Economic Survey - Denmark 2005


Executive summary

The OECD assessment and recommendations on the main economic challenges faced by Denmark are available by clicking on each chapter heading below.

Key challenges

This chapter discusses the long term challenges facing the Danish economy. It reviews recent performance regarding per capita incomes, productivity growth and income inequality. The fundamental challenge is to maintain growth in living standards while preserving the welfare system. The chapter compares the government’s and the Welfare Commission’s estimates of fiscal sustainability in the face of an ageing population. The first way to meet this challenge is to increase labour supply. The areas where employment can be increased are identified (in particular, reducing early retirement and getting students into the workforce more quickly). Denmark’s low average hours of work are also discussed. The second way is to lift productivity growth and build a more modern knowledge based economy. Some problems with the education and innovation systems are highlighted, and areas where greater competition could boost productivity — especially in public services — are examined.

Ensuring fiscal sustainability

This chapter discusses the outlook for public finances given the pressures that are due to come from an ageing population. It compares the expenditure projections made by the government and the Welfare Commission (Velfærdskommissionen), and their varying assumptions on longevity and age-related healthcare costs. Despite differences, the studies suggest that current welfare system is not sustainable. Also discussed are the appropriateness of the government’s medium-term fiscal framework (the 2010 Plan) and the need for extra efforts to boost labour supply and make the pension system more robust in the face of uncertainties about what the future may bring. The chapter then looks at the restructuring and amalgamation of local governments. Municipalities and regions will be in the frontline in dealing with the demographic pressures on public finances. Making sure that they are the right size to handle the extra workload they will gain over time will be essential for improving the quality of public services and maintaining the welfare state.

Of special interestIs the welfare state sustainable?

Boosting labour supply

This chapter discusses how to increase labour supply, in terms of both hours of work and employment. The impact of high income taxes on working hours is discussed, and it is recommended that the top marginal tax rate be cut (as part of a revenue-neutral package). The parental leave scheme is one of the world’s most generous, and also contributes to low average working hours. Sickness absences can also be reduced as they are high by European standards. Turning to employment, the chapter looks at the impact of the Voluntary Early Retirement Pension (efterløn) on incentives to retire early. It also considers how much room there may be to improve the integration of immigrants, how to get university students through the education system faster, and how to make active labour market policies more effective.

Boosting growth through greater competition

This chapter discusses ways of strengthening the competitive environment that could help boost productivity performance in various sectors of the economy. It looks at a number of indicators of the strength of competition — including price levels, industrial concentration and product market regulation – and it discusses the appropriateness of the competition legislation framework. The chapter then focuses on the large public sector, which has been slow to open up to competition, partly because of regulatory restrictions but also because some local governments are too small to handle tenders and provide an attractive market for private providers. The amalgamations of municipalities are likely to help overcome such problems. The chapter also looks at the process of liberalising network industries and at various regulations that still impede effective competition in a number of other sectors, including construction, housing, distribution and professional services.

See also ECO Working Paper 431 Boosting growth through greater competition in Denmark

Raising productivity growth

This chapter looks at ways to increase productivity growth and build a more innovative, knowledge based economy. It focuses on improving the Danish school system, which is expensive but delivers results that are just average. It also discusses policies to make universities more flexible and labour market oriented, how to encourage greater commercialisation of R&D and how to get better value for money from the research funding system. Finally, it looks at measures to boost entrepreneurship and expand the venture capital market.

A printer-friendly Policy Brief (in PDF format) may also be downloaded. The Policy Brief contains the executive summary and the OECD assessment and recommendations, but does not include  the charts available from the above pages. There is also a version of the Policy Brief in Danish.



The complete edition of the OECD Economic Survey of Denmark 2005 is available from:



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