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January 23rd, 2013

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Before the daffodils arrive this spring, the government hopes to introduce reforms to kick-start Denmark’s ailing economy and get people back into work. But business and union leaders have already voiced their proposals, and they vary vastly.

Like the rest of Europe, Denmark is struggling to shrug off the effects of the 2008 financial crisis before which only around 67,500 people were unemployed. Unemployment rapidly rose following the crisis and levelled off at around 163,000 in early 2010 where it remains today.

Industrial jobs have been particularly slow to return to Denmark, which Nils Smedegaard Andersen, the managing director of shipping giant AP Moller-Maersk, stated is because Danish salaries are uncompetitive.

“In order to make it possible for more people to enter the job market, we need to lower salaries. This will enable industry to remain in Denmark and provide work,” Andersen told Berlingske newspaper. “Not everyone is highly educated or qualified enough for more advanced jobs, and Danish salaries are not competitive with those in India, Germany or Sweden. That’s why jobs are leaving the country.”

His view is supported by Lars Løkke Rasmussen, the leader of the centre-right party Venstre, Denmark’s largest political party.

“We need to first and foremost ensure that people increase their education and qualifications in order to be able to compete for knowledge work, but we also need to ensure that our salaries do not rise faster than abroad, which would reduce our competitive ability.”

Venstre and other right-wing parties have also argued that there are plenty of low income jobs available, but that there is little incentive to take a job because unemployment benefits are too generous.

One Venstre MP, Hans Andersen, even argued that the unemployed should be forced to move to parts of the country where work is available. Libertarian party Liberal Alliance (LA) argued that simply cutting unemployment benefits was sufficient, however.

“Our benefits are too generous,” LA MP Joachim B Olsen told the tabloid Ekstra Bladet. “It would make more sense to cut it to a reasonable level rather than make them move. If there is the correct incentive, people will move on their own.”

But not everyone agrees that the unemployed are to blame for the struggling economy. The confederation of trade unions, LO, argue that over 21,000 jobs could be created over the next two years if the government and pension funds invested in Danish infrastructure.

“The lack of growth can be blamed first and foremost on the fact that we are not spending enough money,” LO’s chairman, Harald Børsting, stated in a press release. “We need to increase domestic demand in order to create more workplaces.”

LO’s proposals include building new public housing, investing in railways and improving energy efficiency, as well as halting proposed cuts to the tax authority Skat. It argues that employing 500 more full-time staff members will result in a 300 million kroner annual surplus after their salaries are paid.

Liberal think-tank CEPOS, on the other hand, argue that reducing the tax burden would be a more effective means of increasing private consumption.

“The public sector freeze in 2013 freed up eight billion kroner that can be used to reduce taxes on corporations and energy as well as levies on soft drinks, candy and other items that are sensitive to cross-border trade,” CEPOS chief economist Mads Lundby Hansen told The Copenhagen Post. “These will stimulate the Danish economy by increasing private consumption because of price reductions. Decreasing corporate tax rates will make investing in technology and research more attractive, while reducing taxes on energy will increase competition.”

Hansen argued that LO’s proposal to increase public investment was not going to work because it took too long for the money to actually get spent.

“This is because architects need to first design the projects, and neighbours need to be consulted, before it all goes ahead because this is public money we are talking about.”

So far the government has remained quiet about what sorts of reforms it is planning to make. But a statement on Tuesday by the economy minister, Margrethe Vestager (Radikale), suggests that strengthening the private sector will be the focus of its efforts.

“We are going to look at ways of making Denmark an attractive country to bring workplaces,” Vestager stated. “Employees of private businesses create the wealth of the welfare state we all enjoy. More private jobs is a prerequisite for ensuring that we can maintain our children’s education and access to healthcare, and that we can continue to take care of people that cannot manage on their own.”

Vestager added that Denmark also needs to become a more attractive country to invest in. However, Andreas Højbjerre, a labour market economist at the think-tank Kraka, argues that it is not realistic to lower salaries in the short-term because wages are agreed through the three-party negotiations between employers, unions and the government.

“The most realistic approach is to look at reforms that increase labour supply in order to increase competition in the labour market in the long-term, and thereby suppress the rate that salaries increase,” Højberg told The Copenhagen Post, adding that the government also needed to find ways of moving people from unemployment benefits back into the labour market.

“There are different ways of achieving this through the tax system by, for example, creating a special tax credit for low salaried groups such as single parents. They could also find ways to motivate young people to find work by forcing them to apply for more work in exchange for receiving their unemployment benefits.”