Denmark has almost eradicated unemployment in just 15 years, thanks to reforms and a system that mixes flexibility for employers with worker protection, but the good times could be coming to an end.
The country registered a jobless rate of just 1.6 percent in June, a far cry from the 12.8 percent Denmark posted in 1993.
But there is a flip-side: The labor market is now suffering from a labor shortage, leading to mounting wage pressures and a decline in competitivity.
Denmark is formally in a recession, registering two successive quarters of negative growth.
More than 900,000 people between the ages of 16 and 64 remain outside the labor market, and many of them, in particular those on early retirement and extended sick leave, are seen as holding the solution to Denmark’s woes.
Some favor a further opening of Denmark’s borders to citizens outside the EU. The government, which has a strict immigration policy, has rejected that option and insisted that immigrants already in the country should participate more in the labor market.
The Economic Council of the Labor Movement has meanwhile warned that gloomier days lie ahead for the Danish economy, with the country already in a recession, interest rates on the rise, and higher food and energy prices to come.
Increasing the number of workers is “a top priority,” Danish Prime Minister Anders Fogh Rasmussen said recently.
“That which is slowing Denmark’s economic growth is the labor shortage,” he said, acknowledging the global economic slowdown was also having an effect.
The record jobless rate has meanwhile surprised observers.
“It’s very surprising that the unemployment level continues to decline even when the economic indicators are unfavorable: a housing market under pressure, high inflation, and weak growth,” Danske Bank chief economist Steen Bocian said.
But experts are quick to hail the “unimaginable feat” accomplished in just 15 years: slashing unemployment from 12.8 percent in 1993 to 1.6 percent this year.
The jobless rate has not disappeared “under a magic wand,” Bocian said. “A strong international economic cycle, the flexibility of the labor market and a series of reforms that required the jobless to end their dependency on benefits have all largely contributed to this success.”
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