Spare capacity in the labour market

Authors Jørgensen, Casper Winther Nguyen; Danielsen, Troels Kromand
Subject Danish Economy; Economic activity and employment
Type Monetary Review  
Year 2015
Published 9 October 2015
Link to publication Monetary Review, 3rd Quarter 2015
The Danish economy is currently in an upswing, and the labour market is improving. Wage increases are expected to accelerate in the coming years in step with the economic recovery and rising employment. More and more indications of labour shortage may gradually appear in parts of the labour market, without generating a general pressure or overheating Experience from the mid-2000s shows that the signals of overheating from e.g. wage developments may appear at a late stage. The article provides an overview of possible indicators of the labour market situation. They still point to spare resources in the labour market. Seen in a longer perspective, unemployment is low in Denmark, meaning that employment growth must come from resources outside the labour market. In order to avoid overheating of the labour market, it is thus important that firms can e.g. recruit staff from abroad and that reforms implemented to increase the supply of labour have the intended effect. Hence, due diligence in economic policy is a key element for a stable course of the Danish economy in the coming years. A shortage of labour will raise the requirements of both fiscal and structural policy.