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Denmark scores highly on many dimensions of well-being. Nevertheless, weak productivity growth over the past two decades has contributed to a widening of the income gap vis-à-vis leading OECD economies. Renewing with stronger productivity growth over the longer run is an overarching challenge for Denmark and calls for keeping up structural reform efforts.
Rebalancing the economy: The economy is set to recover gradually as world trade regains momentum and confidence improves. However, household debt is high and there remain fragilities in the financial sector, which entail risks for private consumption and public finance. The financial sector is large, with seven systemically important financial institutions, and the share of deferred-amortisation mortgage loans has become too high for comfort. On the fiscal side, the framework has been strengthened in recent years, public finances are in a relatively good shape and automatic stabilisers are large, which helps buffer adverse shocks. Past and recent structural reforms will help to raise labour market participation and to better control public expenditure. However, the tax burden on upper labour incomes remains elevated and is likely detrimental to economic growth.
Fostering competition and innovation: Weak competition in some sectors and shortcomings in the innovation policy framework hold back productivity growth, notwithstanding high R&D spending, and can hinder participation in global value chains, which is one channel to achieve productivity gains. Regulatory hurdles impede competition in the services sector. Ownership, zoning and size regulations, as well as national standards that differ from international ones restrict entry in several sectors. With public spending in relation to GDP among the highest in the OECD, intensifying competition in the public sector can also raise productivity. In addition, there is room to enhance the efficiency of innovation policies. In particular, it is important to make sure that some schemes provide efficient support to young and dynamic innovative firms.
Making the most of skills: With free and broad access to education, a long tradition of active labour market policies, and a well-developed adult learning system, skills are relatively good, although some groups lack basic skills. Ongoing reforms of compulsory education and of the vocational education and training system will raise the skills of youth and improve transitions to the labour market. While the flexibility of the Danish labour market helps achieve an efficient allocation of skills within the economy, the share of high-skilled workers in the private sector is relatively low, which can partly be explained by weak incentives to undertake tertiary education and to choose demanding jobs. Employment rates are high, but people who are outside the labour market face low financial incentives to take a job. The recent reform of the flexjob and disability programmes should help to better activate skills if adequately implemented.
For further information please contact the Denmark Desk at the OECD Economics Department at firstname.lastname@example.org.
The Secretariat’s draft report was prepared for the Committee by Stéphanie Jamet and Muge Adalet McGowan under the supervision of Vincent Koen. Research and editorial assistance was provided by Lutécia Daniel.