Economic surveys and country surveillance

Economic Survey of Denmark 2009: Human capital: key to higher productivity

 

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The following OECD assessment and recommendations summarise chapter 3 of the Economic Survey of Denmark published on 5 November 2009.

 

Contents

 

Human capital is a key to productivity

Human capital is important to productivity performance for a number of reasons. In general, increasing skills can lead to restructuring of production towards activities with higher value added. The right training can boost the likelihood of success as an entrepreneur. Human capital is important for R&D, both in undertaking research but also in having the skills and knowledge to implement new technologies and methods in the workplace. Moreover, higher-skilled workers might be more flexible and able to adapt more easily to new environments.

Educational attainment is relatively high in Denmark
In 2007¹

1. International comparisons shown in this chapter are all based on the ISCED classification of educational programmes as applied in the OECD Education at a Glance publication. In ISCED the concepts of upper secondary and tertiary education tend to be wider than the similar Danish concepts used in national statistics shown in this chapter. Based on the national concepts underlying Figure 3.2, the share of 35 44 year olds having completed secondary and tertiary education, respectively would be only 80% and 34% in 2007, i.e. lower than when based on the internationally-comparable concepts.
Source: OECD (2009a), Education at a Glance.

Education outcomes are not as good as they could be

Human capital has traditionally been considered a strong point for the Danish economy, not least thanks to the quality of life-long learning. However, educational achievement studies have indicated that Danish education outcomes were not as good as generally perceived, or as could be expected given the considerable resources available. Also notable in international comparison are the high rates of dropout from upper secondary education, particularly for immigrant children, and the high average age of completion of tertiary education. The latter reflects primarily long gaps between completion of secondary school and entry into tertiary studies. In light of the results on educational attainment, a number of measures have been taken in recent years. These have focused on strengthening the education content of the earliest years in the formal school system, increasing reporting of individual education progress, promoting an evaluation culture, and boosting Danish language training for immigrants. Recent survey results indicate that children at age 10 or 11 have better skills today than five to 10 years ago.

The distribution of hourly wage earnings has narrowed over the past quarter of a century, due to relatively strong wage increases for low-income earners. Over time, education has become more important in determining individual earnings, while age and experience are now less important. This suggests the need for a strong general level of education that can support a flexible and adaptive workforce. While the overall wage distribution narrowed in the 1980s and has not changed much since, relative wages have risen for the most highly educated.

There is a need for strengthened educational content and more accountability and flexibility in schools

The pre-school class offered for six-year olds before commencing formal primary school has now been made compulsory and the educational content of this year has been strengthened. In addition, language testing has been introduced at ages three and six to identify children who might require extra assistance with language development. However, there is still scope for improvement in early childhood learning. Recent reforms of the voluntary 10th form (for 16 year olds) have strengthened its educational content and provided opportunities for students to try out vocational education pathways to help them make better career and study choices. Targeting the 10th form more carefully towards the weakest students would release resources that could be better employed elsewhere in the education system and may speed up entry into further studies. Indeed, the share of students attending 10th form has started to decline somewhat.

Additional training is being introduced for both teachers and school administrators to bolster education quality. Continued efforts are needed to build a “culture of evaluation” and to strengthen school leadership. A long-term goal might be to use the outcomes of both educational quality reporting and compulsory national testing of students in carrying out the performance assessment of teaching and schools. The ensuing contestability might yield quality gains. There might also be scope for attracting and motivating high-performing teachers via more pay flexibility. This could be achieved through an accreditation scheme, where completion of professional education programmes could attract higher remuneration.

Reducing dropout rates from upper secondary school is a key challenge…

The number of youth dropping out from upper secondary education presents a major challenge to achieving the government’s ambitious goals for secondary school completion rates. Reviewing the diverse array of paths available in secondary education is necessary, particularly to ensure that vocational programmes provide a solid basis of education to allow graduates to retrain later in life if necessary. At the same time, introducing practical components earlier in vocational programmes could reduce dropouts by people who are less academically and more practically inclined. More information about labour market outcomes for recent graduates could also help youth make better study choices.
There is also a case for extending the special welfare benefit arrangements applying to people under 25 to all those aged less than 30. The youth regime applying to under 25 year olds involves reduced unemployment insurance and social assistance benefits and stronger focus on education or activation. This approach has clearly reduced inactivity amongst young people.

However, completion rates for tertiary education have declined
somewhat
recently
Projected completion rates 25 years after leaving compulsory education¹

1. Based on the so-called profile model which estimates the theoretical completion rate 25 years after leaving compulsory education given behaviour and transition frequencies across the education system and age groups in a given year. Immigrants are only included if having arrived in the country at age 15 or before.
2. These targets were established in the Danish government’s strategy Progress, Innovation and Cohesion (Danish Government, 2006).
Source: UNI C (2009).

… as is getting students through tertiary education earlier

In the tertiary system, average completion times have fallen slightly over the current decade, but students are taking a long time to move from secondary to tertiary education, primarily owing to periods of work rather than being out of the labour force. As a result, the median age of students when they start tertiary education, at over 22 years, is the second-highest in the OECD. This generates significant foregone tax revenue, to the extent that swifter entry into, and completion of, tertiary education would lead to higher lifetime earnings. Measures are being introduced to encourage more timely completion, including making it easier to enter tertiary education if students move quickly from the secondary level and providing universities with more incentives to promote on-time completion. The recent tax reforms, which reduce high marginal tax rates, should raise the returns to education in the long term. However, the recent measure allowing students to earn more from work before losing some public grants might not encourage timely completion. Reducing the generosity of study grants, particularly if studies are prolonged, would encourage shorter study time.

In the long term, particularly if the overall tax burden on higher incomes continues to fall, a system of tuition fees for Danish and EU students, combined with income-contingent loans, might encourage quicker completion and help students make better study choices. This would encourage competition, and therefore efficiency, among universities and give them more flexibility to design innovative courses and programmes to meet demand. Furthermore, moving towards general tuition charging would give universities better conditions to develop attractive offers for foreign students, at lower cost to public finances.

 

How to obtain this publication

 

The complete edition of the Economic Survey of Denmark is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

 

Additional information

For further information please contact the Denmark Desk at the OECD Economics Department at eco.survey@oecd.org

The OECD Secretariat's report was prepared by Stéphanie Jamet, Peter Welz and Niels-Jakob Harbo Hansen under the supervision of Vincent Koen. Research assistance was provided by Lutécia Daniel.

 

 

 

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