their unemployment benefits were halved, bringing the compensation level in line with the allowances paid under the education system and apprenticeships. Refusal of a job offer or an educational program would result in forfeit of unemployment benefits. These measures target the one-third of youth who choose not participate in or who drop out of the higher education system or out of vocational training after leaving basic schooling. Experience shows that those with a lower education are more prone to becoming unemployed. In Denmark, the rate of unemployment for those without formal education is twice as high as for those with.

The compensation rates on parental and sabbatical leave would be reduced further from 70 percent to 60 percent, with effect from April 1997. In addition, a new job training scheme (pool jobs) was introduced for long-term unemployed at the local government level beginning in 1996. These are public sector subsidized jobs with a duration of up to three years that are expected to employ on average 5,000-7,000 persons per year. The scheme differs from the existing job offer scheme in that pool jobs are of longer duration and the unemployed can be hired without consulting the PES.

B. Labor Market Developments

Unemployment fell sharply by around 4 percentage points from 12¼ percent of the labor force end 1993 to 8¼ percent to end 1996, only slightly above the 7¾ percent registered at the last cyclical peak in 1986. Strong employment growth helped to cut the unemployment rate. The fall in the unemployment rate also reflected a reduction in the labor force as the number of people in paid leave schemes and early retirement surged. The decline in the labor force contrasts strongly to past experience when the labor force typically responded positively to an upswing in economic activity.

The decline in the labor force participation rate of over 2 percentage points to 78 percent from 1993 to 1996 can mostly be ascribed to participation in leave schemes and the rise in early retirement (Table II-1 and Chart II-1). Participation in leave schemes rose to almost 3 percent of the labor force in 1995, before falling back to 2½ percent in 1996. On average, 60 percent of the participants in leave schemes came from unemployment or from subsidized employment schemes.10 The unemployed accounted, on average, for around half of the participants in child-care and three-fourths in educational leave (Table II-2).11 Although most of the those entering leave schemes from employment came from the public sector, the majority of the job rotation schemes—where unemployed could be hired to undertake the tasks in positions temporarily vacated—were established in the private sector. Most of the public sector vacant positions were not filled.

Table II-1.

Working Age Population and Labor Force

(In thousands of persons, unless otherwise noted)

article image
Source: Ministry of Finance, December 1996; and staff calculations.

In percent of working population.

Chart II-1
Chart II-1

Denmark Labor Market Developments

Citation: IMF Staff Country Reports 1997, 025; 10.5089/9781451811025.002.A002

Sources: Ministry of Finance, Danmarks Statistik; and staff calculations.1/ Labor force in percent of working population (15-64).2/ Employment in percent of working population (15-64).3/ Includes subsidized employment schemes and training allowance.4/ Working age population (15-64).
Table II-2.

Participants in Leave Schemes by Labor Market Status

(In thousands)

article image
Source: Ministry of Finance, December 1996.

1994 includes 2000 persons that started child-care leave in 1993

The number of persons in early retirement increased by over 2 percent of the labor force to 6 percent from 1993 to 1996. Around 85 percent of this rise related to the special (transitional) early retirement scheme for unemployed workers aged 50-59, reflecting the rush to take advantage of this scheme before its termination at end 1995. In the absence of the leave schemes and transitional retirement scheme, the actual labor force participation rate would have increased. If one counts those in leave schemes as effectively associated with the labor force, the decline in the participation rate from 1993 to 1996 was less than 1 percentage point.

Employment responded strongly to the expansion in economic activity between late 1993 and 1996. Excluding subsidized jobs, which fell as a result of the shift in labor market policies, employment rose by 3¾ percent from 1993 to 1996. Employment expanded rapidly during 1994, stagnated in most sectors in the course of 1995 and, except in manufacturing, resumed expansion in 1996 (see Chart II-1). Most of the new jobs were created in the private sector, notably in services, and construction.12 Public sector employment, after decreasing

sharply in 1994 increased towards the end of 1995 and in 1996 and accounted for around 60 percent of employment growth in 1996. The rise in public employment was mostly at the local level and reflected partially the effects of the new job creation scheme introduced for long term unemployed and the return of public employees from leave whose positions had not been filled.13

The strong employment growth and the labor market schemes contributed to the significant drop in unemployment. The number of unemployed on leave and early retirement rose from 1½ percent of the labor force to 4¾ percent from 1993 to 1996 (Table II-3). The increase in leave scheme participation (1½ percent of the labor force) was however to a large extent offset by the fall in number of unemployed activated under the subsidized employment programs (1½ percent of the labor force) and by the fall in unemployed in other forms of educational programs (which declined by ¼ percent of the labor force). Thus, the various employment, training and leave programs, considered together contributed very little to the decline in the unemployment rate. The increase in early retirement of 1¾ percent of the labor force contributed to around half of the drop in the unemployment rate between 1993 and 1996 and regular employment growth—including unemployed in job rotation positions—the other half.14

Table II-3.

Unemployment and Labor Market Programs

(In percent of labor force)

article image
Source: Ministry of Finance and staff calculations

The fall in unemployment has been uneven across sectors, professions and regions (Table II-4). Notably, in the construction and metal industry as well as certain professions in the public sector the unemployment rate has fallen close to or even below 1986 rates. In some areas of the country, the unemployment rates for certain professions are well below the national average. As in the last economic upswing in the mid-1980s, the distribution of unemployment has been uneven across regions: the unemployment rate has been much lower in South Jutland than in Greater Copenhagen, indicating some lack of regional mobility.15 Indeed, the dispersion of regional unemployment has increased since the late 1980s (Chart II-2).

Table II-4.

Unemployment by Groups of Unemployment Insurance Funds

(In percent)

article image
Source: Danmarks Statistik

Salaried employees, public servants, etc.

Chart II-2
Chart II-2

Denmark Composition of Unemployment

(Seasonally adjusted)

Citation: IMF Staff Country Reports 1997, 025; 10.5089/9781451811025.002.A002

Source: Danmarks Statistik; and staff calculations.

Unemployment rates continue to be highest amongt those with low-skills. The unemployment rate for those with just basic schooling or secondary education fell more strongly in 1995 than for those with higher education (Chart II-3). This could reflect in part the increase in employment growth in the service sector, which in retail and wholesales has lower entry wages than in other sectors.16 But the relatively strong decline in unemployment rate among those with just basic schooling may also be in part due to the pattern of participation in labor market programs across skill groups.

Chart II-3
Chart II-3

Denmark Labor Force and Unemployment by Education

Citation: IMF Staff Country Reports 1997, 025; 10.5089/9781451811025.002.A002

Source: Data provided by the authorities.

The decline in unemployment was particularly pronounced for those aged 16-24, from 13 percent first quarter 1994 to 6¼ percent in the fourth quarter of 1996 (see Chart II-2 and Table II-5). This again is likely to reflect the strong growth of jobs in the service sector, but the continued decline in the course of 1996 was clearly influenced also by the tightening of unemployment insurance rules affecting unskilled youths. Notably, the long-term unemployment among 16-24 year olds fell by 40 percent between April and August 1996.17 Contrary to the trend, the unemployment rate among older workers (60-69 years) increased from end 1993 to end 1995, reflecting a change in the rules for the regular early retirement program which gave financial incentives to delay early retirement.

Table II-5.

Unemployment by Age for Selected Years

(Shares of total in parentheses)

article image
Source: Data provided by the Danish authorities; and staff calculations.

Long-term unemployment fell by two percentage points of the labor force between 1993 and 1996. This was strongly affected by the move to the transitional early retirement scheme of unemployed workers aged 50-59 (Table II-6). Overall, long-term unemployment (more than one year) as a share of total unemployment fell from 30 percent in 1994 to 13 percent in 1995.18

Table II-6.

Relative Long-Term Unemployment by Age 1/

article image
Source: Finansredeørelse, Minsitry of Finance, 1996.

Relative long-term unemployment is defined as the share of long-term unemployment in a particular age group relative to long-term unemployment in total unemployment.

1995Q4 to 1996Q3.

The sharp drop in unemployment has raised the question of what has happened to structural unemployment.19 The Beveridge curve shows that the unemployment rate for a given level of vacancies has fallen between 1993 and 1996, suggesting that they are more easily being filled than previously (Chart II-4) This, in turn, could be ascribed to the increased efforts to minimize mismatch problems by improving the efficacy of the labor market institutions. At the same time, however, the inward shift of the Beveridge curve could also be explained by the large number of unemployed participating in labor market measures, shifting the curve without changing job matching probabilities.20 The Okun curve indicates that at a normal degree of capacity utilization the unemployment rate has fallen.

Chart II-4
Chart II-4

Denmark Structural Unemployment Indicators

Citation: IMF Staff Country Reports 1997, 025; 10.5089/9781451811025.002.A002

Sources: Danmarks Statistik, Danish National Labor Market Authority; and staff calculations.1/ Unfilled vacancies at then end of the month as a percent of total unemployment.2/ In percent of potential output.

Indicators of long-term unemployment also suggest a significant decline in the NAIRU. Between 1993 and 1996, the shift of long term unemployed to early retirement amounted to 1¾ percent of the labor force, and over the same time span long-term unemployment declined by around two percentage points. The continued decline in youth unemployment since the measures introduced in early 1996 would also seem to indicate an improvement in the underlying labor market situation. More difficult to gauge are the effects of labor market programs in strengthening the skills of the unemployed.21

In view of the large changes in the labor market support programs, model based estimates of the NAIRU are subject to more than the usual degree of uncertainty. The official estimates, which are based on two different model-based approaches, indicate that the NAIRU has declined by 1½ percentage points since 1993 to 9 percent of the labor force in 1996. Given the size of the decline in long-term unemployment, on its own, this estimate may be a little on the conservative side. In view of the additional measures taken in the context of the 1996 Finance Act, some of which have as yet only had a limited time to take effect and others which are being phased in, the authorities envisage further declines of the NAIRU of ½ percentage point a year in 1997-98.

C. Measures of Resource Slack in the Danish Economy

Measures of the output gap can provide a sense of the potential for inflationary pressures through channels other than the labor market. In view of the significant changes in the labor market and new data on capital stock, the staff has reestimated the potential output for Denmark.22

A particularly difficult set of problems relates to calibrating potential employment, which is dependent on the trend participation rate and the structural rate of unemployment as well as the working age population. One issue is the uncertainty over the structural rate of unemployment itself. A second issue is that reductions in the structural rate of unemployment that reflect movements into early retirement do not add to potential employment. Such reductions should be accompanied by a downward shift in the trend participation rate. A third issue is how to judge the persistence of the reduced labor force participation owing to leave schemes (Chart II-5). These schemes have been made permanent, but the number of workers taking leave is likely to be smaller than in the initial years, if for no other reason than the compensation rates have been reduced.

Chart II-5
Chart II-5

Denmark Labor Inputs

Citation: IMF Staff Country Reports 1997, 025; 10.5089/9781451811025.002.A002

Source: Danmarks Statistik; and staff calculations1/ In percent of working age population2/ Adjusted includes leave schemes

The staff has made two calculations of potential output for recent years, which are set out in Table II-7. Both use the authorities’ estimates for the decline in the NAIRU since 1993. One set of estimates uses actual participation rates as an input to modeling trend participation (denoted, “unadjusted trend participation”); the other (denoted “adjusted trend participation rates”) assumes that all those in the leave schemes are effectively full participants in the labor market. The former may give too much emphasis to the decline in the participation rate in recent years, while the latter arguably gives too little weight.

Table II-7.

Potential Output Growth and Output Gap

(In percent)

article image

Those in leave schemes are added back into the actual labor force. The adjusted labor force participation rate is then smoothed with an HP filter to obtain an estimate of a trend labor force participation rate

The actual labor force participation rate is smoothed with an HP filter. No adjustments were made for the labor market programs.

OECD, Economic Outlook 60, December 1996.

Hodrick-Prescott filter on real GDP 1966-2000, based on 1980 prices; projections for 1997-2001 based on staff’s assumptions on GDP growth.

Staff estimates of output gap based on revised GDP data for 1994 and 1995 (end January 1996). Authorities and OECD estimates of output gap are based on data as of end 1996.

Both sets of staff estimates indicate an acceleration of potential output in 1994-96, reflecting both faster growth of labor and capital inputs. The calculations for unadjusted trend participation indicate that the output gap will essentially be closed in 1997. The alternative indicates that an output gap of 1¼ percent will remain.

Estimates produced by other institutions yield a similar range of estimates.23 Thus the Danish Ministry of Finance calculates that a relatively small output gap will remain in 1997 (¼ percent), while the OECD’s latest estimate puts the gap in 1997 at 1¼ percent. An estimate of potential based on trend GDP points to a closed output gap in 1997.

ANNEX 1: Some Features of the Danish Transfer System

Replacement rate: The Danish unemployment insurance system is relatively generous (in duration and benefit levels), particularly for those individuals at the lower end of the wage scale. The gross replacement rate (a flat rate) is set at 90 percent of the previous income, the highest among OECD countries. The level of unemployment benefit paid out is, however, subject to a cap, equivalent to about 60 percent of the average production wage. As a result, the effective replacement rate falls steadily and the loss in disposable income by being out of work compared to being employed widens as income increases. For a single-earner household with no children, the net replacement rate (after taxes and other benefits, in this case mainly housing allowances) at a level two-thirds of the average production worker’s earnings was 92 percent in 1994, compared with an average for the OECD of 68 percent (Table II-7). At the average production wage, the net replacement rate in Denmark was 69 percent compared with 60 percent for the OECD (Table II-8). Moreover, households with low incomes, high housing costs, and children can receive allowances above the maximum unemployment benefit level. These allowances (housing, family and child allowances to single parents, and child-care subsidies) are tax-free and boost the net replacement rates for those at the lower end of the wage scale.

Table II-8.

Replacement Rates for Single-earner Households, 1994

Replacement rates at the average production worker (APW) wage

article image
Source: OECD, Employment Outlook, 1996.

Benefits can include housing allowances, child and family allowances.

Benefit amounts for couples are calculated on the basis of both spouses actively seeking work.

Cash Assistance: Persons not insured with an unemployment insurance fund and below a certain income and wealth threshold are entitled to means-tested cash benefits under the social assistance system. The benefit level is linked to the maximum unemployment benefit and the benefits are taxable. For persons with children, cash benefits cannot exceed 80 percent of the maximum unemployment benefit or 90 percent of the former income. Cash benefits for persons without children are fixed at 60 percent of the maximum unemployment benefits. Other benefits include housing allowances.

Duration and qualifications rules: While cut recently, the duration of unemployment benefits remains relatively long at 5 years. There is no waiting period for benefits, but eligibility requires 52 weeks of work outside of any government sponsored employment scheme during the preceding three years. To receive unemployment benefits an unemployed person must be both insured (voluntary), registered with the local employment office and be available for work.

Other: Special features of the unemployment benefit system make short spells of unemployment very common in Denmark. Part-time employed are entitled to supplementary unemployment benefit for a period up to 12 months and can receive up to two-thirds of the maximum unemployment benefit level. Insured employed without entitlement to paid vacation are eligible for unemployment benefit while on vacation. Unlike most OECD countries, self-employed persons have access to unemployment benefits. The generous unemployment benefit system contrasts with the liberal employment protection legislation of the Danish labor market. This special feature of the Danish labor market reflects the historical consensus

Table II-9.

Replacement Rates for Single-earner Households, 1994

Replacement rates at ⅔ of the average production worker (APW) wage

article image
Source: OECD, Employment Outlook, 1996.

Benefits can include housing allowances, child and family allowances.

Benefit amounts for couples are calculated on the basis of both spouses actively seeking work.

reached between social partners and the general public in the late 1960s that the quid pro quo for low employment protection would be a generous unemployment insurance system: the severance pay is moderate compared to other EU countries when an employee is let go; employers are only responsible for paying the first two days of unemployment. The severance pay was extended from one day to two days in 1993 as part of the authorities’ effort to lower temporary layoffs. Moreover, flexible working time arrangements are widespread in Denmark. Part-time employment amounts to around 22 percent of total employment.

1

Entrepreneur allowances are financial aid to unemployed to start up an own business.

2

In 1991, the parliament agreed to establish a commission (Zeuthen Committee) that would examine the structural problems of the Danish labor market. The commission concluded in 1992 that the results from the existing labor market programs were inadequate given the resources involved. See OECD, 1993 Annual Survey - Denmark, and Denmark - Recent Economic Developments, (SM/94/15, 1/18/94).

3

The Zeuthen Committee had put forward a proposal to cut the replacement rate from 90 percent to 80 percent and to raise at the same time the maximum unemployment benefit level from around 60 percent of the wage of an average production worker to roughly 80 percent.

4

Education leave for an approved training course could be given for up to one year. An employed person would need a record of three years of non-subsidized employment within the last five years and the employer’s approval. An unemployed person could only go on leave after the first six months of unemployment. Under child care leave, employed and unemployed persons have the right to 26 weeks leave for children under the age of one year and 13 weeks leave for children in the age group 1-8 years. Sabbatical leave applied only to employed persons for a period up to 52 weeks. Except for child-care leave, participants in leave schemes must be above 25 years.

5

Previously the duration was formally set at 2½ years but participation in active labor market schemes, e.g., subsidized job offers, could be used to extend the unemployment benefit period up to 8-9 years.

6

This is to take effect at the beginning of 1995. Failing to accept a reasonable offer could result in one week’s loss of benefits and lead to suspension of benefits when repeated. Previously, unemployed received the maximum unemployment benefit level when participating in activation measures. With the changes, they could receive less than the maximum.

7

There are 14 regional labor market councils and they consist of local employees representatives, private sector employers and local authorities.

8

The compensation rate for young uninsured persons without children and less than 18 months of work-income was reduced to 40 percent of the maximum unemployment benefit. In general, the maximum cash benefits under social assistance are fixed at 80 percent of the maximum unemployment benefit for persons with dependent children and 60 percent for others. See A Brief Description of the Danish Labor Market, Ministry of Finance, February 1996.

9

Periods under parental leave are not counted as part of the unemployment benefit period.

10

Mainly women participated in the leave schemes and, at the early stage, mostly in child-care leave. This has gradually changed as a result of the lowering of the compensation rate for child-care leave.

11

Initially, the same amount of employed and unemployed went on leave. The share of employed persons on leave declined gradually from around 50 percent in 1994 to around 40 percent first half 1996 (see Table II-2) Since 1996, there has also been a slight reduction in die number of unemployed going on educational leave, reflecting, inter alia, the abolishment of the possibility to use educational leave to extend the unemployment benefit period in 1996.

12

The stagnation of construction-sector employment in the course of 1995 was influenced, inter alia, by a shift from renovation to new construction and infrastructure projects, which are less labor intensive. The decline in the first quarter 1996 was due to the more difficult than usual winter weather conditions.

13

The decline in public employment in 1994 reflected the decrease in the number of activated unemployed on subsidized jobs in local government and the popularity of the leave schemes amongst public employees. (See Denmark - Staff Report for the 1995 Article IV Consultation (SM/95/56, 3/23/95))

14

Since there is no data available, it is difficult to indicate to what extent job rotation was used.

15

The rise in the number of two-earner households may have reduced regional mobility and contributed somewhat to a less flexible labor market.

16

Entry wages in these two sectors are closer to the minimum wage, which is set in collective agreement, than in most other sectors. There is no legal minimum wage in Denmark.

17

Finansredegørelse, Ministry of Finance, 1996

18

Updating of the Danish Employment Programme, Ministry of Economic Affairs and Ministry of Labor, October 1996.

19

See SM/94/15 Appendix IV for a more detailed description of factors behind the rise in the structural unemployment rate up to 1993.

20

The data on the number of vacancies at the end of the month includes open job orders, positions the PES is not directly responsible for filling. Open job orders are, however, not included in the series on vacancies in the mid-1980s. Thus, the data on the number of vacancies at the end of the month is inflated for the 1990s since open job orders are included.

21

A recent OECD study indicates that the results of active labor market programs raising the effective supply of labor were far from conclusive. See OECD, Jobs Strategy: Enhancing the Effectiveness of Active Labor Market Policies, 1996.

22

For previous estimates, see “Denmark - Recent Economic Developments” (SM/95/62).

23

To some extent, different estimates of the gap in 1997 reflect different projections for actual GDP. The staff also uses the most recent revisions in GDP data for 1995-96, released in January 1997.

Denmark: Recent Economic Developments
Author: International Monetary Fund