Denmark eradicates unemployment in 15 yrs
Monday, 18 August 2008
COPENHAGEN, Aug 17 (AFP): Denmark has almost eradicated unemployment in just 15 years, thanks to reforms and a system of flexicurity that mixes flexibility for employers with worker protection, but the good times could soon be coming to an end, analysts warn.
The Scandinavian country registered a jobless rate of just 1.6 per cent in June, an all-time low that Denmark and Norway alone can tout in Europe and a far cry from the 12.8 per cent Denmark posted in 1993.
But there is a flip-side to the coin: the labour market is now suffering from a labour shortage, leading to mounting wage pressures and a decline in competitivity.
"I think we've hit bottom and the (recent) decline in growth will put the brakes on the declining unemployment rate in the months to come," Handelsbanken chief analyst Jes Asmussen told the news agency.
Denmark is formally in a recession, registering two successive quarters of negative growth.
"The low jobless rate is a reminder to politicians to put labour market reforms at the top of their agenda," he said.
"Companies in Denmark have a labour shortage, and the few job seekers are not able to fill all their needs. That's why reforms are needed to increase the labour force numbers significantly," said Thomas Christensen, a consultant at the Confederation of Danish Industry representing 11,000 companies.
More than 900,000 people between the ages of 16 and 64 remain outside the labour 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.
In order to incite Danes to re-enter the labour market, Christensen said Denmark needed to "reduce income tax, suppress early retirement, and reduce the period of unemployment insurance" which currently runs for four years.
He also favours a further opening of Denmark's borders to citizens outside the European Union.
The Danish government, which has a strict immigration policy and only allows in a small number of skilled labourers, has rejected that option and insisted instead that immigrants already in the country need to participate more fully in the labour market.
The Economic Council of the Labour 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.
"If growth becomes negative (as was the case in the first six months of the year), and if productivity continues to decline as salaries rise, then unemployment will start to increase," economist Frederik Pedersen said.
The labour shortage has led employers to "recruit those who in normal times are passed over, such as immigrants and older people", which is "a good thing for society as a whole."
Increasing the number of people in the workforce is "a top priority," Prime Minister Anders Fogh Rasmussen said recently.
"That which is slowing Denmark's economic growth is the labour shortage," he said, acknowledging the global economic slowdown was also having an effect.
He stressed the government was "doubling its efforts to increase the number of workers so that the Danish economy can remain solid and healthy."
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 unfavourable: 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 per cent in 1993 -- the highest level since the 1930s-to 1.6 per cent in 2008.
The jobless rate has not disappeared "under a magic wand," Bocian insisted.
"A strong international economic cycle, the flexibility of the labour market and a series of reforms that required the jobless to end their dependency on benefits have all largely contributed to this success," he said.
The reforms undertaken by the Social Democratic government in power from 1993 to 2001 included the reduction of unemployment benefits for young people and slashing the maximum period for unemployment benefits from nine to four years, and pushing back early retirement.
The Scandinavian country registered a jobless rate of just 1.6 per cent in June, an all-time low that Denmark and Norway alone can tout in Europe and a far cry from the 12.8 per cent Denmark posted in 1993.
But there is a flip-side to the coin: the labour market is now suffering from a labour shortage, leading to mounting wage pressures and a decline in competitivity.
"I think we've hit bottom and the (recent) decline in growth will put the brakes on the declining unemployment rate in the months to come," Handelsbanken chief analyst Jes Asmussen told the news agency.
Denmark is formally in a recession, registering two successive quarters of negative growth.
"The low jobless rate is a reminder to politicians to put labour market reforms at the top of their agenda," he said.
"Companies in Denmark have a labour shortage, and the few job seekers are not able to fill all their needs. That's why reforms are needed to increase the labour force numbers significantly," said Thomas Christensen, a consultant at the Confederation of Danish Industry representing 11,000 companies.
More than 900,000 people between the ages of 16 and 64 remain outside the labour 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.
In order to incite Danes to re-enter the labour market, Christensen said Denmark needed to "reduce income tax, suppress early retirement, and reduce the period of unemployment insurance" which currently runs for four years.
He also favours a further opening of Denmark's borders to citizens outside the European Union.
The Danish government, which has a strict immigration policy and only allows in a small number of skilled labourers, has rejected that option and insisted instead that immigrants already in the country need to participate more fully in the labour market.
The Economic Council of the Labour 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.
"If growth becomes negative (as was the case in the first six months of the year), and if productivity continues to decline as salaries rise, then unemployment will start to increase," economist Frederik Pedersen said.
The labour shortage has led employers to "recruit those who in normal times are passed over, such as immigrants and older people", which is "a good thing for society as a whole."
Increasing the number of people in the workforce is "a top priority," Prime Minister Anders Fogh Rasmussen said recently.
"That which is slowing Denmark's economic growth is the labour shortage," he said, acknowledging the global economic slowdown was also having an effect.
He stressed the government was "doubling its efforts to increase the number of workers so that the Danish economy can remain solid and healthy."
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 unfavourable: 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 per cent in 1993 -- the highest level since the 1930s-to 1.6 per cent in 2008.
The jobless rate has not disappeared "under a magic wand," Bocian insisted.
"A strong international economic cycle, the flexibility of the labour market and a series of reforms that required the jobless to end their dependency on benefits have all largely contributed to this success," he said.
The reforms undertaken by the Social Democratic government in power from 1993 to 2001 included the reduction of unemployment benefits for young people and slashing the maximum period for unemployment benefits from nine to four years, and pushing back early retirement.