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Productivity in the Danish service sector: a characterization of the effects coming
from internationalization, competitiveness and human capital.
Nina Frimodt Jensen
302248
Supervisor: Ina Charlotte Jäkel
Department of Economics and Business
May 2014
Number of characters: 102407
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Abstract
The productivity growth is limited for the service sector in Denmark. The service sector is defined by
providers of intangible goods on the private market. This thesis contains an analysis of how productivity is
related to the areas of internationalization and human capital in the service sector. The context is set by the
competitive environment for services. The aim is to understand how the productivity problem is visible in
many aspects within the main areas. In addition it becomes clear that the problems leading to low
productivity growth are highly correlated – it is a vicious circle that is present on firm level as well as in a
generalized picture. The structure of the analysis begins by addressing a main problem – the lack of
international operations and the barriers in this context. The examination contains comparisons with
foreign peers and finds that Danish trade is highly dependent on scale economies and product building.
These characteristics are central when developing a comparative advantage. The general context for the
Danish service sector is set by assessing the competitive level and significance of foreign competition in
Denmark. For further characterization of the service sector, the skill level is used to explain the lack of
ambition and expansion, both domestic and foreign. The low skill level is also assessed by examining
possible ways of attracting more skills to the sector. Main findings include working with a production
possibility frontier to show the theoretical effect from immigration. Turning the focus to observations,
immigration schemes set the context for attracting high-skilled foreign labor. Also the domestic labor force
is subject to analysis, with the conclusion that certain skills in demand are not present. On the other hand
some skills are in excess. One result of a higher skill level would very likely be an increase of ambition to
expand and hereby ensure a growth in productivity.
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Contents
1.0 Introduction
1.1 Introduction – the problems
1.2 Coherence of the subjects: internationalization, competitiveness and human capital
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2.0 Problem statement
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3.0. Methodology
3.1 Choice of method
3.2 The research design
3.3 Literature and search methods
3.4 The analysis
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4.0. Limitations and focus
4.1 Data limitations
4.2 Factor limitations
4.3 Details
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5.0. Definitions
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6.0 Theoretical Framework
6.1. Productivity
6.2.Internationalization
6.3. Competitiveness
6.4. Human Capital
6.5. Additional assumptions and theories
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Analysis:
7.0 Services:
7.1 Characteristics of service productivity
7.2 which services?
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8.0 Production possibility frontier
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9.0 Barriers
9.1 Standardization
9.2 Polarized investment
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10.0 Importance of scale economies
11.0 Factor endowments
12.0 Entering the Danish market
12.1Conclusion
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13.0 Productivity of immigration and distribution
13.1The service sector and the public sector
13.2 Immigrations
13.3 Conclusion
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14.0 Characteristics of the service industry
14.1 Ambition
14.2 Strategy
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15.0 Competition
15.1 Competitiveness and productivity
15.2 OECD and the commission
15.3 World economic forum
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16.0 From producers to service providers
16.1 Conclusion
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17.0 The role of the labor market in productivity
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18.0 The role of unemployment – academic background
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19.0 Hiring of academic graduates
19.1 The example
19.2 Wage
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20.0 Education
20.1 Returns
20.2 Capacity
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21.0 Where did the skilled labor go?
21.1 Public sector
21.2 Systematic unemployment
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22.0 Internationalization of education
22.1 Conclusion
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24.0 Final conclusion
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Bibliography
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1.0 Introduction
In 2012 GDP per capita in Denmark was 374 % above the world average (TRADING ECONOMICS, 2013). In
this light, it is logical to conclude that Denmark is doing well in a worldwide perspective.
But the fact is that the usual frame of comparison consist of European countries such as Germany, Sweden
and Finland, the US or simply the OECD or EU average. This way of making comparisons makes sense due to
similar structures, conditions, capacity, political environment, and stage of development. It is based on
comparisons with such nations and groups that it has been concluded that Denmark has a problem with
productivity (The Danish Productivity Comission, 2013). By looking at the development over time, it
becomes clear that Denmark and other Europeans have been behind the productivity growth in the US
(COPENHAGEN ECONOMICS, 2013). However, it is around the millennium that the Danish performance
started to fall behind, also compared to European neighbors.
One may ask the question: Why does underperforming with a few percentage points matter? There are
associated losses for both society and the individual. Possible losses include less tax income and a low wage
level. If this trend continues there is a risk that Denmark will fall more and more behind and that we will
see a larger and larger gap separating the leaders from the Danish performance. The main target in this
study is the Danish service sector because this sector accounts for 53% of the Danish economy (The Danish
Productivity Comission, 2013).
This thesis aims at shedding light upon the background behind the problem: low productivity growth.
The analysis has been limited to a few main areas. Firstly: internationalization (export of services).
Interestingly enough, the lack of international Danish service providers is no new problem, in the beginning
of the millennium it came to the attention of central agents that part of the service sector was only
domestically based (Danish Business Authority, 2001). Domestically based service firms are generally less
productive than firms with international operations.
Secondly competitiveness on the Danish service market. Between the number of firms present (domestic
and foreign), this analysis focuses on competitive abilities and policy makers’ attitude towards
competitiveness. Thirdly an analysis of the Danish labor force by assessing the value of human capital for
service firms. The productivity of labor is lower for the service sector. In order to understand the reasons
behind, aspects of human capital are addressed.
The different aspects complement each other due to the complex structure of the problem and additionally
the often integrated challenges which are rooted various aspects of the economy.
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1.1 The problems
The topic for analysis is productivity but the aspects that form the sources for the analysis are different
areas within measured productivity and related topics. A brief introduction is here provided to sum up the
main observations. One of the central observations is the lack of internationally operative service firms
which is reflected in a lower productivity growth for this group and a lower skill level compared to foreign
peers (The Danish Productivity Commission, 2013). But the general skill level for the population as such
does not explain the lack of productivity (The Danish Productivity Commission, 2014) so the problem is to
be found in the characteristics of the labor, the distribution and the contribution.
Another key observation for the analysis is the level of ambition in the service sector in terms of expansion
and competition.
1.2 Coherence of the subjects: internationalization, competitiveness and human capital
When dealing with internationalization one of the key premises is the ambition in the firm and the ability to
follow through with an international operation. An internationalized firm must possess the right capabilities
in order to meet the competition on the target market. Behind this lie the human capital of the firm – they
need to ensure the availability of an ambitious and capable workforce. Abilities in this context also have to
be of international nature. A characterization of labor shows a basic model in which the essence of skills in
the economy is presented. Accordingly it shows in which ways the labor market mismatches with the
demand for skills and the present skills (example: international skills). This is where the connection
between the areas lies.
2.0 Problem statement
With focus on the labor force, competitiveness and internationalization this thesis will bring an analysis and
recommendations additional to the work made by the commission. The issues include in what way
education, competitiveness and internationalization affect the productivity in the Danish service sector.
This will be based on core macroeconomic theory explaining the correlations between what we know from
theory and what is observed from the contextual data. Having theory in place, a thorough analysis and
discussion is necessary. The aim is to find the impacts coming from eg. competitiveness and thereafter find
possible explanations based on the observations, known theory and models. The analysis is framed by
limitations and the context in which the service sector is surrounded by (limitations of scape and the
context in current Denmark).
To sum up the problems addressed in the thesis:
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How are education, competitiveness and internationalization related to productivity in a Danish context?
How are these areas affecting productivity negatively in Denmark?
3.0 Methodology
As for the overall nature of the paper, the results are found primarily by using deductive reasoning. This is
reflected in the conclusions and findings because they are based on universal premises. The idea is that
existing theory is applied to the analysis in order to reach results (Kovalainen & Eriksson, 2008)
The majority of the data is of quantitative nature. A few qualitative aspects are included in the form of
interviews from articles in order to complement findings from quantitative models and data sampling.
For both types of data the credibility of the source is central and therefore the sources have been chosen
carefully. In addition the models used for computation of the data have been revised and limitations to
these are mentioned in the section on limitations. Hereby a critical view is ensured on the credibility of the
background behind the initial data.
The essence of the research questions is of both practical and theoretical nature. This is reflected in the fact
that the relevance of the research questions apply to a large population (in fact all of Denmark in an
international perspective) and moreover there are more practical aspects reflected in the direct
applicability within specific areas.
3.1 Choice of method
In choice of method the scope of the paper has been a determining factor. Since the paper concerns a large
part of the Danish economy, doing a thorough quantitative analysis is quite extensive. Luckily there are
already many statistics available on the subject. It is therefore the chosen method and it includes the use of
various already computed statistics. By using a variety of sources, the analysis is based on more than just
one method. Ergo it ensures credibility and stability of the results. Furthermore, it becomes easier to spot
when certain sources bring forward data that highly speaks in favor of their particular conclusion. This is
problematic due to the amount of information available, and reversely it is almost always possible to find
information that speaks your case. I am highly aware of this and in order to maintain an objective angle, I
try to include several views on the data even if it spreads doubt on my conclusion.
As for the information of qualitative nature it is more difficult to find something of relevance. Given the aim
of generalization it is problematic to find firms that bring the right degree of representativeness for the
service sector. Therefore I comprise by including interviews with experts on the subject and one example
(part 19.1)
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Although more qualitative data could be of interest; it is problematic to identify cause and effect in an
analysis. In such a situation, information of qualitative nature can help identify and explain correlations.
3.2 The research design
The basic design behind the thesis has been made so that is allows for changes along the way.
The starting point is central classic theory, but for purposes of an analysis of many angles, theories of more
specific application and recent date are used.
Also the work with hypothetical examples is used to explain phenomena and put observed empirical
evidence into perspective. It is used to show possible consequences of changes that are real life related or
in the use of models that explain a hypothetical scenario. Ideal types are likewise used as a tool. An
extreme, yet simplified, version of the otherwise chaotic economic world with countless agents is shown
through an ideal type. It is for example used when only considering two levels of skills and in this case
serves the purpose of simplification, orientation and hereby an easily explained link to other theories and
observations.
Furthermore, in the choice of theories and models the role of contradiction and complementation comes
into focus. In order to bring a detailed analysis of many angles, different theories, models and views are
used. Even though different views can appear to be contradictive they contribute to conclusions in an
informative analysis. It is therefore very essential for the thesis that numerous theories and views are used
to enlighten each problem. A related aspect in the use of different explanations is the encounter with
causality. Throughout the analysis a continuous problem is the question of cause and effect (which is
which). At times it is a result of a lack of detailed data and in other contexts it is merely the question of
political orientation. Nevertheless it is treated with caution to ensure objectivity.
3.3 Literature and search methods
The choice of literature has fallen upon a variety of classic sources as well as specific reports made by public
institutions. It has been very essential for the literature to both compliment and challenge each other.
In order to ensure use of the most updated data I have been in contact with people who work with
collecting the data in question (such as the Danish Business Authority).
Recently, in Danish newspapers there has been an ongoing theme on productivity. It has allowed for
additional perspectives on the matter due to the diverse contributions coming from a wide spread of
sources.
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3.4 The analysis
The analysis is presented as a process. This implies that more and more knowledge is acquired from the
start until the end. When constructing the analysis as a process it gives the writer the opportunity to show
how the results develop along the way and gives the reader a higher level of understanding and potentially
the feeling of being part of the analysis.
An example of the process angle is the use of referring back to previous results/central information in the
analysis. In addition, each part is typically an elaboration or continuation of the previous. This gives the
thesis a sense of coherence and allows for a gradual complication of the topic. By using the process
approach an authentic perspective is offered; the process of writing comes alive through the reader.
For deeper and comprehensive purposes, illustrations are made. These graphs reveal central agents’
choices and relationships between the different elements presented in the scenario. This method works as
a supplement to the text and also an independent entity of the analysis. The illustrations are naturally a
very simplified version of reality but offer comprehensive insight into what the texts explains.
4.0 Limitations and focus
The main focus is to cover productivity problems and potential within the private service sector. Therefore
aspects directly effecting and explaining the service firms will form most of the thesis whereas some factors
with an indirect effect (such as general policies on education) will be addressed to a certain point as well.
The analysis consists of aspects within internationalization, education and competitiveness. This means that
many factors that affect productivity will not be included. Regulation of business in general is not a part of
the thesis, but it should be noted that some suggestions and aspects do have regulatory aspects.
4.1 Data limitations
Concerning the data used in the analysis, some data varies in terms of when the observations were made.
But in such cases the obvious limitation is that specific observations could have changed since publication
and therefore become doubtful for conclusions. However, in case that this is the most recent data available
it is used with the notion that one should be cautious to use it exclusively for the conclusion1.
When it comes to productivity the USA is the best practice holder (The Danish Productivity Commission,
2012). But many statistical models in which Denmark is included are based on Europe and therefore the US
1
”Internationalisering af service” from 2001 is an example. The results are used because the tendency are very much
alike what is observed in the reports from the commission. Also the original conclusion that finds a productivity
problem is based on data running 1995-2011. Therefore information from 2001 also explains part of the development.
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will not be the main source of comparison in many cases.
Service performance is hard to measure because aspects of quality make deflating difficult and therefore
comparison across countries difficult. If increased prices are due to increased quality and this is not
reflected in statistics, productivity can seem lower than it actually is (The Danish Productivity Commussion,
2013).
But it is a key assumption here that whether or not productivity measures are accurate, there is (always)
room for improvement.
4.2 Factor limitations
The thesis is not an analysis of all elements in the economy hence several effects are not included. Effect on
the employment rate is not considered. This is not relevant to examine in such a context because
unemployment plays no role in the measurement of productivity (The Danish Productivity Commission,
2014)
For similar reasons effects and determination of wage is not discussed throughout most of the thesis. This
is an essential delamination to mention because several of the areas discussed have an effect on wage.
When that has been said: aspects of wage setting are essential when analyzing purposes of human capital
in the form of skills and wage. This is therefore too central to exclude.
Effects on prices are likewise not considered, only in terms of the use of deflators for cross country
comparison and comparison over time.
The focus is on problems that are shared by the majority of the service sector and therefore there is very
little focus on each type of business. At times the way of dividing service firms differs across statistics and
some groupings contain firms of different nature.
There is not enough accurate information available on how much each area explains productivity.
Consequently, by concluding that there is a productivity problem and that some factors seem to be having
a negative (or limited positive) effect on productivity it is hard to say exactly by how much each aspects
explains.
Example: skill level
In the focus on skills the following developments are disregarded: investments, assessments of technology
and investments in research and development. Ergo skills are analyzed in a scenario in which the level of
technology is constant.
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4.3 Details
As explained earlier, the computation of productivity comes with uncertainty, therefore details in terms of
how much of an improvement is needed is not included. Likewise an exact measure on various data is not
directly stated in the thesis due to irrelevance. The essentials are the mechanisms and comparative value of
the productivity measures.
5.0 Definitions
Services and physical products
For purposes of avoiding confusion and unnecessary complexity, the economy has been divided into
sectors; the production of physical products on the one side and the providers on services on the other.
When the only term used is “manufacturing” it is the physical production which is meant.
Skills
In many contexts the terms skilled, highly skilled or educated/well educated are used. Unless otherwise
specified the terms indicate that the person in question has completed education that exceeds mandatory
schooling. In cases when the term used is academic graduate, the person in question holds a university
degree. For simplicity (unless otherwise specified) high skills and low skills work as imperfect substitutes,
ergo the specific skill level is not essential. This idea is inspired by the canonical model (Acemoglu & Autor,
2011) which only considers these two elements of labor characterization.
Trade barriers
When referring to trade barriers also indirect trade barriers are included. This includes cultural barriers in
form of foreign labor encouraging trade opposed to a homogenous domestic workforce (Hiller, 2011)
The North and the South
In part 11.0, trade between different parts of the world becomes relevant. In this context north represents
first world countries and south represents third world countries.
Small firms
The use of the phrasing “small firms” has no universal meaning. For the sake of the example in part 19, the
company consists of 7 employees. For the rest of the thesis it is not the number of employees that is
central, more the growth prospects and/or the presence of division between management and workers.
Low wage jobs
The definition used for a low wage job is one which amounts to 75% under the average wage (CEVEA, 2014)
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6.0 Theoretical framework
6.1 Productivity
A very simplified version of the production function sounds: Y = F(K,N) (Blanchard, 2011). The output (Y) is
determined by the amount of capital and employment. When including technological progress in the
function Y = F(K,AN) (Blanchard, 2011) the variable A captures progress within technology which is highly
associated with productivity and therefore takes a step closer to defining the labor force as a variable
dependent on more than just the amount.
It seems that a more sophisticated equation is needed in the search for explaining productivity (A).
Therefore the level of education (h), materials (M) and labor (L) are added:
Y = A * F(K,hL,M) (The Danish Productivity Commission, 2013).
The output is now dependent on more variables which give a better overview of the mechanism.
A goes by the name Total Factor Productivity and explains the production given the resources implied.
In order to find productivity per worker the function is rearranged:
Y/L = A*F(k,h,m)2
This means that the level of productivity per worker is dependent on the capital, the educative level and
the materials available.
Also it should be noted that the non-capitalized letters k, h and m represent per working hour.
This means that increasing the number of hours worked will not affect the production per worker (when
using this function). Put in another way, increasing the number of working hours in Denmark will not affect
the function. That is, we are not looking to increase the amount of hours, but on the other hand we wish to
improve on the quality performed by the workers, per hour.
But in order to briefly include adding more workers hours to the schedule, it would increase the total factor
productivity (TPF) (The Danish Productivity Commission, 2013) by the amount of extra working hours
assuming a constant level of productivity per hour.
Another scenario is assuming that every job is associated with a continuous learning curve or occasional
changes in the job function such as increased use of technologies that need to be learned. Adding more
working ours to the schedule then means that productivity will grow at a higher rate and that the next
working hour results in more output than the previous on a continuous basis.
But the main focus of the thesis is to improve productivity per hour and therefore this aspect will not be
further addressed.
2
Assuming constant returns to scale
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Throughout a large part of the analysis the productivity that is being referred to is labor productivity that is
the exploitation of labor. This is also reflected in the explanation on factor limitations in part 4.2.
6.2 Theory of international aspects of the firm.
The theoretical background for internationalization is based on some basic theories about the direction and
content of trade.
- PPF
As for most of the thesis, aspects of labor is the main focus. This is also reflected in the use of a production
possibility frontier which holds land and capital constant. The idea behind is to show the opportunity cost
associated with producing one type of goods over another and this is of high relevance in a service sector
context because it can represent a simplified scenario in which a service and a physical product illustrate
the trade-off (Feenstra R. C., 2012).
- Direction of trade and factor endowment
When looking at the export context for services it is essential to consider the theoretical background
behind the elements of trade. Therefore a core theoretical framework is the concept of holding the
advantage in the production of a given good. Here we assume that a comparative advantage will decide the
direction of trade (Ricardo), hence shed some light upon the given context of exports within the Danish
service industry. This is highly correlated with the theory of factor endowments (Hecksher-Ohlin), which in
turn are used for the analysis for the content of production. The aim is a detailed yet simplified discussion
of intensity of production and moreover a characterization of endowment for Denmark.
But to enhance the applicable use and include more recent studies a newer examination for the importance
of factor endowments is equally a part of the theoretical background. It is here essential to consider the
difference between the meanings of endowments depending on which countries are trading. We hereby
acknowledge the importance of product differentiation and economies of scale which combine central
macroeconomic theory with aspects of the service trade that is problematic for the case of Denmark (Davis
& Weinstein, Do Factor Endowments Matter for North-North Trade?, 2001).
The increasing importance of economies of scale in a world of trade between equally endowed countries
within the same industry (intra-industry trade) is reflected throughout several parts of the thesis and
explains the essence of why such theory is relevant in reality. The same counts for the concept of product
differentiation which breaks the way for the understanding of standardization, specialization and
customizing on a firm level.
Furthermore, we consider the mobility of labor (Feenstra R. C., 2012) in the sense of migration. Here wage
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is not considered as the main factor but more precisely the effect on the level of human capital and the
essence is therefore the movement of labor across countries and its effect on production possibilities (for
example the effect on the PPF)
Due to simplification the term internationalized or internationalization is used to explain either the
presence of international employees or the act of trading depending on the context.
The presence of international employees is characterized as a form of internalization based on the theory
of Hiller (2011) who states that international employees help break down barriers for trade.
An international employee is characterized as someone of other nationality than Danish.
6.3 Competitiveness
A theoretical background for the concept of competitiveness is equally important in order to understand
the service market. The theoretical background holds both the essence of competitiveness of the market
and competitiveness on firm level. On a national level we are interested in determining which competitive
resources that the company holds in an international context. For determination purposes the 12 pillars by
the World Economic Forum (Klaus Schwab, World Economic Forum, 2013) are used for a competitive
characterization of Denmark. For further analysis, information on the number of firms on the market as
well as foreign firms on the market are included.
6.4 Human capital
The level of skills is a significant factor in the analysis. Hence, the concept of human capital becomes very
essential to the understanding of what skills mean to the individual and to the state of the economy (Smith
S. W., Labour Economics, 1994). It is therefore relevant because skills do not only differ in level but also in
nature. It also introduces the problematic aspect of skill maximization based on the choices made by
individuals versus what is in the best interest of the economy as such.
Although knowledge is in focus, the discussion does not directly include effects on technological progress.
This is a limitation made in order to disregard numerous attempts to enhance research and the act of
commercializing research. Instead human capital is to be understood as maximizing the applicable use of
the labor force throughout the labor market.
As a result the level of technology is assumed constant when speaking of the value of labor. This means
that we focus on the value of each labor hour and not on reducing labor hours needed to produce goods.
The definition of skills is very essential to the assessment of the labor force. As for part of the thesis the
analysis is based on a simple two-input model in which we assume the existence of two skill levels, high
skills and low skills (canonical model) (Acemoglu & Autor, 2011). In addition the Ricardian model of the
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labor market brings a scenario in which skills are relative to the task in question and acquired through
education or given at birth. It presents the endowment of the worker (Acemoglu & Autor, 2011).
The canonical model is relevant in the part of the analysis in which the type of skill is not in focus, but
rather whether or not the laborer is in possession of a skill. The Ricardian model is used in more specific
discussions of the acquisition of certain skills and the relevance of these. An example is in part 23.0 where
international awareness is central.
6.5 Additional assumptions and theories
Productivity and skills
In the relationship between productivity and skills, non-compulsory schooling increases the productivity of
labor under the assumption of perfect competition (Smith S. W., Labour Economics, 1994). It is very central
to the discussion of education and the value of human capital. In a theoretical world, productivity is
reflected in wages since wage equals marginal revenue. Ergo any change in revenue is directly reflected in
the wages of the workers. As for the assumption of perfect competition, the competitive level of the
market is discussed in part 15.0-15.3, but the direct effect on wage is not considered. What is to be drawn
from the theory is the positive effect skills have on productivity.
Returns to scale
We assume that increasing returns to scale is a possibility for the Danish service sector.
Additionally for use of certain theories we assume constant returns to scale.
Analysis:
Internationalization
7.0 Services:
7.1 Characteristics of service productivity
There is a logical distinction between a service and manufactured goods. There are likewise different
elements regarding the origin of a service. A service provider is very much dependent on the perceived
quality of the final service. An obvious productivity improvement for physical goods would be to decrease
the amount of time used in manufacturing. The same change for a service implies a risk of also decreasing
the perceived quality. Ergo, the value of time is not constant across goods and services (Calabrese, 2011). In
addition this implies that the production of services contains more complex structures and it is in this
context that also human resources gain increasing importance.
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The Danish service industry
Figure 1: Productivity growth, service industry (1995-2011)
Note: The average real growth in the service sector year 1995-2011
Source:”Produktivitetsvækst I serviceerhvervene”. The Danish Productivity Commission. (2013). Konkurrence,
internationalisering og regulering (translated)
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Figure 2: Productivity growth 1995-2011, comparison
Note: Figure for comparison across countries, before and after the use of deflators
Source:”Årlig produktivitetsvækts I de private serviceerhverv”. The Danish Productivity Commission. (2013). Hvor er
problemerne? (translated)
As the figures clearly show there is a gap between the part of the market that has been internationalized
and the part that only operates in Denmark. Furthermore, Denmark holds the lowest growth in productivity
in figure 2. This part of the analysis contains discussions on the reasons behind in an international
perspective.
7.2 Which services?
When looking into specific branches it becomes clear that services contain many different elements. As for
most of the thesis the issues in focus are those which are shared by most of the service sector. Though,
there are specific characteristics for some groups that make export more difficult.
Some areas within business services such as the market for legal advice is highly dependent on employees
with the ability to practice Danish law. Reversely, if this service is to be exported, knowledge on the foreign
law practices is necessary. Consequently, exporting is also associated with knowledge of the foreign target
market.
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This next part will look at specific markets of services such as the example with the export of legal services.
The aim is to analyze the markets keeping an international perspective in mind.
The first figure is very simplified and does not show which specific services are included or whether or not
there is variation between the different subsectors within the service industry.
It is important to clarify that some subsectors are facing low growth in productivity whereas others are
facing a low level of productivity in general, when compared to the other countries in the statistics
(Copenhagen Economics, 2013).
Figure 3: Business Service Productivity (1995-2011)
Note: Growth across the business service sector
Source: “Real productivity growth per subsector”. Copenhagen Economics. (2013). Barriers to Productivity in Business
Services
The figure 3 paints a more detailed picture of the variance within the subsector of services.
Based on the information above it is clear for which services performance is low. Two key observations are
to be drawn from the figure
1. It shows negative growth within the majority of the services
2. The growth varies across the figure as a whole, but also within the groupings
This particular figure only includes business services, but by looking at services in general, the same
conditions are present. Whereas productivity growth is relatively high within transportation and financial
service, a long list of other branches underperforms. In fact, 69% of the services branches experience lower
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growth than both the US and an average of Sweden and Holland (The Danish Productivity Commission,
2013)
The conclusion drawn from this is that Denmark is not productive when it comes to the services in
question. One might conclude that these services should not be made in Denmark. Within other industries
productivity is higher. Manufacturing firms experience higher growth, both internally and due to dynamics
(The Danish Productivity Commission , 2013). Therefore, a hypothetical situation would be to liberate the
labor used in the service industry because labor in other industries has a higher level of productivity.
Therefore, labor is more productive when used in manufacturing. This is explained by the PPF and the fact
that international trade allows for countries to specialize its production. Put differently: based on the
international comparison it seems that Denmark is not abundant in the intensive factors in the service
sector. But it should be noted that the division of firms across different branches is not a productivity
sinner. In fact, Denmark with a different structure (such as the Swedish, Dutch or German) would have
experienced even less productivity growth (The Danish Productivity Commission, 2013). Ergo changing the
structure to fit that of Sweden, Holland or Germany would not benefit productivity.
8.0 Production Possibility Frontier
Let us draw the PPF for a service and a manufactured product. We know that the manufacturing industry is
more productive than the service sector (The Danish Productivity Commission , 2013) and use this
knowledge to show the associated opportunity cost of producing one thing over another and the use of
resources.
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Figure 4: PPF of manufactured goods versus services
Note: The PPF explains the output of either services or manufactured goods. The service sector accounts for 2/3 of the
private market.
Source: Author
The case is purely hypothetical, but shows that by moving along the indifference curve the existing amount
of input can be used to produce either services or manufactured goods. For a given amount of input the
amount of output differs due to a difference in productivity. Point A shows the scenario in which all
resources are allocated to the service providers. Point B shows the case in which all resources are allocated
to manufacturing. Point C shows a scenario in which both services and manufactured goods are produced.
As well as point A and B, point C illustrates the opportunity cost within the outputs. We know that the
service sector accounts for 2/3 (Danish Business Authority, 2001) of the private market and here point D
comes into place. If we assume that point C for services is the amount of output (and accounts for 2/3),
then the corresponding amount of output for manufactured good is 50. This is point X. As illustrated this
point is outside of the curve and hereby shows that the resources in the economy are not being used to
their full extent. Ergo it is not only a question of the trade between two productions, but also about
resource exploitation.
This example is assuming that the amount of labor and investment is held constant.
The PPF raises some questions, such as why the service sector is so big given the lack of productivity. It also
raises the question why these resources are not being used. As for this part of the report the international
perspective continues, and as we know the service sector has great potential when it comes to raising
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productivity through international operations, and the section looks into barriers for service export.
9.0 Barriers
9.1 Barriers - Standardization
One barrier is the act of standardizing the services so that they are adapted to the foreign market. There is
a clear connection between the level of standardization in the product and the international nature of the
firm (Danish Business Authority, 2001). Therefore it is essential for the firms to possess the capabilities
needed to standardize the product. Furthermore, it becomes a barrier if the service are characterized by
specific content that differs across markets and therefore difficult to standardize. Ergo it separates service
providers according to whether their products can be standardized. Danish financial service providers are
the group that experienced the highest increase in sales via international establishments around the
millennium, and the services they export are characterized by being very standardized (Danish Business
Authority, 2001). Counter-intuitively, the financial providers believe that their services are highly
specialized to fit the Danish market. So standardization is not only characterized by how much
standardization is needed, but also the motives and skills needed to standardize. In the survey from 2001
only 15% (Danish Business Authority, 2001) of financial service providers feel that they do not possess the
skills to sell their services abroad whereas providers within the construction business believe it to be a
bigger problem (30%). This is also reflected in the fact that the construction business has very little export.
The way the construction services are defined differs across statistics, but by looking at a key table made by
the commission (The Danish Productivity Commission, 2013) no type of construction service is amongst the
sectors with higher productivity (such as the financial services). In conclusion, standardization depends on
the abilities amongst the firms to do the standardization and not necessarily the level of standardization
needed.
It is hereby necessary skills that are essential for the act of standardization.
9.2 Barrier - Polarized investment
Due to core characteristics of certain types of services, it can be an advantage or directly necessary to be
physically present when providing the service. But the foreign direct investment from Danish service
providers shows a polarization in terms of which types of services are provided through investments
abroad. Financial services are the most frequently traded through FDI and therefore this sector represents
the vast majority of FDI (The Danish Productivity Commission , 2013). On the contrary services within the
business of hospitality only represent a small part of the investments. In conclusion the environment for
investments is highly polarized. As for the FDI for services generally speaking, investments exceeded the
level for non-service firms during the nineties. But the growth is still high in an international context
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(Danish Business Authority, 2001). The real question is whether a lack of foreign direct investment causes
the lack of internationalization amongst service firms (i.e. whether the lack of investments is to blame for
the development). But based on data computed by the commission (2013), it is not possible to conclude
that there is an investment crisis in Denmark. Change in foreign direct investments is the result of change in
business cycles, but also a change in the nature of how services are being provided. Development within
services of financial aid and communication has changed the necessity for physical presence and this is
therefore reflected in investment statistics (Danish Business Authority, 2001). Nevertheless, it presents
investment as an additional barrier to internationalization.
10.0 Importance of scale economies
Denmark has a population of approximately 5.6 million (Statistics Denmark, 2014) which means that the
clientele of the home market is limited. Therefore there is a natural limit to the domestic demand and in
turn to how low the marginal cost of production can become when solely operating domestically. In
addition a study shows that there is a significant difference between the tendency for firms to grow in the
US compared to in Denmark (The Danish Productivity Commission, 2013). Small firms in Denmark have
growth problems. Combining this knowledge with the difference in productivity between the US and
Denmark adds to the hypothesis that ensuring a larger extent of economies of scale would add to
productivity growth (on an international scale as well as on the home market).
Another aspect of economies of scale in an international perspective is the respective size of domestic
markets. Denmark is a relatively small market, especially in comparison with the US. US companies have
greater opportunities for economies of scale on the domestic market.
11.0 Factor endowments
The PPF discussion opens up for a characterization of the factor inputs in the service sector and the
associated context of initial endowment in Denmark.
It is difficult to generalize based on all services. Most business services do not require large initial
investments (see figure 3 with business services). Services within transportation and constructions will
naturally imply the possession of some means in order to complete the job. But many services concern the
transfer of knowledge or transfer of items and do unlike the manufacturing industry not require large initial
investments in production plants and materials. Consequently it cannot be characterized as a capital
intensive industry. In continuation, there are no direct requirements regarding natural materials. The main
input in most service productions, especially those of business content, remains knowledge (Farzina,
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Kahreh, Hesan, & Khalouei, 2014) and associated tools allowing to provide the service (for example the
need for physical presence).
Therefore, when applying the Heckscher-Olin model, the factor needed from providing services and
specializing production in this field is know-how and opportunity. Opportunity in this case is the necessary
means to provide the service, for example the occasional need of FDI when exporting a service. Based on
trade theories (Heckscher-Olin ) (LEAMER & LEVINSOHN, 1995) that determine the direction of trade, does
Denmark possess these endowments? Or is there another explanation to why we have domestically based
service providers when foreign providers are more productive? It is not possible to measure know-how and
knowledge independently; but the general level of education in the population works as an indicator. The
work made by the commission is mostly focused on recent events in the education system causing the
younger generations to fall behind European standards. When it comes to the part of the population aged
16-24 years of age, Sweden, Holland and Finland have a significantly higher skill level than the Danish
population (The Danish productivity Commission, 2014). With regards to the population aged more than 25
with upper secondary or higher education, Denmark also falls behind Germany, Finland, Sweden and a
series of Eastern European nations, and only just exceeds the EU average which is heavily affected by very
low scores in Malta, Portugal, Turkey and Spain (EUROSTAT, 2014). The observations regarding general skill
level points towards the conclusion that several other European nations are generally of better education
than Denmark and by looking at the productivity in the service sector, Sweden and Holland both score
higher. This correlates with skills as a factor being essential in the service industry. Assuming that an
internationalized sector is a productive sector, this is also reflected in the shares of export of services. Both
Sweden and Holland have greater shares, especially Holland (Danish Business Authority, 2001).
Much has happened since the HO-theorem was made and the otherwise simple theory has been subject to
clarification. Intra-industry trade in the north is highly dependent on specialization that does not come
from initial endowments (Davis & Weinstein, Do Factor Endowments Matter for North-North Trade?,
2001). The three most important trading partners for Denmark are Germany, Sweden and the UK (Kureer,
2013). These are all countries in the North which under the assumption of intra-industry suggest that factor
endowment does not play as significant a role as when trade happens between North and South. Therefore
factor endowments cannot necessarily help explain which comparative advantages Denmark has in the
trade with fellow countries from the North, nor why there is little trade within the service industry. On the
other hand, the North-North trade theory can be used to argue that services should be sold to southern
nations, in which the factor endowments suddenly give a comparative advantage, assuming that the
comparative advantage is knowledge.
In continuation, the study made by North-North theory seeks to prove the significant factor endowments in
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North-North trade. Also their conclusion acts in accordance with the observed problems in the Danish
service industry. The findings indicate a crucial importance of economies of scale which also decides the
direction of trade. Ergo when you combine this knowledge with the fact that Danish firms have growth
problems, it explains the low trade of services and hereby diminished growth in productivity.
The growth in the sector and additionally the lack of ambition (part 14.1) explain the proportionally high
amount of small firms compared to the US. When the comparative advantage is economies of scale,
Denmark does not possess that advantage. When it comes to differentiation, the problem for Danish firms
is one step behind. 50% of the firms believe that their services are specific to the Danish market and 48%
claim that the foreign markets are too complicated (Danish Business Authority, 2001). This indicates that
Danish service providers do not have the required information about the foreign markets, and therefore
differentiation is difficult. If the firms are unable to standardize their product and find the foreign demand
difficult to meet, it is very unlikely that differentiation is any less of a challenge.
12.0 Entering the Danish market
For further characterization of the Danish market for services the following barriers for entering the Danish
market are presented.
Certain conditions can be problematic when international firms want to enter or provide Denmark with
services.
1. Within the European Union: the goal is to eliminate all trade barriers. But some services are not
traded freely.
The EU service directive was made to ensure free trade within services. The point is to eliminate
unnecessary administrative work and eliminate barriers. It is yet to be implemented by all member
states. Though, some services are not included: financial services, transportation, services in the
health sector and all services offered by the public sector (The Danish Productivity Commission ,
2013)
2. Trade with third party countries: Generally speaking there are no tariffs on import of services in
Denmark. Furthermore some services are not subject to VAT: Sale of rights, advertising, consulting,
transportation, and rental of a number of services (SKAT, 2014).
3. Some of the services require a profound knowledge of Danish legal system. Especially the legal
services but also the accounting activities differ in methods across countries (Alexander & Nobes).
4. Some services require knowledge of the Danish culture and language such as advertising.
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5. The EU service directive is yet to be implemented across the membership nations (The Danish
Productivity Commission , 2013). This will improve export conditions for Danish firms and therefore
open an opportunity for growth and a higher degree of economies of scale which is one of the key
issues within the service industry.
Already in 2001, there was significant international competition present on the Danish service market
(Danish Business Authority, 2001). But it is still relevant to look at the conditions for foreign service
providers entering the Danish market because they take part in the competition.
The service market is relatively easy to enter, and the main barrier is of cultural and linguistic character.
12.1 Conclusion
In conclusion it can be said that the Danish economy is characterized by a relatively more productive
manufacturing industry opposed to the service sector. The service sector accounts for 2/3 of the private
market so there is a productivity loss. Denmark is relatively well endowed when it comes to knowledge
which is central in many service firms but since the main trading partners are other northern nations, also
the act of product building (differentiation) and scale economies determine the comparative advantage.
Differentiation is a challenge as revealed by survey and growth problems for small sized firms question the
comparative advantage. Additional barriers include the need for direct investment and international
knowledge.
13.0 Productivity of immigration and distribution
13.1 The service sector and the public sector
The service sector is characterized by having relatively few highly educated people employed. Instead, the
Danish public sector has a high density of people with a long academic background. The wide range of tasks
that are performed by the government alongside with high expectations to public services require a skilled
workforce. In turn, this should result in services of high quality and high productivity.
By considering a study by Eurofound (2013), the statistics show that the perceived value of public services
in Denmark is amongst the highest in Europe. So, the fact that there is a skilled labor force in the public
sector, matches the perceived high quality (overall). A brief characterization of the productivity in the
public sector is relevant. The productivity here has proven hard to measure, but studies do suggest that
there is great potential for improvement (The Danish Productivity Commission, 2013).
The theory of skills and productivity walking hand in hand does explain the lack of productivity in the
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service sector with relatively few high-skilled employees. But for the public sector, the explanation is to be
found in the dynamics with which the public sector is driven. A productive labor force does not contribute
to dynamics as in the private sector. Consumers are forced to accept the given supply. And if the public
sector does not benefit from the skills to the desired extent due to lack of dynamics, the skilled workforce
can possibly contribute with more value by working in the service sector. This will raise the educative level
in the service sector. Obviously it is neither possible to generalize based on all high-skill positions within the
public sector nor expect them to be suitable for all positions in the low productive service industry. But the
idea is to pursue the highest possible gain given the current amount of labor.
Therefore it should be determined whether or not some positions in the public sector hold over qualified
labor and if these positions can be possessed by labor of different nature in the future. The master degrees
that point towards a career in the public sector should be revised so that they have a business perspective.
Furthermore it should be examined which positions could be taken by bachelor graduates as opposed to
master graduates. This will save society the cost of over qualifying people with skills that they do not
contribute with (with continuous high quality standards in mind).
13.2 Immigration
Encouraging foreign labor to immigrate to Denmark is one way of shifting the PPF to the right and hereby
increase the amount of resources in terms of labor. This means that immigrants can contribute with greater
potential output. In addition it is a possibility to attract a specific type of labor here and now instead of
having to wait for policies to kick in and encourage students to end up with the desired educational
background.
There are several initiatives designed to encourage skilled foreigners to move to Denmark. This includes3:
-
The Pay Limit Scheme for those making at least 375,000 DKK gross per year (Danish Immigration
Service, 2013).
In 2012 2308 people were accepted
-
The corporate scheme.
In 2012 632 people were accepted (Danish Immigration Service, 2013)
-
Immigration via the Greencard scheme is based on individual evaluation
In 2012 1215 people were accepted (Danish Immigration Service, 2014)
-
The Positive List. This is a way of filling positions in which there is a shortage of qualified workers.
In 2012 69 people were accepted (Danish Immigration service, 2013)
3
For specification, see appendix
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But does this reduce the lack of high skilled labor in the service sector and therefore increase productivity?
As the Rybczynski theorem theory states, an increase in labor from immigration will fall in the production of
the good in which the factor in intensive. The factor in this case is highly skilled labor, and in Denmark the
production that uses relatively high-skilled labor is not the service industry, but other types of production in
which the productivity is higher.
The productivity commission has taken another angle on the issue. They mention a study suggesting that
skilled immigration has a positive effect on productivity in the United Kingdom (Kangasniemi, 2012) and
that the cultural diversity it implies also has a positive effect in the US (Peri, 2012).
However, a study shows that this is not the case for Denmark (Parrotta, Pozzoli, & Pytlikova, 2012), there
was no proven effect.
There are several similar studies but no clear pattern. It seems that the given context and the level of skills
possessed by the immigrant determine the effect. But one tendency is clearer; foreign labor has proven
effective when breaking down barriers for trade (Hiller S. , 2011).
The study of Denmark fits well with the Rybczynski theorem. Immigration has no effect on productivity in
the service sector because it contributes with elements that are already present in the skill intensive
industries (the elements being skills and international trade). Furthermore, we observe that 60-80% of the
service industry is not internationalized (Danish Business Authority, 2001) and by assuming that
international employees help break down barriers for trade, it is logical that there is limited trade due to
lack of international presence in the firms. In conclusion, the initiatives to attract foreign labor must be
either very limited and therefore not show in the statistics or become otherwise employed. There is no
study focusing on in which industries/sectors the newcomers are employed, but the following table shows
their profession.
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Figure 5: Residence permits according to the pay limit scheme and the positive list - 2012
Note: Number of residence permits awarded based on the positive list and the pay limit scheme. The total number of
people in the 4 initiative: 4235 DKK
Source: The Ministry of Justice (Denmark) & The Danish Immigration Service (2013). Tal og fakta på
udlændingeområdet
The two schemes presented in the table (the Positive list and Pay limit scheme). IT specialists are the
largest group but it is hard to say in which industries they work. The remaining is clearer, but nevertheless it
is not obvious if there are private service industry potential employees. Together these two groups make
up for around half of the total number of immigrants that arrived in Denmark in 2012 based on the
schemes. The people employed through the corporate scheme are already involved in international
operations.
Even though it is hard to make any definite conclusion based on the limited data the numbers are relatively
small and especially the Positive list shows small numbers even though this is a possibility to recruit specific
types of skills. Based on the theory by Hiller, foreign labor helps break down barriers for trade and given the
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large proportion of domestically based service providers in Denmark, the Positive List is an ideal tool to
increase productivity through two channels:
-
Immigrants with appropriate skills and a high level of education. Based on an analysis of the
employee level and nature in leading international service providers this should become a
benchmark and therefore included in the Positive list
-
Domestic labor can also possess the right skill level but by getting access to foreign labor, trade is
encouraged and therefore adding another aspect to the additional productivity growth
As of 28th of February 2014 the Positive List contains a wide range of professions, though many of them are
mainly associated with public services. And given that the nature of the majority of the listings, they do not
lead to any specific industry it is hard to say whether the listing would provide the service industries with
foreign labor if the numbers were higher.
Nevertheless the idea is a relevant tool because it enables a direct recruiting device, and could be used
differently with a more direct aim towards the private service industry.
The productivity commission does not comment on the individual recruitment schemes and their function
and effect. Instead they bring an analysis of why moving to Denmark can appear problematic to prosperous
immigrants. Their analysis aims at attracting highly skilled labor to the already skill intensive industries in
which skilled labor is present and internalization is more common than in the service sector (such as
manufacturing). Their main focus is mobility of labor coming from abroad. They do not consider that
changing the nature of immigration controls (such as the scheme) can also help the mobility on the
domestic market, such as the lack of highly skilled laborers in the service industries.
Recruitment schemes will therefore cause a redistribution of skilled labor to the service sector if successful.
These immigration schemes create a path for non EU-citizens. Therefore another aspect of immigration is
the inflow from fellow EU-nations the labor mobility within the European Union. This is very relevant when
looking at productivity because other EU members form a source for comparison. Given the fact that
studies show that Denmark is outperformed by other EU members, there will be a knowledge flow
associated with welcoming newcomers.
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Figure 6: Labor mobility across regions 2010
Note: Percentage of total population that relocates to one of the other regions available
Source: “Annual Cross boarder mobility”. OECD (2012) OECD Economic Surveys: European Union 2012
As the figure shows, mobility is low within the European Union. Even though EU-citizens can freely relocate
to Denmark, this tendency is limited. Barriers include cultural differences and language diversity. Although
labor mobility has increased over the last couple of decades, there is a clear trend in labor moving from
east to west (ANDOR, 2014). Amongst other elements, wage differentials explain the tendency alongside
short term job prospects. In the long run, initiatives are being presented in EU legislative bodies, trying to
enhance the mobility of labor. For the Danish labor market the current status is on the receiving end (east
to west). In the long run, if EU initiatives to enhance labor mobility are successful, it will change the overall
labor dynamics. With regards to the PPF, a labor move from east to west benefits the economy by shifting
the curve to the right (assuming existing Danish labor force remains constant), whereas increased labor
mobility will enhance dynamics and hereby open up for a better utilization of resources.
13.3 Conclusion
A quick look at the demand for foreign labor reveals a scenario in which skills are central. By increasing the
labor force there is a possibility for total factor productivity to grow but also for the average measured
productivity to grow (if the foreign labor is more productive than the Danish average). Labor mobility is
scarce, and in a world-wide context relatively few employees with high-skills are taken in.
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14.0 Characteristics of the service industry
14.1 Ambition
This paragraph add to the explanation for lack of internationalization and scale economies within the
service industry. Studies show that 84% (Danish Business Authority, 2001) of the domestic based firms
show no ambition to expand across national borders. This opens up for two possible explanations:
-
The firms in question are not aware of the implications and therefore cannot make an informed
decision
-
The firms in question are aware of the consequences but find them unbeneficial for their strategy
In order to explain the lack of knowledge we must turn our focus towards the skill level of the employees.
As previously discussed, the educative level is lower in the Danish service sector as opposed to the
countries of a higher productivity level (The Danish productivity Commission, 2014). Though, it is unlikely to
have an effect on large firms since management typically is of higher education. On the other hand, this
argument compliments the observation on many small firms in the service sector in which the company is
not necessarily separated into management and more operative aspects of the business.
In the second scenario we find the firms that can in fact make an informed decision. As for the informed
firms, the size of the firm can affect the decision-making. For small firms, international operations can be
both risky and seem out of scale. A study from 1999 shows that Danish service providers expected a strong
intensification of the competition on global markets (Danish Business Authority, 2001). This is highly
demotivating and might be an explanation of the loss of market shares.
However, looking at the Danish service market over time, there are many foreign providers present (Danish
Business Authority, 2001) (but this also means that Danish firms have an advantage when looking at foreign
markets). They are already exposed to foreign competition and therefore the competition they meet on
export markets is not all that different from what they know from the Danish market. This study was made
by the Danish Business Authority and it contradicts a conclusion made by the Productivity commission. The
commission made a study that concerns the general competitive mentality amongst firms in Denmark.
Because the mentality differs slightly from the level of ambition in Germany and Great Britain, they
conclude that the competitive culture in Denmark is low (The Danish Productivity Commission , 2013).
A joint conclusion of the two studies is that the Danish service market is where you find a great share of the
international competitors. In addition, service firms lack international ambition to expand and compete for
market shares. It is therefore faulty for the commission to conclude that there is little competition in
Denmark. They do not consider the presence of foreign services. Whether or not the Danish firms have
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ambition, they do exist and therefore they must possess resources that can keep them in business given
the current competitive level.
But if there is significant (and international) competition present, it is counterintuitive to observe a large
extent of small unproductive firms. One explanation is to be found in the lack of productivity coming from
dynamics. The private service sector is the area that benefits the least from dynamics (The Danish
Productivity Commission , 2013).
A joint conclusion based on the Danish Business Authority and the work by the commission is that Danish
service firms are less productive than their international counterparts, they cannot compete and therefore
do not have significant market shares. That is more or less the basic conclusion that the commission
presents but whereas they blame the low productivity on a mentality survey, an alternative conclusion is to
say that Denmark does not have a comparative advantage on the given markets.
This is underlined by the fact that firms that do decide to export rarely follow a specific strategy (see
following paragraph), which separates the sector into those who have a comparative advantage and not
into whether or not that is an ambition.
Though, it does raise the question of causality with regards to whether mentality or structures in society is
the cause/effect and it is a returning issue in the discussion.
14.2 Strategy
But what about the internationalized Danish service providers? What motivated them to take the step
towards exporting their services? An additional study shows that relatively few international service
providers made a specific strategy aiming towards going international (The Danish Productivity Commission
, 2013). The lack of ambition is especially fatal on small markets such as Denmark because there is a natural
limit as to how much can be sold. In larger countries such as the US, much expansion can be made without
expanding across borders. This is not the case for Denmark, and a key problem is that Danish firms find the
Danish market of adequate size for their services (Danish Business Authority, 2001). In a country such as
the US, firms benefit from a greater extent of economies of scale without having to leave the country.
15.0 Competition
15.1 Competitiveness and productivity
Competitiveness and productivity are closely linked. The problem is that being competitive holds different
definitions and has a changing relation to productivity. The reports made by the commission are based on
the idea that competition is what drives productivity (Syverson, 2011), and that enabling is essential: the
present possibilities to compete and that the encouragements to compete.
The enabling from possibilities comes from regulatory matters and the encouragement also has its roots in
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regulation but also in ambition which is low. Therefore when regulation is revised, it should be considered if
business retention is a way to not only make growth possible but also associate it with additional gains for
the firm.
15.2 OECD and the commission
Let us turn focus to competitiveness as described by OECD. It is very clear that the commission lets
competitiveness and productivity become one. But when evaluating a market with high productivity growth
it does not necessarily lead to a comparative advantage on export markets (Durand & Giorno, 1987).
Although data can reveal an increase in sales through exports in many cases exports have not changed and
the change lies in exchange rate appreciation. The explanation lies in cost differences across countries that
cannot be measured accurately. Therefore productivity and competitiveness cannot be set equal as such.
But this is not fatal for the analysis by the commission because they mostly focus on competitiveness as
structural issues in Denmark and do not directly make any comparisons nor mention exports in this context.
In conclusion: Different definitions and specifications have an impact of the nature on the analysis hence
the related findings.
15.3 World economic forum
World economic forum places Denmark as number 15 in the 2013-2014 Index (World Economics Forum,
2013). This is several places behind Finland, Germany, US and Sweden (3,4,5 and 6) and therefore matches
the observation of their productivity level.
The ranking is based on an evaluation of 3 main inputs, basic requirements, efficiency enhances and
innovation & sophistication factors. The latter is what raises Denmark.
Their definition of competitiveness again equals productivity in which they consider 12 pillars in an
economy. By acknowledging that there is no one way to explain or measure productivity a whole series of
components are considered4.
Denmark is characterized by having a flexible labor market on the plus side, but on the negative side its
macroeconomic environment is declining. Unfortunately it is difficult to use this characterization since
Denmark in a world context is doing extremely well (by the measures of the World Economic Forum). But it
does make a relevant contribution to the discussion. While confirming the (relatively speaking) excellent
performance we are reminded that things could go the other way. When structural conditions that define
the Danish Economy are subject to criticism and suggested improvement, there is a possibility that the
performance will not be positively affected. In other words, if changes become very radical, there is a risk of
4
For specification, see appendix
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changing the elements that ensure the positive contributors. This is particularly relevant when the
commission throughout their reports suggest radical changes within areas such as the education system,
which forms very basic conditions behind the functionality of Danish society.
With respect to the OECD definition of competitiveness on international markets, the World Forum analysis
could falsely lead to the conclusion that a positive change in the associated structures will lead to a
comparative advantage (Durand & Giorno, 1987) when it comes to their exports. The point here is that one
cannot expect structural changes to effect the direction of trade. It is highly related to the theory that
modern day North-North trade is dependent on a comparative advantage in economies of scale and
differentiation. Changes within a wide range of society will not improve the possibility of economies of
scale, and the size of the Danish domestic market is constant. As for differentiation, it is possible that a
structural change within the field of education or immigration controls will improve the conditions for
differentiation, but a wide range of other structural changes will not directly improve the conditions.
16.0 From producers to service providers
Over the years many jobs in the production industry have been outsourced to cheaper production sites and
left workers in Denmark to find a new job in another sector. Many of these workers have been employed in
the growing service and knowledge sector. Both jobs with a high salary and low salary have left Denmark
and of new jobs created, 24% are of low salary character. Although almost ¼ new low wage jobs appear to
be significant on the labor market, it is not necessarily as problematic as it seems. Given the fact that 1/5 of
the young generation has no skilled education, the service sector is the place to find work because of the
demand for labor with no specific qualifications (ESPERSEN & FLENSBURG, 2014). In Germany half of the
new jobs since 1991 are to be found in sectors with low wage. And the average wage in the German service
sector is significantly lower than in Denmark. When we compare Denmark to Germany, and set the German
level of productivity as best practice, the general welfare level should be considered. As professor Jens
Jonatan Steen (2014) says, the low wage jobs in Germany mean that there is a difference between being
employed with services in Denmark and Germany. Whereas Germany is being used as best practice (in
Europe) in several parts of the analysis made by the commission, the potential welfare losses should also be
noted. Relative prices considered, if the wage per hour is lower, then the productivity per hour will appear
higher. Therefore, when the commission begins their analysis by stating all the associated welfare losses
associated with low productivity in Denmark it should be noted that there are ways to increase productivity
that do not improve general welfare. In this case, assuming that a lower wage level in the service sector
increases the productivity and in the end leads to greater contribution in terms of tax payments, the
question of course is whether it will be of benefit to the workers.
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16.1 Conclusion
The service market is characterized by lacking ambition. This is both ambitions in terms of growth and
international expansion but also a lack of ambition when it comes to gaining market shares. But when it
comes to expanding across borders, Danish firms already know the competition from the domestic market.
But the lack of ambition and comparative advantage is a possible explanation of the low productivity and
the failing to gain market shares. The general shift from manufactures to service providers implies another
wage structure and adds to the discussion of benefits allocation.
Figure 7: Distribution of high skilled workers
Note: A high-skilled worker is one that has completed a university of university college degree. In order for
comparisons some private areas in the US have been included in the public sector
Source: “Fordelingen af højtuddannede på tværs af brancher”. The Danish Productivity Commission (2014)
Uddannelse og innovation (translated)
As the figure above shows, there are more workers of high education employed in the service sector in
Germany. This indicates that the higher level of productivity has another explanation which is the skill level.
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Furthermore it explains the scenario presented in the article on low wage jobs, (ESPERSEN & FLENSBURG,
2014), which characterizes many jobs in the service sector as a place for social dumping of low educated
workforce. So it presents a scenario in which the service sector in Germany is polarized – on the one hand
we find more highly skilled labor than in Denmark and additionally we find more low wage jobs.
As the wage level stated only accounts for the low wage jobs in Germany and not the general price level,
definite comparisons cannot be made. But the fact that the new low wage jobs account for half in Germany
and a quarter in Denmark, shows wages in Denmark has no or only limited effect on productivity in terms
of motivation. This correlates with motivation as a function of more than just a beneficial wage level
(Buelens, 2011) and also the observation of lack of ambition for expanding.
The more theoretical explanation of why a lower wage level does not promote productivity is to be found
in the essence of what a potential need for lower wages mean: it indicates a lack of competitiveness. So are
Danish wages in the service sector too high? There are several ways to examine this question. First of all
there is significant international competition present in Denmark (Danish Business Authority, 2001) and
furthermore wages in some service sectors have been constant since 1991 whereas the rest of Denmark
has experienced an average increase of 51 DKK (ESPERSEN & FLENSBURG, 2014).
In a different perspective it should be mentioned that there is a positive relation between wage and
productivity (The Danish productivity Commission, 2014). But given that the cause effect in this case is that
productivity has a positive effect on wage on firm level, increasing the wage is not the way to increase
productivity. Again it is in accordance with the theory of motivation as a matter of more than a beneficial
salary.
In conclusion; the best way to look at wages in this context is to say that wage is the result of a productive
laborer rather than the other way around.
So where is the exact connection between productivity and job polarization? In Germany we observe
higher productivity growth than in Denmark, and this is what the job polarization reflects. When many low
wage jobs are created, it shows an increased use of efficient technology, which replaces the need for jobs
of middle wage type and instead creates job of low wage type that is unsolvable by computers due to nonroutine tasks (Acemoglu & Autor, 2011) . Ergo, the large amount of low wage jobs is a result of increases in
productivity and again confirms previous observations on difference in productivity in Denmark and in
Germany.
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Labor market
17.0 The role of the labor market in productivity
There are several indicators suggesting that the distribution and quality of labor contributes negatively to
productivity in Denmark. As figure 8 suggests, labor efficiency is lower for the service sector compared to
industrial production. Both service sectors only contribute with merely 8% to productivity whereas the
industry contributes with more than 14% (The Danish Productivity Commission, 2013). It basically means
that the average employee contributes more when working in manufacturing as opposed to working in the
service sector5. In addition it is important to note that the application of labor is almost indifferent in
domestic and internationalized services.
Figure 8: Indicator of efficient use of labor 2007-2009
Note: Indicator of efficient use of labor. Average: 2007-2009
It tells us how much more labor contributes to productivity in a given sector, as opposed to if all
sectors were of the same size. Manufacturing is all non-service production on the private market.
Source:”Indikator for effektiv anvendelse af arbejdskraft”. The Danish Productivity Commission. (2013). Konkurrence,
internationalisering og regulering (translated)
5
In the scenario behind these calculations all firms within the sectors have the same size (in terms of workers). When
the average employee is more efficient when working in manufacturing as opposed to in a domestic service firm, it
means that the worker is more likely to be employed in a more productive firm.
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Correlation between high education and productivity is challenged by systematic high rates of
unemployment amongst certain groups in the academic society and is confirmed by the high demand for
other groups within positions that require skills. It suggests that the educational distribution is
dysfunctional.
Furthermore the public sector in Denmark holds a large proportion of the graduates with an academic
background whereas the skill level in the service sector is relatively low.
These observations raise some questions concerning the use and distribution of labor in Denmark and open
up for a discussion about how to ensure the optimal skill level.
The basic framework for studying the impact of labor on productivity is measures of human capital. With
regards to the productivity function we are here looking at labor as the input factor. It is dependent on
human capital and the level of technology (Romer, 1990). Focus here will be on human capital and
therefore disregard investments in research and development.
18.0 Unemployment – Academic background
An estimation made by the Danish confederation of professional associations claims a need for 3000
additional jobs for graduates with an academic background – every year (Heltoft, 2014). Disregarding the
aftermath of the financial crisis, this means society pays for the (long) education of 3000 people that there
appears to be no immediate demand for. And by indicating that the problem occurs “every year” the
observation shows a systematic problem. At the same time we know from the recruitment schemes (part
13.2) that there is a demand for certain groups again within the academic society. This shows a mismatch
between the type of skills that graduates acquire and the skills demanded throughout the labor market.
19.0 Hiring of academic graduates
19.1 The example
The government has created initiatives to encourage and support the recruitment of academic graduates.
An example is a small company in Sakskøbing which hired a recent graduate from CBS to increase sales
(Heltoft, 2014). The CEO admits to have never considered the opportunity himself (to hire someone with an
academic background), but thinks it was worth it. The National Union of Students in Denmark confirms the
positive effects of hiring academic graduates. By considering the study that education has a positive effect
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on productivity the initiatives appear to have a positive contribution to both unemployment and
productivity. On the other hand the initiatives imply financial support to the companies in question, which
means that the cost per graduate is not final on the day of graduation (although if the graduate contributes
to growth in the company additional tax payments can potentially make up for that cost).
The fact is that there is an excess of academic graduates – a systematic excess (it is problematic whether or
not governmental programs can help avert the problem). The idea in the education system is that mass
education is the way forward, as opposed to focusing on the right skills being placed in the right jobs. It is
an idea promoted by the several goals the government imposes on this area – they mostly concern the
desire to academically educate a high amount of students as opposed to focusing on how to provide people
with the demanded skills within as well as outside of the academic community. In turn, it is not commonly
understood amongst employers that academic graduates bring a high value with them.
The company in Sakskøbing is not a service provider but shares some characteristics with the previously
mentions businesses. There are few employees, the level of ambition was low and they had no employees
with an academic background prior to the hiring of the CBS graduate. Again the lack of ambition can be
linked to another problem. As the CEO in Sakskøbing (Lars Olsen) says, the hiring of a CBS graduate was
associated with a significant risk (and a possible gain), but it was not his ambition to take that risk, it was
enabled by the governmental programs.
19.2 Wage
The CEO from Sakskøbing is of the opinion that hiring an employee of a high educative level (in this case a
master’s degree from Copenhagen Business School) is expensive. This indicates that the reservation wage
for such employees is high. It offers an additional explanation as to why small firms in the service sector
face similar conditions; the high reservation wage of such employees makes it risky for a small sized firms
to hire them.
But what happens when governmental programs offer compensation for hiring someone like the CBS
graduate? The commission states that in the private sector wage reflects productivity, but in such a case
the wage setting is not determined in an independent competitive environment. Put differently, the
perceived value of such an employee is not constant amongst the agents (the jobseekers and the firms).
Reservation wage is also dependent on the conditions during unemployment in which case non labor
income is available through unemployment benefits in Denmark. This gives the individual the possibility to
prolong the job search until the job offer maximizes the desired income. This means that when initiatives
such as the wage supplement are introduced it is a way of using the idea of unemployment benefits
differently. Additionally it means that wage does not reflect productivity in the same way that is does in a
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free setting6.
All in all it questions whether wages are too high which is an often asked question in the Danish debate on
competitiveness (CEVEA, 2013).
Figure 9a: Reservation wage and normal job search
Note: The figure illustrates job search in a normal setting. Over time the reservation wage declines, making the
unemployed more and more willing to accept a lower wage. At time T0 the first job is offered that sets the minimum
for what the job searcher will accept. Ergo in T0, W0 is the reservation wage
Source: Author
6
The wage supplement makes the employee partly publically employed
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Figure 9b: Reservation wage with supplement
Note: Job search with the presence of a wage subsidy. The slope of the offer is constant because time is not a factor
that changes the wage and it is assumed that the job is offered at a certain point in time. The job searcher has a
reservation wage that declines in the same way as in normal job search. The difference is the funding of the wage. At
W0, the offer meets the reservation wage line, ergo this job is acceptable. From W 0 to W1 is paid by the firm, whereas
the remaining part is paid by the subsidy.
Source: Author
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Somewhat contradictory it is to find that the reward associated with education is relatively low in Denmark.
Figure 10: The wage price of attending post-secondary education7
Note: Additional wage when continuing into further education than upper secondary.
Source:”Lønpræmie ved at tage en videregående uddannelse”. The Danish Productivity Commission.
(2014).Uddannelse og Innovation (translated)
So when it is expensive to hire someone of high education it is nothing compared with the wage spread in
the US. This is somewhat contradictory with the idea behind the wage supplement arrangements because
they indicate a high wage level for the job searchers with higher education. Additionally we know that firms
in the US grow faster and therefore achieve a more hierarchical firm with management etc. which can give
way for a demand for people of higher education8. Small Danish firms therefore become subject to the high
risk associated with hiring a graduate as explained in the article from Sakskøbing.
20.0 Education.
20.1 Returns
It is troubling to find that Denmark is the country with the highest spending on education since the results
do not reflect the large investment (The Danish Productivity Commission, 2014). It calls for a review to see
where the education system fails to contribute to productivity in the service sector.
In Denmark education is not an investment on equal terms with for example the US because it is not
7
8
For specification on the Danish system: http://eng.uvm.dk/Education/Overview-of-the-Danish-Education-System
unlike the tendency for small firms to stay small in Denmark
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necessarily associated with a cost. When we observe that there is a lower correlation between education
and wage in the US most individuals will have to cover costs coming from study fees and related expenses
whereas as all students in Denmark more or less face the some non-cost situation.
It also means that the choice of education in Denmark is less transparent because students-to-be have less
reason to consider the labor market when choosing education (The Danish Productivity Commission, 2014).
They will not necessarily end up with a debt that a well-paid job will have to make up for. In addition, not
considering the labor market has the possible consequence that educations leading to systematic
unemployment will not “scare” the students (The Danish Productivity Commission, 2014). All in all, the
Danish model ensures equal conditions for all students but as a consequence the link to the labor market
upon graduation loses its value. This means for productivity that the resources coming from high-skilled
labor does not match the demands coming from the labor market because there is limited automatic
regulatory effect (The Danish Productivity Commission, 2014).
20.2 Capacity
There are two main problems when it comes to providing schooling in Denmark. First of all: the large
investment in education that does not result in world class education when it comes to quality (The Danish
Productivity Commission, 2013). Secondly: studies suggest that the distribution and place of labor
compromises productivity growth. Both, maybe particularly the second problem, emphasize the notion that
education ads to the capacity of productivity (Smith S. W., Labour Economics, 1994). Ergo it is faulty to
assume that every extra unit of education will increase productivity – because it increases the capacity for
productivity. Therefore, when the government presents it goals being that 95% should go further than the
9th grade diploma, and that 60% should complete a degree within the Danish higher education system
(Ministry of Higher Education and Science (Denmark), 2014) this alone is not enough to ensure the best
productive conditions for the labor market. The goals appear to promote the size of the stock of human
capital. But as stated by Smith (1994) human capital leads to growth potential and is therefore not in itself
a guarantee for actual growth. Additionally the goals raise some questions. First of all these are
quantitative goals that do not ensure an education of high quality. Second of all it presents the capacityproductivity problem; do these goals promote productivity in terms of the human capital that results from
the goals? Professor Ove K. Pedersen (2012) also supports this view by stating that education is not the
answer to all problems and moreover declares the goals unrealistic. He suggests that the unrealistic goals
come from an unseen debate regarding the limitations to education.
Time has passed since the commission made the publication regarding education and innovation (February
2014) and initiatives have been presented directed towards enhancing the quality of the institutions
offering higher education. But when looking at the service sector there are relatively few employees with a
Page 43 of 53
longer education in an international context. If we assume for now that this is an ongoing trend, the early
education is now very essential. And as international test reveal, Danish students fall behind on some very
basic competencies (The Danish Productivity Commission, 2014). Evidently, it is an issue for labor in the
service sector that basic education is of high quality.
21.0 Where did the skilled labor go?
21.1 Public sector
Dynamics in the public sector work differently than in a competitive environment. The supply of public
services is set through governmental decisions and there is no consumer decision because it is paid through
taxes ergo price and supply are not considered (The Danish Productivity Commission, 2013). It is in this light
that the contributions of highly skilled labor in the public sector is questioned.
There are many ways to point graduates toward a degree in the service sector and more specifically within
service providers. One suggestion is to give more students the opportunity to spend a certain amount of
time gaining practical experience as a part of their degree. This will enhance the link between the
institutions of education and the private labor market. By incorporating a practical aspect into the
schooling another factor is introduced; experience. Gaining experience works as a buffer to one’s value on
the labor market (Smith, 1994). It is therefore more likely for graduates to be considered by service firms if
they have related experience and vice versa having an intern offers the service firm an opportunity to
experience effect from the intern on productivity.
21.2 Systematic unemployment
Another explanation as to where the educated labor has gone is to be found in the distribution of
graduates from certain fields of studies.
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Figure 11: Unemployment and skilled labor in unskilled positions
Note: Data is for 2011. An unskilled job is one that requires no more than secondary education. Based on
information from employers concerning the nature of the tasks that their employees are performing.
Source:”Arbejdsløshed og overuddannelse blandt akademikere”. The Danish Productivity Commission.
(2014).Uddannelse og Innovation (translated)
As seen above graduates from arts and humanities have a higher unemployment rate and are more likely to
end up with a job in which their skills acquired from the university are not required. This is problematic for
a number a reasons, but first of all it is obvious that there is an overeducated part of the workforce
(through the unskilled jobs). With this in mind, by looking at the demand for different skills on the positive
list, it becomes clear that there is a dysfunctional distribution of students amongst various educations.
For reasons of generalization the observed unemployment rates are not just the result of business cycles,
the observed rates for arts and humanities show systematic numbers over a long range of time.
Furthermore it is problematic for the service sector if there is an unseen potential for growth associated
with hiring highly skilled labor, and we observe that there is unused skilled labor available. It suggests that
the skills possessed by graduates are not desirable in society and that we observe an excess of such skills. If
the service sector is to be defined by labor with a higher level of skills, it should be examined which type of
skills they could benefit from9.
But why can we observe a systematic choosing of degree that more or less leads to unemployment or
unskilled jobs? The answer may be found in the way the education system in structured. In many countries
going into further education implies the opportunity cost of the lost wage that could be otherwise obtained
and the cost of attending to institution of education. On the positive side of the scale a higher salary awaits
9
Potentially by looking at the skill level and type in countries with a more productive service sector
Page 45 of 53
due to the higher skill level (Smith S. W., Labour Economics, 1994). As a result it becomes natural to
consider conditions on the labor market when choosing a field of study. This is not the case for Danish
students that receive financial support during studies and therefore they do not depend on their education
to make up for foregone wage or tuition fees. In fact only around 5% of student chose their field of study
based on the labor market in 2013 (The Danish Productivity Commission, 2014). This is problematic for both
the individual and society as such.
One solution is to regulate the amount of students being accepted into these fields of study. The argument
against this method is that a strict control of quantity admissions decreases the flexibility of the education
system by being dependent on decision makers to change the quantity admitted (Ritzau, 2014). It is hereby
argued that the best regulation is in form of automatic dynamics from students choosing degrees that are
demanded by the labor market. But since the life of a Danish student has been structured in a way that
does not encourage the individual to consider the labor market, demands from the labor market and the
associated dynamics will not be reflected in the choosing of studies ergo regulation is necessary. This is
underlined by article: “New Paradigm in Education”, claiming that the essentials of a well-functioning labor
market is one that is highly flexible (Souza, Jacobs, Nagan, Šlaus, & Zucconi, 2013). Although regulation
seems to provide most flexibility, there are other ways to encourage students to consider the labor market.
The commission suggests making an arrangement with the aim of informing future students of the
conditions on the labor market before making a final decision. This will work as an eye-opener and simply
try to connect the education system to the labor (The Danish Productivity Commission, 2014).
There is one important notion when looking upon productivity and skills from arts and humanities. Studies
have shown that graduates within these fields have a positive effect on the productivity of other people.
22.0 Internationalization of education
When we observe higher levels of productivity abroad there must be something to learn. And given the
increasing international character of the labor market, an international education will work as preparation
for graduates. The government has turned their focus on international aspects of education and seeks to
enhance international competencies and encourage gifted international student to stay (Ministry of Higher
Education and Science (Denmark), 2014).
How can such initiatives benefit the service sector? An internationally aware labor force can help break
down barriers for trade. With the right initiatives the education system can enhance international
awareness on many levels throughout the system and hereby ensure an effect throughout the labor
market. We know from the research of Hiller (2011) that foreign labor can help break down barriers for
Page 46 of 53
trade. If we assume that graduates with an internationalized degree have a similar effect it can be very
interesting for especially domestically based firms to get in contact with such employees. If the purpose is
that international skills reach the labor market it can happen through an increased use of interns as
explained above.
One barrier is the art of standardization and customization. In order to adapt the services on a global
market, knowledge of international conditions is central. This is another aspect of internationalized
education that will benefit the service industry.
22.1 Conclusion
The labor market is characterized by consisting of a skill mismatch and unutilized capacity. There is a need
for specific skills as opposed to more skills, ergo quality and not quantity. Some groups of high education
face systematic unemployment and other groups are in demand, but the service sector is still characterized
by relatively few of high education. At the same time the number of academic graduates reveal a need for
more jobs of such character. The service sector has a relatively low level of education and since the
creation of many low wage jobs is a sign of productivity it makes the initiative to attract more educated
labor look somewhat contradictive. It means that a more productive service sector will result in a polarized
labor market. One way of combing a higher skill level with export enhancement is to ensure quality and
availability of an internationally aware workforce.
In a larger perspective efficiency of labor shows a clear pattern. Labor contributes more when working in
manufacturing. It would therefore be beneficial for the economy if services were replaced with
manufactured goods.
23.0 Final conclusion
Based on various findings in the analysis it is clear that the cause of the productivity problem is to be found
in more than just one area. There is a majority of domestically based service firms that face some barriers
internationally. Firstly, the barriers include cultural and linguistic knowledge on foreign markets. This is
highly related to the need for standardization and customization which have proven difficult to perform by
service firms. Secondly, there is the need for FDI, which can be risky for small firms to engage in.
Thirdly, there is low ambition. The latter also explains the lack of foreign operations, but it also explains
some issues on the domestic market – for example the lack of ambition to hire highly skilled workers. As a
consequence there is a tendency for small firms to stay small. This is another aspect that explains the lack
of productivity growth and furthermore enhances the presence of barriers.
Small firms with few highly skilled employees experience operations of standardization and customization
Page 47 of 53
to be difficult and investments abroad appear risky.
The context of the service market is set by the competitive level in Denmark. There is a lack of dynamics,
but even so, foreign competition is present. For service firms that wish to do business abroad this means
that they are already exposed to such competition.
In order to understand the nature of the service sector, it is essential to examine the labor force. As already
mentioned, the educative level is lower than in service sectors in countries of comparison. One way to
attract more high-skilled labor is through immigration, but the current conditions do not ensure that the
well-educated labor be placed in the service sector. Another method is to focus on domestic labor. A
problem here is that the education system and the labor market are poorly linked, hence skills in demand
are not available.
Therefore, the future of the service sector is dependent of skilled and ambitious labor to ensure a dynamic
domestic market and the abilities to take on foreign operations.
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The Ministry of Justice; The Danish immigration service. (2013). Tal og fakta på udlændigeområdet.
Copenhagen: Mercoprint A/S for The Danish Immigration Service.
TRADING ECONOMICS. (2013). Denmark GDP per capita. Retrieved April 23rd, 2014, from TRADING
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Walsh. (1935). Chapter 4: The Structural Estimation of Behavioral Models: Discrete Choice Dynamic
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World Economics Forum. (2013). The Global Competitiveness Report 2013–2014. Geneva: SRO-Kundig.
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Appendix
12 pillars of competitiveness (world economic forum):
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Institutions
Infrastructure
Macroeconomic environment
Health and primary education
Higher education and training
Goods market efficiency
Labor market efficiency
Financial market development
Technological readiness
Market size
Business sophistication
Innovation
More information of the immigration schemes:
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-
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The Pay Limit Scheme for those making at least 375,000 DKK gross per year (Danish Immigration
Service, 2013). There are no requirements with regards to education or profession.
In 2012 2308 people were accepted
The corporate scheme. This applies to companies with departments in other countries because it
gives them the opportunity transfer employees to their Danish departments
In 2012 632 people were accepted (Danish Immigration Service, 2013)
Getting in through the Greencard scheme is based on individual evaluation. Ergo no fixed criteria
In 2012 1215 people were accepted (Danish Immigration Service, 2014)
The Positive List. This is a way of filling positions in which there is a shortage of qualified workers.
Therefore, there is a list of qualifications in demand. This list in continuously updated.
In 2012 69 people were accepted (Danish Immigration service, 2013)