Export to Denmark service

The Danish labour market is characterized by a high degree of union membership rates and collective agreement coverage dating back from Septemberforliget (The September Settlement) in 1899 when the Danish Confederation of Trade Unions and the Confederation of Danish Employers recognized each other’s right to organise and negotiate. The labour market is also traditionally characterized by a high degree of flexicurity, i.e. a combination of labour market flexibility and economic security for workers.^[ The degree of flexibility is in part maintained through active labour market policies. Denmark first introduced active labour market policies (ALMPs) in the 1990s after an economic recession that resulted in high unemployment rates. Its labour market policies are decided through tripartite cooperation between employers, employees and the government. Denmark has one of the highest expenditures on ALMPs and in 2005, spent about 1.7% of its GDP on labour market policies. This was the highest amongst the OECD countries. Similarly, in 2010 Denmark was ranked number one amongst Nordic countries for expenditure on ALMPs.

Denmark’s active labour market policies particularly focus on tackling youth unemployment. They have had a “youth initiative” or the Danish Youth Unemployment Programme in place since 1996. This includes mandatory activation for those unemployed under the age of 30. While unemployment benefits are provided, the policies are designed to motivate job-seeking. For example, unemployment benefits decrease by 50% after 6 months. This is combined with education, skill development and work training programs. For instance, the Building Bridge to Education program was started in 2014 to provide mentors and skill development classes to youth that are at risk of unemployment. Such active labour market policies have been successful for Denmark in the short-term and the long-term. For example, 80% of participants in the Building Bridge for Education program felt that “the initiative has helped them to move towards completing an education”. On a more macro scale, a study of the impact of ALMPs in Denmark between 1995 and 2005 showed that such policies had positive impact not just on employment but also on earnings. The effective compensation rate for unemployed workers has been declining for the last decades, however. Unlike in most Western countries there is no legal minimum wage in Denmark.

A relatively large proportion of the population is active on the labour market, not least because of a very high female participation rate. The total participation rate for people aged 15 to 64 years was 78.8% in 2017. This was the 6th-highest number among OECD countries, only surpassed by Iceland, Switzerland, Sweden, New Zealand and the Netherlands. The average for all OECD countries together was 72.1%.

According to Eurostat, the unemployment rate was 5.7% in 2017. This places unemployment in Denmark somewhat below the EU average, which was 7.6%. 10 EU member countries had a lower unemployment rate than Denmark in 2017.

Altogether, total employment in 2017 amounted to 2,919,000 people according to Statistics Denmark.

The share of employees leaving jobs every year (for a new job, retirement or unemployment) in the private sector is around 30% – a level also observed in the U.K. and U.S.- but much higher than in continental Europe, where the corresponding figure is around 10%, and in Sweden. This attrition can be very costly, with new and old employees requiring half a year to return to old productivity levels, but with attrition bringing the number of people that have to be fired down.

Foreign trade

As a small open economy, Denmark is very dependent on its foreign trade. In 2017, the value of total exports of goods and services made up 55% of GDP, whereas the value of total imports amounted to 47% of GDP. Trade in goods made up slightly more than 60% of both exports and imports, and trade in services the remaining close to 40%.

Machinery, chemicals and related products like medicine and agricultural products were the largest groups of export goods in 2017. Service exports were dominated by freight sea transport services from the Danish merchant navy. Most of Denmark’s most important trading partners are neighbouring countries. The five main importers of Danish goods and services in 2017 were Germany, Sweden, United Kingdom, United States and Norway. The five countries from which Denmark imported most goods and services in 2017 were Germany, Sweden, the Netherlands, China and United Kingdom.

After having almost consistently an external balance of payments current account deficit since the beginning of the 1960s, Denmark has maintained a surplus on its BOP current account for every year since 1990, with the single exception of 1998. In 2017, the current account surplus amounted to approximately 8% of GDP. Consequently, Denmark has changed from a net debtor to a net creditor country. By 1 July 2018, the net foreign wealth or net international investment position of Denmark was equal to 64.6% of GDP, Denmark thus having the largest net foreign wealth relative to GDP of any EU country.

As the annual current account is equal to the value of domestic saving minus total domestic investment, the change from a structural deficit to a structural surplus is due to changes in these two national account components. In particular, the Danish national saving rate in financial assets increased by 11 per cent of GDP from 1980 to 2015. Two main reasons for this large change in domestic saving behaviour were the growing importance of large-scale compulsory pension schemes and several Danish fiscal policy reforms during the period which considerably decreased tax deductions of household interest expense, thus reducing the tax subsidy to private debt.

Currency and monetary policy

The Danish currency is the Danish krone, subdivided into 100 øre. The krone and øre were introduced in 1875, replacing the former rigsdaler and skilling. Denmark has a very long tradition of maintaining a fixed exchange-rate system, dating back to the period of the gold standard during the time of the Scandinavian Monetary Union from 1873 to 1914. After the breakdown of the international Bretton Woods system in 1971, Denmark devalued the krone repeatedly during the 1970s and the start of the 1980s, effectively maintaining a policy of “fixed, but adjustable” exchange rates. Rising inflation led to Denmark declaring a more consistent fixed exchange-rate policy in 1982. At first, the krone was pegged to the European Currency Unit or ECU, from 1987 to the Deutschmark, and from 1999 to the euro.

Although eligible, Denmark chose not to join the European Monetary Union when it was founded. In 2000, the Danish government advocated Danish EMU membership and called a referendum to settle the issue. With a turn-out of 87.6%, 53% of the voters rejected Danish membership. Occasionally, the question of calling another referendum on the issue has been discussed, but since the Financial crisis of 2007–2008 opinion polls have shown a clear majority against Denmark joining the EMU, and the question is not high on the political agenda presently.

Maintenance of the fixed exchange rate is the responsibility of Danmarks Nationalbank, the Danish central bank. As a consequence of the exchange rate policy, the bank must always adjust its interest rates to ensure a stable exchange rate and consequently cannot at the same time conduct monetary policy to stabilize e.g. domestic inflation or unemployment rates. This makes the conduct of stabilization policy fundamentally different from the situation in Denmark’s neighbouring countries like Norway, Sweden, Poland and the United Kingdom, in which the central banks have a central stabilizing role. Denmark is presently the only OECD member country maintaining an independent currency with a fixed exchange rate. Consequently, the Danish krone is the only currency in the European Exchange Rate Mechanism II (ERM II).

In the first months of 2015, Denmark experienced the largest pressure against the fixed exchange rate for many years because of very large capital inflows, causing a tendency for the Danish krone to appreciate. Danmarks Nationalbank reacted in various ways, chiefly by lowering its interest rates to record low levels. On 6 February 2015 the certificates of deposit rate, one of the four official Danish central bank rates, was lowered to −0.75%. In January 2016 the rate was raised to −0.65%, at which level it has been maintained since then.

Inflation in Denmark as measured by the official consumer price index of Statistics Denmark was 1.1% in 2017. Inflation has generally been low and stable for the last decades. Whereas in 1980 annual inflation was more than 12%, in the period 2000–2017 the average inflation rate was 1.8%.

Government

Overall organization

Since a local-government reform in 2007, the general government organization in Denmark is carried out on three administrative levels: central government, regions, and municipalities. Regions administer mainly health care services, whereas municipalities administer primary education and social services. Municipalities in principle independently levy income and property taxes, but the scope for total municipal taxation and expenditure is closely regulated by annual negotiations between the municipalities and the Finance Minister of Denmark. At the central government level, the Ministry of Finance carries out the coordinating role of conducting economic policy. In 2012, the Danish parliament passed a Budget Law (effective from January 2014) which governs the over-all fiscal framework, stating among other things that the structural deficit must never exceed 0.5% of GDP, and that Danish fiscal policy is required to be sustainable, i.e. have a non-negative fiscal sustainability indicator. The Budget Law also assigned the role of independent fiscal institution (IFI, informally known as “fiscal watchdog) to the already-existing independent advisory body of the Danish Economic Councils.^[71]

Budget and fiscal position

Danish fiscal policy is generally considered healthy. Government net debt was close to zero at the end of 2017, amounting to DKK 27.3 billion, or 1.3% of GDP. The government sector having a fair amount of financial assets as well as liabilities, government gross debt amounted to 36.1% of GDP at the same date. The gross EMU-debt as percentage of GDP was the sixth-lowest among all 28 EU member countries, only Estonia, Luxembourg, Bulgaria, the Czech Republic and Romania having a lower gross debt. Denmark had a government budget surplus of 1.1% of GDP in 2017.

Long-run annual fiscal projections from the Danish government as well as the independent Danish Economic Council, taking into account likely future fiscal developments caused by demographic developments etc. (e.g. a likely ageing of the population caused by a considerable expansion of life expectancy), consider the Danish fiscal policy to be overly sustainable in the long run. In Spring 2018, the so-called Fiscal Sustainability Indicator was calculated to be 1.2 (by the Danish government) respectively 0.9% (by the Danish Economic Council) of GDP. This implies that under the assumptions employed in the projections, fiscal policy could be permanently loosened (via more generous public expenditures and/or lower taxes) by ca. 1% of GDP while still maintaining a stable government debt-to-GDP ratio in the long run.

Taxation

The tax level as well as the government expenditure level in Denmark ranks among the highest in the world, which is traditionally ascribed to the Nordic model of which Denmark is an example, including the welfare state principles which historically evolved during the 20th century. In 2017, the official Danish tax level amounted to 46.1% of GDP. The all-record highest Danish tax level was 49.8% of GDP, reached in 2014 because of high extraordinary one-time tax revenues caused by a reorganization of the Danish-funded pension system. The Danish tax-to-GDP-ratio of 46% was the second-highest among all OECD countries, second only to France. The OECD average was 34.2%. The tax structure of Denmark (the relative weight of different taxes) also differs from the OECD average, as the Danish tax system in 2015 was characterized by substantially higher revenues from taxes on personal income, whereas on the other hand, no revenues at all derive from social security contributions. A lower proportion of revenues in Denmark derive from taxes on corporate income and gains and property taxes than in OECD generally, whereas the proportion deriving from payroll taxes, VAT, and other taxes on goods and services correspond to the OECD average.

In 2016, the average marginal tax rate on labour income for all Danish tax-payers was 38.9%. The average marginal tax on personal capital income was 30.7%.

Professor of Economics at Princeton University Henrik Kleven has suggested that three distinct policies in Denmark and its Scandinavian neighbours imply that the high tax rates cause only relatively small distortions to the economy: widespread use of third-party information reporting for tax collection purposes (ensuring a low level of tax evasion), broad tax bases (ensuring a low level of tax avoidance), and a strong subsidization of goods that are complementary to working (ensuring a high level of labour force participation).

Government Expenditures

Parallel to the high tax level, government expenditures make up a large part of GDP, and the government sector carries out many different tasks. By September 2018, 831,000 people worked in the general government sector, corresponding to 29.9% of all employees. In 2017, total government expenditure amounted to 50.9% of GDP. Government consumption took up precisely 25% of GDP (e.g. education and health care expenditure), and government investment (infrastructure etc.) expenditure another 3.4% of GDP. Personal income transfers (for e.g. elderly or unemployed people) amounted to 16.8% of GDP.

Denmark has an unemployment insurance system called the A-kasse (arbejdsløshedskasse). This system requires a paying membership of a state-recognized unemployment fund. Most of these funds are managed by trade unions, and part of their expenses are financed through the tax system. Members of an A-kasse are not obliged to be members of a trade union. Not every Danish citizen or employee qualifies for a membership of an unemployment fund, and membership benefits will be terminated after 2 years of unemployment. A person that is not a member of an A-kasse cannot receive unemployment benefits. Unemployment funds do not pay benefits to sick members, who will be transferred to a municipal social support system instead. Denmark has a countrywide, but municipally administered social support system against poverty, securing that qualified citizens have a minimum living income. All Danish citizens above 18 years of age can apply for some financial support if they cannot support themselves or their family. Approval is not automatic, and the extent of this system has generally been diminished since the 1980s. Sick people can receive some financial support throughout the extent of their illness. Their ability to work will be re-evaluated by the municipality after 5 months of illness.

The welfare system related to the labor market has experienced several reforms and financial cuts since the late 1990s due to political agendas for increasing the labor supply. Several reforms of the rights of the unemployed have followed up, partially inspired by the Danish Economic Council. Halving the time unemployment benefits can be received from four to two years, and making it twice as hard to regain this right, was implemented in 2010 for example.

Disabled people can apply for permanent social pensions. The extent of the support depends on the ability to work, and people below 40 can not receive social pension unless they are deemed incapable of any kind of work.

Industries

Agriculture

Pasture grazing cattle (Rømø)

Agriculture was once the most important industry in Denmark. Nowadays, it is of minor economic importance. In 2016, 62,000 people, or 2.5% of all employed people worked in agriculture and horticulture. Another 2,000 people worked in fishing. As value added per person is relatively low, the share of national value added is somewhat lower. Total gross value added in agriculture, forestry and fishing amounted to 1.6% of total output in Denmark (in 2017). Despite this, Denmark is still home to various types of agricultural production. Within animal husbandry, it includes dairy and beef cattle, pigs, poultry and fur animals (primarily mink) – all sectors that produce mainly for export. Regarding vegetable production, Denmark is a leading producer of grass-, clover- and horticultural seeds. The agriculture and food sector as a whole represented 25% of total Danish commodity exports in 2015.

63% of the land area of Denmark is used for agricultural production – the highest share in the world according to a report from University of Copenhagen in 2017. The Danish agricultural industry is historically characterized by freehold and family ownership, but due to structural development farms have become fewer and larger. In 2020 the number of farms was approximately 33,000, of which approximately 10,000 were owned by full-time farmers.

Animal production

The tendency toward fewer and larger farms has been accompanied by an increase in animal production, using fewer resources per produced unit.

The number of dairy farmers has reduced to about 3,800 with an average herd size of 150 cows. The milk quota is 1,142 tonnes. Danish dairy farmers are among the largest and most modern producers in Europe. More than half of the cows live in new loose-housing systems. Export of dairy products accounts for more than 20 percent of the total Danish agricultural export. The total number of cattle in 2011 was approximately 1.5 million. Of these, 565,000 were dairy cows and 99,000 were suckler cows. The yearly number of slaughtering of beef cattle is around 550,000.

For more than 100 years the production of pigs and pig meat was a major source of income in Denmark. The Danish pig industry is among the world’s leaders in areas such as breeding, quality, food safety, animal welfare and traceability creating the basis for Denmark being among the world’s largest pig meat exporters. Approximately 90 percent of the production is exported. This accounts for almost half of all agricultural exports and for more than 5 percent of Denmark’s total exports. About 4,200 farmers produce 28 million pigs annually. Of these, 20.9 million are slaughtered in Denmark.

Fur animal production on an industrial scale started in the 1930s in Denmark. Prior to a government-mandated culling during the COVID-19 pandemic, Denmark was the world’s largest producer of mink furs, with 1,400 mink farmers fostering 17.2 million mink and producing around 14 million furs of the highest quality every year (see mink industry in Denmark). Approximately 98 percent of the skins sold at Kopenhagen Fur Auction were exported. Fur ranked as Danish agriculture’s third largest export article, at more than DKK 7 billion annually. The number of farms peaked in the late 1980s at more than 5,000 farms, but the number has declined steadily since, as individual farms grew in size. Danish mink farmers claim their business to be sustainable, feeding the mink food industry waste and using all parts of the dead animal as meat, bone meal and biofuel. Special attention is given to the welfare of the mink, and regular “Open Farm” arrangements are made for the general public. Mink thrive in, but are not a native to Denmark, and it is considered an invasive species. American Mink are now widespread in Denmark and continues to cause problems for the native wildlife, in particular waterfowl. Denmark also has a small production of fox, chinchilla and rabbit furs.

Two hundred professional producers are responsible for the Danish egg production, which was 66 million kg in 2011. Chickens for slaughter are often produced in units with 40,000 broilers. In 2012, 100 million chickens were slaughtered. In the minor productions of poultry, 13 million ducks, 1.4 million geese and 5.0 million turkeys were slaughtered in 2012.

Organic production

Organic farming and production has increased considerably and continuously in Denmark since 1987 when the first official regulations of this particular agricultural method came into effect. In 2017, the export of organic products reached DK 2.95 billion, a 153% increase from 2012 five years earlier, and a 21% increase from 2016. The import of organic products has always been higher than the exports though and reached DK 3.86 billion in 2017. After some years of stagnation, close to 10% of the cultivated land is now categorized as organically farmed, and 13.6% for the dairy industry, as of 2017.

Denmark has the highest retail consumption share for organic products in the world. In 2017, the share was at 13.3%, accounting for a total of DKK 12.1 billion.

Natural resource extraction

Denmark has large proven reserves of oil and natural gas in the North Sea with Esbjerg being the main city for the oil and gas industry. Denmark is the largest producer of oil and natural gas in the EU. Production has decreased in recent years, though. Whereas in 2006 output (measured as gross value added or GVA) in mining and quarrying industries made up more than 4% of Denmark’s total GVA, in 2017 it amounted to 1.2%. The sector is very capital-intensive, so the share of employment is much lower: About 2,000 persons worked in the oil and gas extraction sector in 2016, and another 1,000 persons in extraction of gravel and stone, or in total about 0.1% of total employment in Denmark.

Engineering and high-tech

Denmark houses a number of significant engineering and high-technology firms, within the sectors of industrial equipment, aerospace, robotics, pharmaceutical and electronics.

Electronics and industrial equipment

Danfoss, headquartered in Nordborg, designs and manufactures industrial electronics, heating and cooling equipment, as well as drivetrains and power solutions.

Denmark is also a large exporter of pumps, with the company Grundfos holding 50% of the market share, manufacturing circulation pumps.

Manufacturing

In 2017 total output (gross value added) in manufacturing industries amounted to 14.4% of total output in Denmark. 325,000 people or a little less than 12% of all employed persons worked in manufacturing (including utilities, mining and quarrying) in 2016. Main sub-industries are manufacture of pharmaceuticals, machinery, and food products.