One European Country’s Job Market Just Turned ‘Extremely Hot’

 


For a glimpse of how wages can take off in a wealthy European economy breaking free from the coronavirus crisis, take a look at Denmark. 

Private-sector pay there jumped an annual 3.2% in the third quarter after rising 3.1% in the second quarter, Danske Bank A/S, the country’s biggest lender, said in a report on Monday, citing data from employers’ federation DA. Swedbank chimed in on Tuesday, describing the labor market as “extremely hot.”

Danish wage growth is at multi-year high on lack of workers
 
 

At a time when policymakers in the neighboring eurozone are scrutinizing wage data for signs of accelerating inflation becoming entrenched, the Danish example showcases how such a scenario could potentially begin to emerge. 

Denmark takes pride in its so-called “flexicurity” labor-market model that combines an easy-to-fire work culture with a generous safety net. That approach has helped generate some of the world’s best pay levels for low-skilled jobs, placing the country highest in the European Union for hourly labor costs last year at an equivalent of 45.8 euros ($52).

“We are seeing inflation starting to rise and we believe our members should see a real wage growth above inflation,” Claus Jensen, chairman of Dansk Metal, that represents industry workers as one of the country’s biggest unions, said by phone.

He reckons pay hikes may total as much as 3.5% next year “at a minimum.” Soaring energy costs have pushed inflation to a decade-high 3%. 

Danske Bank had expected labor shortages to gradually wear off after the economy reopened. Instead, the problem has lingered long enough to curb production, and workers have started securing above-inflation wage hikes in some recently concluded negotiations postponed by the crisis, according to Chief Economist Lars Olsen. f

Danske Bank will now likely have to raise its forecast for pay growth, compared with an outlook last month predicting 3.1% this year and 2.8% in 2022. Swedbank expects nominal private-sector wages to grow by about 3% in a forthcoming couple of years. 

The Danish system has guaranteed security for workers through jobless benefits while employers enjoy certain flexibility that allows them to hire and fire relatively freely, underscored by a policy to keep government intervention in pay talks extremely rare. 

Dansk Metal’s Jensen said he expects flexicurity to address the current situation.

“The Danish labor market model is tailor-made to solve these current issues because companies have to constantly adapt working conditions and that ensures that employees get their part of the prosperity,” he said.

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