Mogens Lykketoft The Danish Model Mogens Lykketoft fm. Minister for Finance.

Mogens Lykketoft • www.lykketoft.dk

The Danish Model

Mogens Lykketoft

fm. Minister for Finance


Denmark 2008

• Top 3 in World Economic Forum’s index on Competition

• World champion in Transparency International Index


Compared to USA (immediately before 2008)

• Real income per capita, productivity, unemployment, inflation very much the same

• Denmark big surpluses on balance of payment and public finance

• Taxes and social expenses constitute twice as big a share of GDP in Denmark as in the US


Compared to USA (immediately before 2008)

• Danish model model beneficial for those with low income and in major health risks or risk of being unemployed ( social insurance/ tax financing instead of private insurance or paying market prices in health, higher education, old age care and kindergartens)

• DK: 9 % have less than half of median income in Denmark;

• USA: 21%


Fundamental Features

• Good level of basic education – socialize and improvise

• Increasing share of population gets higher education

• Small companies with high ability to adapt to changing market conditions

• Very liberal industrial policy and early opening up for foreign competition



• Investment encouraged through favourable depreciation and low company tax

• Interaction: industrial development, welfare and environment protection

• Interaction: high minimum wages and supplementary training and education



• Interaction: high minimum wages and supplementary training and education

• Easy to hire and fire – high tax-paid compensation for unskilled unemployed

• Increase in female participation: most important revolution

• thus: socialization of care for children, ill and old people



• Legislation about holidays, pre-pension scheme

• Build-up of major labour market supplementary pensions since 1980’ies

• Welfare reforms – 2006 decision about increasing retirement age as population lives longer


Oil crises, reforms and new unemployment ( 1973-1993)

• Increasing unemployment, inflation and devaluations 1973-1982

• Stop for automatic indexation of wages, fixed exchange rates, tax on pension funds, - new increase in employment

• Tax reform – austerity measures, depressed real estate market, big unemployment


Modernising the Danish Model - 200.000 more jobs (1993-2001)

• Unemployment and structural unemployment• Kick-starting – real estate credit, public

infrastructure investment, temporary tax reductions

• Structural reforms of labour market and tax system

• Investment in education and welfare (health, kindergartens, care for the elderly)


Danish Model under pressure ( 2001-2010)

• Tax freeze and tough regulation immigration • Privatization and ‘freedom of choice’• Weakening of the trade unions – fewer union

members and fewer insured against unemployment

• Bubble economy due to easy and excessive private borrowing – explosion in real estate values and share prices



• More unequal distribution of wealth and income

• Up to 2008 impressive rise in employment through both migrant workforce from especially Eastern Europe and unexpected fall in an already low unemployment



• Bubble bursting – rise in unemployment (again in spite of new wave of major tax reductions in preparation for next general election)

• Potentially weakened popular support for the welfare model (greater threat than ageing population, current financial crisis and global competition)

Mogens Lykketoft The Danish Model Mogens Lykketoft fm. Minister for Finance.

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