preface This book confronts the traditional view of Danish welfare over recent years. It is hoped that once the reader has read the book, he or she will have a deeper and perhaps completely different view of Danish welfare as it is today. Developments during the last 20 years have the usual traditional conceptions within the Danish Welfare State upside down. There is a great global interest in this Welfare State and its development; a Welfare State that has rock star status in the world. However, there are very few publications about the Danish Welfare State in English. Thus, it is hoped that this translation will become a necessary contribution to the understanding of the developments the Welfare State has been through during the last 20 years. During these years, the Danish Welfare State was forced to develop during a time of upheaval, where fluctuations in international markets also hit the open Danish economy at a faster rate than usual and, at times, with considerable trepidation. There was a clash between the new and the traditional. Digitization created new opportunities for communication and, perhaps, public administrative savings as well as personal choice for the population. On the other hand, however, technology removed some of the close and caring welfare for the weakest in society. In this century, men and women have become more equal. However, equality between the rich and the poor has slowly trickled out of Western societies. Even in the Nordic countries and Denmark, inequality increased significantly. One experienced not necessarily an acceptance of this, but, compared to earlier times, an increasing political indifference with regard to this development. On the one hand, Danish society became richer and stronger, with considerable balance of payments surpluses and a long-term sustainable economy. On the other hand, heavily indebted Danish homeowners became the main reason for declining consumption and low investment. Optimism was squeezed out of the Danish economy, many bastions of the Welfare State fell, and there was little growth in the wake of the economic crisis and financial panic of 2008-09. The breakdown of welfare was seen everywhere. Municipalities were pressured to make welfare reductions that would previously have been unthinkable preface ·
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due to emotional reactions from the population, politicians and professionals; a reaction that, in the face of the crisis, was almost non-existent. Denmark became increasingly affected by the power of the crisis, and it would only release its grip on the country after 2014. This meant that decisions, on the one hand, became more short-term and focused on Government deficits that had to be reduced at the expense of increases in welfare. Long-term decisions, on the other hand, were made in order to create sustainability and a room for manoeuvre in the economy for other reasons than welfare: tax cuts, climate change spending, immigrants, children and the elderly: that is to say, changing demographics. The idyllic nature of the Welfare State was disturbed due to great tensions between the original Danish population and immigrants with a low attachment to the labour market, but high take-up rates in welfare. There was a marked difference between the people who were inside and those who were outside the labour market. Denmark became divided into two nations: a nation with jobs and a nation without. The nation with jobs was prioritized. They were given employment tax breaks, were provided with labour market pensions, were able to access private health care insurance and were given more credence in social debates as well as within in everyday life in general. The nation without work was looked upon with suspicion. Their welfare services were reduced, and they were met with a lack of understanding as to why they were not in the labour market. While the wolf returned to make its home in the Danish countryside during the ‘00s, the wolf returned to knock at the door of those who were outside the Danish labour market. The main thought currents within public welfare of the ‘00s and ‘10s became work and assistance towards self-help. The upheaval also affected the view of welfare. From 2000 to 2008 politicians continued to believe the public sector should provide improved quality services. Additional funding was directed towards healthcare and other chosen areas of welfare, and it was believed that the Danish Welfare State was in a sound financial position. With the financial crisis of 2008-09 this attitude changed, and new principles were sought. Since 1922 social benefits had increasingly been granted according to objective criteria and at fixed rates. Now, the principle of administrative discretion prevailed in the allocation of public benefits and services to the detriment of objective criteria and fixed rates. 8 · major trends
The use of objective criteria in the granting of welfare benefits maintained the dignity of the country’s citizens because they knew why and what they were entitled to. The middle class had been too proud to receive alms, so the shift from a principle of administrative discretion to one of objective criteria and fixed rates in 1922 paved the way for the middle class to receive the benefits of welfare, too. However, from 2008-09, the principle of discretion began to displace objective criteria. Even though people who were handicapped, elderly or ill were deemed as needing aid, the Municipality could arbitrarily deprive them of aid on the grounds that the Municipality was in financial difficulties. Legal certainty seeped out of social policy. Social clients were made to feel that they were truly poor and dependent on help. As part of all this, new welfare theories emerged. One of them was the enabling society, where citizens, through training, learning or education, were required to develop competences and skills in order to be able to free themselves of the need for help from social services or welfare benefits. One example was the introduction of rehabilitation for the disabled and the elderly within the home care system, where the idea was to train people with impairments physically, socially and/or mentally so that they would be able to fend for themselves. During these dramatic changes for Denmark, studies nevertheless showed that the Danes were still the happiest people in the world. One of the criteria for happiness is justice. Despite these changes, the Danish population still felt that welfare was distributed fairly and that their own particular case would be dealt with fairly when it came to it. In the course of a generation, economists such as Milton Friedman, Robert Nozick, Friedrich Hayek and other radical liberal economic thinkers had taken over the ideological stage and pushed Keynes and other State interventionists aside in the political debate. This meant that tax cuts, despite uncertain effects on growth, became a recurring theme, not only in liberal and conservative circles in Denmark, but also within the political circles of the Social Democrats and the Danish Social-Liberal Party. It also meant that the public sector underwent a modernization process based on a New Public Management concept (NPM), which involved, among other things, the privatization of some public service institutions. From abroad, slow growth and rising inequalities became the governing trend.
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It will be our task to find a new formula for how to make Danish society not only more just and less unequal, but also richer. It is the author’s hope that this analysis of the development in the Danish Welfare State during the last two decades may shed some light on this task. Bjarne Hastrup 2020
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chapter 1 Freedom, Equality, and Welfare Welfare has become a fundamental integral part of Western civilization A prerequisite for welfare development has not only been the West’s rapid economic growth, which resulted in a high per capita income level, combined with a release of labour from agriculture and industry etc., which in turn was utilized in the welfare sector, but also the pervasive democratization of most Western countries has been a further underlying driving force. At the same time, nations have developed crucial rules of law. People have, therefore, confidence in the fact that the authorities in charge of welfare and other important areas will exercise fair decisions. It has created confidence and happiness. As a result, societies, to varying degrees, are characterized by an important structure of social capital, and the perception of dignity has thus been strengthened for the individual. Welfare nations are free societies. There are typically free elections, freedom of speech and assembly. The electoral process for democratic organizations is via free elections and secret ballots. In principle, there are wide limits to an individual’s freedom of expression. Private rights of ownership are generally sacrosanct. Furthermore, there is equal and easy access to education, health and social services, and due to this as many people as possible are able to develop their talents while also being able to unfold their best abilities. The concept of welfare in Western civilization has created more economic equality and a redistribution of life’s risks between the sick and the healthy, between the unemployed and the employed, between weak and strong population groups, between the rich and the poor, as well as a redistribution in favour of the later stages of life where the ability to work and thus earn an income decreases. Large sections of the population who, under normal market conditions, would not have had the opportunity to educate themselves have acquired the skills and competences required in order to be employed in well paid jobs or positions. This has increased the foundation of welfare for the individual, improved the tax base and created the opportunity for economic growth for the entire community. chapter 1 ·
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It must not be underestimated that the common interest for influential population groups regarding welfare safeguards has strengthened solidarity with the weak beyond the limits of altruism in such a way that the welfare interests of all individual groups have been accounted for. Consequentially, welfare institutions have laid the foundation for the pronounced sense of trust that abounds in the most developed of Welfare States. Trust accumulates social capital in a population heavily dependent on high employment in a global world of ruthless competition. Trust and social capital also create flexibility in business, allowing agreements and contracts to be implemented in an atmosphere of security, openness, speed and efficiency. In many other ways too, Welfare States have indirectly promoted business. In the health sector, for example, the State has purchased significant quantities of products from the pharmaceutical or medical industries and used these products in a free or subsidized health system. As a result of this, these companies have been able to develop gigantic global activities on the basis of the free Danish welfare system (eg Novo Nordic’s diabetes medicine, developed by swine kidney bark, or Oticon, which has gained a significant world market share in the hearing aid industry). Small economies such as the Nordic countries and the Netherlands, for instance, with their significant reliance on trade abroad, are particularly sensitive to the financial risks of major global crises or other exogenous shocks. Therefore, very early in world history, the small Nordic countries (and the Netherlands) developed social safeguards to act as a bulwark against the fluctuations of the world economy. Early in the economic development of the 19th century, the Nordic economies became heavily market-based and thus their welfare growth depended on exports. Denmark with international trade in shipping and agricultural exports, Sweden with timber and timber products, iron and steel, Norway with timber and shipping. As a result of this, uncertainty and risks from global markets affected these small economies. Crises and exogenous shocks spread like waves from abroad into export and import prices and thus into local markets. Among other things, in order to protect the people against these risks, the Nordic States, as mentioned above, developed early on a social policy as well as comprehensive and complex welfare systems. As Table 1 shows, the value of Denmark’s trade with other countries is 1.0 times its GDP, while the Netherlands' 12 · major trends
trade amounts to 1.5-1.6 times its GDP and thus its economy has become highly exposed to global market fluctuations. The Netherlands, Denmark, Norway and Sweden are the four countries most dependent on the world market globally speaking, and they also have a high percentage of public consumption of between 24% and 26% of GDP. However, Norway’s public consumption must not only be seen in the context of the country’s lower global commitment, but also in relation to its incredible oil wealth which provides the basis for a much higher per capita income, and thus also higher savings and higher investments. At the other end of the scale, the United States lies low with less pressure for social reform, and much higher growth rates, not least during the economic and financial crisis after 2008. It is characteristic that Barak Obama’s historic health reform relies on market-based insurance solutions in legally enforced social insurance schemes and, to a lesser extent, on the poorest via tax financing. The Nordic countries and not least Denmark thus became first movers in the construction of a tax-financed universal (for all citizens) Welfare State in the 1890s, with Continental Europe as a late comer, except for Germany, which had already developed a contribution-financed model in the 1880s. This initially applied only to industrial workers, however. Western Europe became the Welfare State’s mother continent and the Nordic countries became the Welfare State’s labouratory. Eastern Europe and the United States, meanwhile, have only very recently begun to develop their policies in this area. Most people are risk-averse (reluctant to take risks). This means that there is a basis for and a strong desire to seek security against the many risks of life. In Denmark, the economic activity of farmers was subject to market principles at an early stage and thus dependent on international market conditions. The farmers secured themselves by banding together in the production and selling of their agricultural commodities. They also created health insurance schemes that were supported by the State in the 1890s, which financed the groups insured as part of the principle of self-help. This meant that those who were part of the health insurance schemes received State support, while those who were not a part of them, perhaps because they could not afford it, did not get a share of the State support. It was the leaders and politicians of the middle-class (agricultural farmers and urban landlords and traders) who devised the first social policy together chapter 1 ·
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with the more moderate portion of landlords. In so doing, welfare was initially created to meet the needs of the middle class. However, via the health insurance schemes, which eventually became available to all Danes, a redistribution of the financial distress associated with disease between the healthy and the sick, financed through taxes and only to a lesser extent through personal contributions, occurred. The significant risk that Denmark’s low-income groups faced in the clash with the global economy was mitigated by a comprehensive redistribution of wealth from rich and middle-income groups to the poor or those at risk of being poor. In the labour market, the risk of unemployment was mitigated by redistributing the uncertainty from the employed to the unemployed through a partially paid unemployment insurance system (1907). Old age was met by a public State “pension scheme”, the old-age security act of 1891, which encompassed all the citizens of the country. It was paid for via taxation, and thus the redistribution of wealth was not only between the wealthy taxpayers and the poorest pensioners, but also over a lifetime and between generations. While the universal Welfare States have steadfastly built welfare protection for their citizens against global economic exogenous shocks, this policy has, paradoxically, at the same time subjected these Welfare States to pressure for reform of their welfare structures in order to maintain competitiveness and thus survival opportunities in the global business environment, as well as the ability to adapt to new challenges, not least demographic ones. Several times in Danish history, welfare policy has taken a decisive strategic role. When the Agricultural Crisis was at its peak (1876-1894), the political leaders, who otherwise represented the middle class and landlords, chose to embark on a new comprehensive social policy. A State and municipal aid policy for sickness funds was started, a new policy on poverty without the requirement of the relocation of the poor was created, and an old-age pension scheme, without the need for prior savings or contributions (1891 and 1892), came into being. These were all financed via taxation, initially through a new beer tax. This was followed by a – liberal – accident at work insurance scheme and a partially funded unemployment insurance system (1907). There was no ideological social political common thread in these interventions. There was no master plan. On the contrary, both conservative and liberal societal norms were quite 14 · major trends
dismissive of social policies that could risk overthrowing societal norms that removed incentives for the individual to use all their power to help themselves rather than seek aid from their local community. Conservative rightists feared that State intervention in local communities could risk breaking down the natural local ties and commitments that existed to support the weakest. However, it was practical and pragmatic demands that led politicians to create social policies that broke with the principles of the past. There was considerable unemployment in the period from the 1880s and reliance on market forces alone could not reduce. There was widespread distress among the poor and even among non-self-deprived elderly people. Poverty relief weighed heavily on the economy of the Municipalities. At the same time, a political movement was underway to soften the politics of the hard right, which led to a joining of forces between right and left moderates on social policy. A social policy window had been opened in Danish politics, created by necessity. This policy generated some increased economic demand while at the same time helping those in need. Danish politicians followed to some extent an economic formula devised by the economist John Maynard Keynes, though they could have no knowledge of his ideas as these first appeared in the 1930s. The global Great Depression between 1929 and 1940 hit Danish agriculture for a second time and put social and crisis policy on the agenda. This time round, political power had gone from the middle class to the working class. Nevertheless, crisis policy and welfare policy were implemented in collabouration with agricultural leaders, which meant quite long-term and stable consequences for the policy pursued. Unemployment in 1933 reached 32%, the number of bankruptcies in the trades and agriculture increased, while trade abroad decreased. There was talk of a race to the bottom between countries when it came to curbing international trade through trade barriers. Once again, Danish politicians chose practical solutions and implemented a Keynesian policy even before economists had formulated the theoretical superstructure that could confirm the suitability and efficiency of the policy; among other things on the effect on demand the policy would have in society. Yet again, however, it was established that market forces alone were not enough to be able to turn the trend toward full employment within the foreseeable future. In general, there was no guarantee of full employment in market economy driven communities. chapter 1 ·
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A significant devaluation of the Danish krone was implemented as the most effective part of the crisis policy. This strengthened the competitiveness of agricultural exports. At the same time, domestic industry was protected, and to some degree employment levelled. Subsequently, it was decided to restructure social policy so that everyone had to join a social insurance scheme (the health insurance funds), which regulated the support for health, maternity and old-age pension through four comprehensive social laws. Denmark had thus been given a universal welfare scheme where all its citizens, in principle, were covered by a social policy, whose services along with the public service were financed through general taxation. Furthermore, this structure became difficult to change fundamentally. Should future generations want to transform the tax financing model into a model with insurance contributions instead, for example with regard to pensions, a generation would have to pay twice for that pension. As early as 1922, the idea of means testing social needs had been abandoned and the notion of fixed tariffs and objective criteria took their place. It created a greater degree of dignity and transparency, and thus a significant boost in the reputation of social policy among the entire population. Social policy was seen as not being alms to the poor, but as a fair and predictable benefit accepted by large sections of the population and based on known criteria. Thus, for the second time in Danish history, this small country with its high dependency on world trade protected its citizens from the consequences of unstable global market forces through the expansion of welfare policies. At the same time, politics stimulated effective demand in society, and it thus helped to mitigate some of the hardships of the time and create new employment. In the period 1947-2008, Denmark underwent one of its most astonishing periods of growth, far surpassing the flourishing period of trade in the latter half of the 18th century, a period in which prosperity flourished on the basis of extensive agricultural reforms and the trade war during this troubled period. The latter half of the 20th century, in turn, became the golden age of welfare in Denmark. Welfare policy became a complex discipline involving infinitely many and conflicting aspects of human existence. Cascades of welfare policies were developed, which, on the one hand, became a solid bedrock for society in times of crisis, where automatic stabilizers (by which is meant a public spending or revenue 16 · major trends
source that automatically adjusts counter-cyclically to changes in the economy: automatic stabilizers are transfers, for example, unemployment benefits or income tax that dampen a crisis) greatly mitigated the effects of the international crises, but where Denmark simultaneously became increasingly globalized and mired in the prevailing conditions of the world market economy. On the other hand, significant structural tensions arose in society. The increasing number of immigrants (from the EU, from the Western world, from overseas non-EU countries and refugees) had a completely different norm for taking up Danish welfare benefits than native Danes. This was not taken into account for during the construction of welfare policy, which had taken place under conditions where the composition of the Danish population was more homogeneous. Even immigrants from Western countries were less likely to enter the labour market than native Danes. For example, in 2017, the employment rate for people of Danish origin was 78.8% compared to immigrants from Western countries at 70.0% and non-Westerners at 60.0%. This meant that the average affiliation to the labour market for everyone in Denmark decreased with increasing immigration, while the pressure on welfare from immigrants was significantly greater than from native Danes. This led to a structural increase in public spending. Immigration increased significantly after the year 2000, even though legislative constraints were imposed on immigration with the political revolution that followed the change of Government in 2001, when a bourgeois Government, supported by the Danish People’s Party, introduced a strict policy in this area. While immigration from outside the EU was reduced, immigration from the EU increased markedly. Despite this, immigration may have contributed to a cultural and enriching shot in the arm for Danish society, which had experienced problems with innovation, product development as well as the development of new markets and organizational forms. Immigrants from all over the world could make contacts and connections with their countries of origin. In a global perspective, it is also worthwhile to note that immigrants sent back not insignificant amounts of money to families in their home countries. This remittance – although drawn on Danish resources – created growth, development, investment and demand in the countries of origin that far exceeded (probably by two to three times) Danish development assistance, thus providing a much-needed boost to the economies
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of developing countries: perhaps even a far greater boost than the miserly apportioned Danish development aid. The other important structural jolt to the Danish welfare system was the change in demographics. In addition to immigration, age structure also affects the pressure on welfare. In 2016, people between 20-25 years and up to 72 years of age contributed positively or neutrally to the coffers of the Danish State. This significant population thus pay as much or more to the State through the payment of taxes, fees and contributions than the cost they incur via public expenditure on health, education or social services. Children and young people, however, who are not or only partially a part of the labour market, draw on public benefits for schools, universities, health, kindergartens, family benefits, maternity expenses etc., and therefore represent a net cost to society. Fertility in Denmark increased from the 1980s to the 2000s, up to 2010 in fact. This meant, structurally speaking, public spending costs increased. In addition, the number of people over the age of 60, 62, 65 and 67 increased, thereby increasing the number of people taking up early retirement benefits at its different stages or the full retirement pension after the age of 67. At the same time, however, more people entered the labour market. As a result, society’s spending on voluntary early retirement and pensions rose relatively, though only until 2018. At the same time, there was an increase in the number of elderly people in need of various forms of hospital treatment and/or nursing care. This was a development that would seem to continue and could hardly be financed in the future if it were not for the welfare and retirement reforms that were put into place to fundamentally put an end to the increase in the number of retirees for the rest of the 21st century. These structural challenges were not foreseen by the founding fathers of the Welfare State and therefore, they did not include them in their original policy plans. However, since the 1980s1, many had warned of such developments. Admittedly, the politicians regained the initiative over a seemingly irreversible demographic trend, but they never really got to grips with the second part of the challenge that greatly influenced social structures, namely the structural
1
See, for example: Ældre Sagens fremtidsstudie, 1988, World Bank: Averting the Old Age Crisis, 1994, OECD: Ageing in OECD Countries. A Critical Policy Challenge, 1996, and Bjarne Hastrup: The Social Contract Between the Generations, 2002.
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impact of immigration on the economy. At the same time, we must also take into consideration how political decision-makers from all parts of the political spectrum (the Socialist People’s Party, Social Democrats, the Danish Social-Liberal Party, Venstre – the Liberal Party of Denmark, the Danish People’s Party, the Conservative People’s Party and Liberal Alliance) reacted to the economic and financial crisis of 2008 to 2014 by, this time, reducing and limiting welfare and thus peeling off a significant part of the effective demand and consequently economic activity in Denmark, so that an output surplus of 2% up to 2007 was transformed into an output deficit of 4-6%. Reactions and reforms which stand in stark contrast to the crisis policies implemented during the two preceding major periods of crisis. This took place in an atmosphere of a fixed exchange rate policy vis-à-vis the euro, which, in 2009, further put the Danish economy on standby. And finally, the previous centre-right Government had stimulated the economy so much so during a dramatic global upswing that the markets – especially the housing markets – became greatly overheated. The main reason for Denmark going from growth to stagnation was the international financial crisis, but a mistaken conjunctural policy up until 2008, combined with a fixedexchange rate policy, and being fenced in by a contractual welfare policy, deepened and prolonged the crisis in Denmark. Economic growth slowed down and did not move one iota during 2008 to 2013 and only recovered slowly after that. From 2014 to 2019, the Danish economy grew by 2% p.a. and carried Denmark out of the severe recession that the global economy had placed it in. At the start of the post-2014 period, this growth was driven by significant export growth, which was later replaced by a growth in domestic demand. Although we were approaching full capacity utilization in 2019 and low unemployment, the Danish economy was not fully utilized. This can best be illustrated by the exorbitant Danish balance of payments surplus, which led to the build-up of considerable net foreign assets, but which also meant that Danish companies built up considerable business capacity abroad, and Danish institutional investors built up large global wealth.
The Effect of Demographics on the Economy Denmark, like the rest of the world, underwent an extensive demographic transition, which began during the beginning of the first half of the 21st century and which is expected to increase in strength during the rest of the century. While chapter 1 ·
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the first demographic transition in the 19th century consisted of a significant decrease in mortality rates in European populations and a subsequent somewhat smaller reduction in fertility, thereby increasing the population exponentially, the transition at the beginning of this century was marked by a relatively low fertility rate, but a sharp decline in mortality, not least in the oldest age groups. In addition, there has been so much immigration that its net effect has far exceeded what would have been the normal population growth rate. This means that with fewer births, more immigrants and a larger growth rate in the oldest age groups the structure of the population is constantly changing. This in turn leads to the fear of there being insufficient numbers of people in the labour market to be able to care for and support those people outside the labour market. Furthermore, at the beginning of this period, young people took a longer time to complete their studies and therefore joined the labour market at a later stage in their lives. In the early 2000s, on the other hand, it seemed that older people were getting healthier. During this period, it became a common assumption among researchers that 70-year-olds had the same physical and mental resources as a 60-year-old twenty years earlier. However, this assumption was shot down through an analysis by VIVE and the National Board of Health. On the other hand, the Economic Council suggested in 2019 that the structure of old age people between healthy and terminal patients indicate some optimism. The prevalence of unhealthy people dropped but the number of incidences raises according to the great growth in the number of old age people. Consequently, rising healthcare costs were to be expected with the growing proportion of the elderly in the population. The average real retirement age in the labour market after the year 2000 began to rise from around 60-61 years to 65-66 years, cf. table 50. In addition, a growing proportion of pensioners were able to cope without public assistance. The fact that there were more elderly people over the age of 80 and that the number of people with dementia in need of care was growing strongly meant an increased pressure on supply to the labour market. However, as mentioned, a study from the VIVE research centre in 2019, along with the National Board of Health’s Elderly Database, found serious corrections to the perception of healthy aging and the economic benefit of rehabilitation, a policy that was reinstated in the Social Services Act of 2015 (see: VIVE: Help for the Frail Elderly, Copenhagen 2019). The rapport found that older people in the Elderly Database became more self-reliant over time. Thus, fewer elderly people 20 · major trends
between 67 and 87 had disabilities that limited their daily lives. The increasing number of elderly people in the at risk group combined with the tight budgets of the Municipalities has left a significant number (73,000) of elderly people in need of help in a helpless State, without support from their Municipality, in the absence of relatives and without sufficient finances to find a private solution. Over time (2007-2017), a declining number of frail elderly people have received help for practical tasks at home. Even for elderly people without adequate functional skills, the likelihood of receiving home help for practical tasks has decreased significantly. No alternative sources of assistance: family, neighbours, relatives, or privately paid help has taken over, which means that the number of frail elderly people without help has grown. Thus, more and more frail elderly people have, in the time after the economic crisis occurred in 2008, been left to fend for themselves regarding practical tasks. At the same time, as already mentioned above, doubts have been raised about rehabilitation efforts which should have meant that more disadvantaged elderly people would regain functional capacities and become self-reliant. There does not appear to be evidence of a sufficient effect on better health or financial savings through rehabilitation programmes. This is reflected in demographic trends. In the 20 years from 1999 to 2019, the number of 80-year-olds and the elderly increased from 209,000 to 264,000 or by 55,000 people (see Table 3). This growth of 26.3% was the most dramatic driving force of welfare policy during the period. A period where one hoped that the aging population problem would be solved through healthy aging, which, however, did not occur to any significant degree, but was still included in all economic predictions (for instance, reports from independent economic advisers’ to the Government and the DREAM model, see more on this later), or through a rehabilitation programme whose financial effects did not materialize. The effect of this was that the Municipalities reduced aid and support as well as staffing and activities in nursing homes, and the weak had to pay the price for this main crisis policy. The declining mortality rate among the oldest inhabitants of the Western world led to an increase in life expectancy – see Table 2. Over approximately 20 years, the average life expectancy of the Danish population has increased by between 5 and 6 ½ years, slightly more for men than women, so the gender difference has narrowed by one year. Compared to 100 chapter 1 ·
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years before, this is no less than a revolution. In 1911-1915, about 25 years after Denmark introduced its first social laws, the average life expectancy for men was only 56.2 years and for women 59.2 years. Thus, the economic and social changes of the Danish population during the last 100 years gave no less than 23 to 24 years more in average life expectancy, of which, the last 6 years or so of improvement lies in this century. Today, a man who has reached the age of 70 can expect to live an average of 14.2 years longer and women 16.6 years longer. Yet, in 2019, the State Pension retirement age is only 65.5 years, while the official Early Retirement age is 63 years (as of July 2019). The 2011 retirement reform implied a continued increase in the Voluntary Early Retirement age and State Pension age throughout this century, but it was the Welfare Agreement of 2006 that set their long-term rise through this century to reach 69 and 72 in 2050, respectively. The Early Retirement age and State Pension increase will continue throughout the century depending on developments in average life expectancy. This average has grown much faster than politicians and scientists had predicted before the year 2000. Developments simply occurred at a faster rate. During the 1980s and onwards – right up to the Welfare Commission (20032005) and the implementation of the Welfare Reform (2006) and the Retirement Reform (2011) – economists and demographers were characterized by a strong pessimism with regard to population development. The general assumption was that fertility would remain low, on a par with the 1980s figures (i.e. women’s postponement of childbirth, which would later restore fertility, was forecast but projected from a low “temporary” birth rate). Furthermore, demographers and economists did not foresee the decline in mortality and the limited decline in morbidity and impairment in parts of the elderly population. Finally, the size of net immigration was incorrectly assessed. Thus, the Welfare Commission saw only the possibility for net immigration during their forecast period of between 5,000 and 6,000 per year (2000-2050). However, the year after the Commission submitted its reports (2005), net immigration grew to 9,964 and, through continued growth, reached 37,465 people in 2014 and 48,938 in 2015, and continued to 33,287 in 2016, despite much political tightening and many restrictions imposed on immigration to Denmark. However, in 2017 and 2018, immigration fell to respectively 24,631 and 18,684 (see tables 7 and 8.) Net immigration was thus 4-10 times greater 22 · major trends
than the planners, economists, commissions or politicians had imagined. This, of course, had an impact on the labour market, pressure on welfare and integration policy, which had been planned after a much smaller foreseen challenge. Age distribution in a population is an important indicator of how much educational investment is to be made, how large a labour market connection one can expect, the size of pensions, health and care expenses, and how much welfare expenditure should be factored in in many other areas. That is why population analyses and demographic forecasts play such a strategic role in economic and political planning. The greater the uncertainty in the forecasts, the greater the uncertainty in long-term economic and political planning. Table 3 illustrates the actual population development in Denmark from 1999 to 2019. Against expectations, over those 20 years a sharp increase in the population of 492,000 inhabitants occurred. That is a growth of 9.3%, so the seemingly energetic Danish population completely surprised the economic and political elites by reaching 5.8 million inhabitants in 2019. All age groups, each in their own way, have an impact on the economy, and have been growing over the last 20 years. The group of children and young people in education, 0-24 years, has grown by 5.9% in the period, while the group that made itself available in the labour market, 25-66 years, which amounts to a total of 3 million people, only increased by 2.5%. Thus, most of the population growth has occurred among those over 67 with an increase of 37.7% in these 20 years. In the period up to 2008, the workforce increased from 2.880 million in 1999 to 2.917 or by 1.3%, thus reaching a tentative peak. Population trends in the working age groups have a significant impact on the size of the workforce. On the other hand, the task of providing care and support has grown. In 1999, it required 100 people in the labour market (25-66-year olds compared to the rest of the population) to support 77 elderly and young people. By 2019 the figure had risen to 94. One could say that educating young people is an investment in future welfare, partly because they receive an education that improves their employment opportunities, and partly because a greater proportion of young people receive longer-term education skills that significantly increase the productivity of society and thereby economic growth, and thus the possibility for future investments in welfare. For people over 60, 62, 65 and 67 who receive voluntary Early Retirement chapter 1 ·
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or State Pensions respectively, it can be argued that, as they were a significantly larger group in the labour market, they contributed to a relatively larger production and investment. Therefore, a part of the fruit of this age group’s efforts, in the form of knowledge, buildings, infrastructure and other capital equipment can now be used to pay for pensions or early retirement. At the same time, this relatively large cohort of older people has been able to build a relatively larger capital apparatus, which is available to future generations. In contrast, in care costs has risen for a portion of the population over 80. Growth in this population group has been 19.1% for the entire period, 1999-2017, or around 1% per year. The reason why this growth has only modestly impacted welfare policy is that this area of welfare has seen major restructurings and, after 2008, major reductions. The generation born in the 1940s has thus produced and invested in an economy that grew and helped to build up welfare provisions, and of which they have retired in during the 2000s. The post-war generation grew up in the last years of an agricultural society, which was replaced by an industrial society with a period of high growth. However, they now find themselves retiring in a service society with low growth and high technology. The financial planning that underpinned the many reforms (early retirement agreement in 1999, welfare agreement in 2006 and retirement agreement in 2011) was based on DREAM’s 1999 population projection (with subsequent revisions). Today, this projection turns out to have an average margin of error of 5.4% measured in relation to the total population, but between 0.79% and 48% within the individual groups over a period of 20 years. The large miscalculations for people over 65 have particularly been fatal for the financial planning of welfare development. A comparison of DREAM’s projections and actual developments is shown in table 4. Significant structural changes have occurred just in the 18 years from 2000 to 2018. Over the period, 1,040,741 Danes have died. This means that a large generation of Danes – mainly born between 1920 and 1940 – have disappeared from the population with all that entails: loss of the values that the generation did not manage to pass on to the next generation, knowledge and talents, culture and welfare attitudes etc. At the same time, Danish women gave birth to 1,182,789 children during these 18 years, with all the dynamic possibilities of change this entails in the longer term, but also with the structural consequence that the new generation is significantly smaller than in the past, which will have 24 · major trends
consequences in a few years’ time for education, the labour market, services, welfare and in many other areas of society. If the dead and the born are added together during the period, a total “renewal” of the Danish population of 2,223,530 will be obtained, or 41.7% of the size of the population at the beginning of 2000. There will always be a continuous replacement of the population, but such a dynamic change does not go away. That’s not all, however. At the same time, Denmark has had a positive net immigration rate in all of the 18-year, which totals to 341,911 people, either from the EU or outside the EU and, to a significant extent, in the form of refugee flows. This means that in the last six years alone, enough immigrants have been added to the Danish population that immigrants and their descendants reached 703,873 inhabitants (in 2016), or 13.3% of the population. If net immigration is added to the “renewal” sum, it becomes a total population renewal of 48.1% – a very large replacement of individuals in a relatively short time. This results in a relatively new population at the end of the period compared to the beginning of 2000, with other attitudes to welfare, equality, globalization, refugees and immigrants, with a much better education, longer life expectancy, healthier way of living and with a longer perspective on working life than previous generations. See Table 5. It is also clear that from 2000 to 2015, gross yearly immigration nearly doubled, reaching 95,319 at the end of the period, but fell to 86,137 in 2017, while net immigration quadrupled. Both the number of births and deaths dropped significantly, however, births more than deaths. This meant that the average annual natural population growth during the entire period was only 7,400 approximately, against the net immigration annual average of about 20,000. Thus, it was to a much greater extent the increase in immigration that gave Denmark its new demographic dynamics, and only to a lesser extent the growth in the birth rate of the indigenous population. This shift in overall demographics had many consequences. Firstly, inequality in society increased. Denmark had agreed to be part of a project where part of the migration came from population groups with little or no education. As a result, the labour supply of cheap labour increased, and although wages in Denmark are institutionally determined by agreements, wages came under considerable pressure. Large immigrant groups became low-income groups with a loose connection to the labour market. On the other hand, though, some Danes chapter 1 ·
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without skills moved up the skills ladder and received higher wages and achieved better working conditions, the overall consequence, however, was an increase in inequality. The Gini-coefficient, which measures inequality in a country at a given point in time and over time, shows growth from 24.1 in 2003 to 27.9 in 2013. In 2018, Gini reached over 29. If Gini is 0, there is complete equality in a society, if it is 100, there is complete inequality (one person holds all the wealth). The decisive factor in the development of the age groups in the entire population will be their connection to the labour market. If an increasing number of elderly people leave the labour market prematurely, for example if they enter the early retirement scheme or become unemployed until the early retirement age, this puts considerable pressure on public benefits and thus on public finances. The connection to the labour market of the older age groups is shown in Table 6. Before retirement reforms were implemented, or the impact of the reforms had been seen to have had a tangible effect (i.e. the welfare reform (2006), retirement reform (2011), employment rates increased significantly for seniors, mostly for the retirement age group 60-64, increasing by 26.3 percentage points. 61.5% of this age group was part of the labour market, a higher percentage than, for example, the percentage of non- Western immigrants in the labour market. As a result, the group has almost normalized itself according to the general applicable conditions for occupational participation in the Danish labour market. Following the retirement reform of 2011, the voluntary Early Retirement age will continuously rise, reaching 65 years in 2030. The Danish Parliament has also decided that by 2030, the official age requirement for the State Pension will be 68. Even during the financial and economic crisis of 2008-13, the elderly increased their involvement in the labour market. Table 6 shows the proportion of 60-64-year-olds and 65-year-olds and above in employment. It is the case that this growth rate occurred during the worst type of crisis conditions imaginable, and one should also judge the growth from the standpoint of the significant growth seen in the years before 2008-2009 during the favourable economic years of the 2000s. Many factors within society and corporate, personnel decisions as well as attitudes among seniors to remain in the labour market played a role in this growth. The 1998 reform of the early retirement scheme had a significant effect on the awareness of the consequences of retirement. It now became clear for a large number of labour market employees that, in the future, it would not be benefici26 · major trends
al to take early retirement before the age of 62 due to the offset this would incur in their occupational pension. At the same time, serious questions were raised as to whether or not the early retirement scheme would survive at all and if it was worthwhile to pay into the scheme if its future was in doubt. Furthermore, some of the younger elderly had become healthier, physically and mentally, so it was obviously beneficial for them to seek more years in the labour market, where there was both a greater income gain after tax than through taking up early retirement, and where the early retirement premium was payed to persons who continued until the age of 65 anyway. The economic boom in Denmark of 2004-2008 also contributed to help individual employees answer their doubts. Thus, many people left the early retirement scheme due to growing doubts about whether it would be beneficial to the individual or whether the early retirement scheme would exist at all when needed. Other initiatives also supported the idea of remaining in the labour market after the age of 60. The EU had long been working on a directive on the abolition of mandatory retirement ages in the labour market. The directive was published in 2003, and already in December 2004, legislation was introduced in Denmark that the private labour market must not operate with a mandatory retirement age under 65 in employment contracts. The public sector quickly then set their minimum retirement age to 70. In early 2016, the possibility of introducing mandatory retirement ages into employment contracts was abolished in both the private and public labour markets. As a result, there was a mood change among the public sector and private sector employers as well as seniors to one of general support of the idea of working longer and retiring later. The welfare reform of 2006 and the retirement reform of 2011 also spoke in a clear voice: by 2050, the official retirement age in order to receive the State Pension will be almost 72 years, whereby, according to the OECD and the EU, Denmark will definitely become the country in the EU group or the OECD circle that has the highest retirement age. To sum up, for a long time before the economic and political initiatives aimed at increasing the retirement age were launched, the attitude of the population combined with, to some extent, its developments in better health and corporate demand for seniors in the workforce ensured that senior groups, through their own volition, remained longer in the labour market – even during the difficult conditions of the economic and financial crisis of 2008 – and this has chapter 1 ·
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