## 1dnkea2023002

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---

### A. Introduction
- Nominal wage increases in Denmark have been modest despite elevated inflation and still-tight labor markets.
- Headline inflation in Denmark peaked at 11½ percent (year-over-year) in October 2022 and has eased since, but remains elevated.
- Nominal wage growth was around 3½ percent (year-over-year) in 2022:Q4, placing real wage growth into negative territory.
- Recent collective agreements called for wage growth of about 5 percent annually over the next two years.

### B. Inflation dynamics: key findings
- Energy prices drove much of the 2022 headline inflation surge; moderating energy prices are expected to mechanically reduce headline inflation.
- Core inflation decomposition highlights components sensitive to:
  - Post-pandemic reopening (pent-up demand)
  - Supply chain disruptions
  - Rents and others
- Empirical decomposition (following Gonçalves and Koeste (2022)) indicates:
  - Supply chain disruptions contributed to core inflation in Denmark, particularly in 2022.
  - Pent-up demand had a more sizable contribution to core inflation than supply disruptions.
  - The relative split between reopening-sensitive and supply-disruption-sensitive components in Denmark is broadly similar to the euro area.
- GDP deflator decomposition (national accounts identity) shows contributions from:
  - Unit labor cost (employee compensation) — relatively small in 2022.
  - Unit profit (gross operating surplus and mixed income) — had a sizable contribution in Denmark in 2022 relative to unit labor cost and relative to unit profit in the euro area.
  - Taxes.
- Sectoral drivers of unit profit increases include mining and utilities (energy sector) and a sizable portion from trade, travel, accommodation, and food.
- Historical evidence (experience from oil price shocks) suggests unit labor cost, while initially muted, is likely to increase subsequently, implying the contribution from wages to price deflators will likely pick up.

### C. Empirical approach and models
- Two complementary approaches used:
  - A wage Phillips curve model to investigate how nominal wage dynamics depend on headline inflation, slack, and other determinants.
  - An interacted panel vector autoregressive (IPVAR) model to assess how wage pressures pass through to core inflation and how that passthrough depends on inflation expectations and corporate profitability.
- Wage Phillips curve baseline specification:
  - Dependent variable: nominal wage growth (w).
  - Regressors include: lagged nominal wage growth, unemployment gap (ugap) based on a trend unemployment rate estimated using the Hodrick-Prescott (HP) filter, lagged headline inflation (π lagged) as a proxy for adaptive inflation expectations, productivity growth (prod), an error-correction term (ecm) from a long-term cointegrating relationship between real wages and productivity, and inflation expectations.
  - Quarterly data for Denmark during 2000–22 were used.
- IPVAR model details:
  - Variables: import price inflation (πm), nominal wage growth adjusted for trend productivity (w), core consumer price inflation (π), and unemployment gap (u).
  - Model is a panel VAR with coefficients evolving deterministically according to an observed conditioning factor (anchoring of inflation expectations or corporate profitability).
  - Estimated for a panel of 27 European countries using quarterly data up to 2019:Q1.

### D. Empirical results — Wage Phillips curve
- Estimated slope on the unemployment gap is negative (Phillips curve holds).
- Lagged headline inflation correlates positively with nominal wage growth — wage formation has historically been partly backward-looking.
- The error-correction term coefficient is negative: deviations of real wages above their long-run relationship with productivity put downward pressure on nominal wage growth; deviations below induce upward pressure.
- All estimated coefficients in baseline specification are statistically significant.
- Rolling (16-year) regressions indicate a rising importance of slack and lagged inflation for wage dynamics in recent periods.
- Quantitative contributions in 2022:
  - Lagged inflation explained as much as half of nominal wage growth during 2022.
  - Tightness in the labor market (negative unemployment gap) contributed to wage increases.
  - Real wages deviated negatively from the estimated long-run relationship in 2022, implying the lagged error-correction term will feed into future wage increases.
  - Productivity growth mostly exerted downward pressure on wages in 2022.
- Model robustness: results are robust to alternative specifications; Model 10 constrains the sum of coefficients on lagged inflation and expected inflation to unity.

### E. Near-term outlook and passthrough to inflation
- Given historically backward-looking wage formation, the high headline inflation already realized implies elevated near-term wage pressures.
- Still-tight labor markets (negative unemployment gap) reinforce expected near-term wage increases.
- Survey indicators: employment expectations, job vacancy rate, and labor shortages suggest a pick-up in labor demand.
- Recent collective bargaining outcomes (about 5 percent growth annually during 2023–24) are broadly in line with the wage Phillips curve model implications.
- Factors affecting wage passthrough to core inflation:
  - Anchoring of inflation expectations: better-anchored expectations can limit passthrough because firms expect cost increases to be temporary and may be reluctant to raise prices.
  - Corporate profitability: firms with robust profitability are more likely to absorb wage cost increases (conditional on demand), reducing passthrough.
- IPVAR analysis uses anchoring of inflation expectations and corporate profitability as conditioning factors to generate conditional wage passthrough estimates; results are based on the panel of 27 European countries and are used to draw inference for Denmark.

### F. Wage passthrough to core inflation and related findings for Denmark
- Timing and magnitude:
  - Immediate impact of a wage shock on core inflation is relatively small but increases over time; the passthrough ratio is much larger at the end of the third year than at the end of the first year.
- Anchoring of expectations and profitability:
  - Passthrough is smaller when inflation expectations are better anchored:
    - Less than 20 percent of wage growth would be passed on to core inflation (at the end of the third year) when expectations are better anchored.
    - That ratio can reach close to 50 percent when expectations are poorly anchored.
  - Passthrough is smaller when corporate profitability is more robust.
- Indicative Denmark estimate:
  - Indicative wage passthrough ratio for Denmark — based on the latest available anchoring and corporate profitability — is in the range of 25–30 percent (at the end of the third year).
- Inflation expectations and profitability metrics:
  - Near-term inflation expectations for Denmark over the next 12 months (derived from Consensus Forecasts) remain elevated at around 4½ percent.
  - Medium-term inflation expectations in the euro area: 5-year expectations from the Survey of Professional Forecasters are around 2¼ percent and are close to the 2 percent target.
  - Aggregate corporate profitability in Denmark in 2022 was around 46 percent (driven by energy and transport sectors).
  - Euro area aggregate profitability is around 42 percent.
- Implication: High corporate profitability should help firms absorb some expected wage pressures, attenuating passthrough to inflation, though firm-level variation matters.

### G. Cancellation of Store Bededag (public holiday): expected labor supply impact
- Policy change:
  - The Danish government approved cancellation of Store Bededag, effective in 2024, implying an increase in annual statutory working hours by 0.45 percent.
  - Tripartite agreement provisions:
    - Employees with monthly salary contracts will get a 0.45 percent increase in their annual salary.
    - Hourly contract workers (accounting for about 20 percent of employment) will be compensated according to hours worked on the new working day.
  - Change in annual working days: from 222 to 223 (after deducting statutory annual leave and other public holidays).
- Estimates of labor supply impact:
  - Norm-effect approach (Ministry of Finance correlation):
    - Correlation between statutory and actual annual working hours estimated at 0.75 (period since the 1980s).
    - A 0.45 percent increase in statutory work hours is predicted to result in a 0.34 percent increase in actual work hours.
  - Cross-country empirical approach (Rosso and Wagner, 2022):
    - Rosso and Wagner find a working-day elasticity of GDP of around 0.2.
    - Mapping that to labor supply using a labor share of 2/3 for Denmark implies the 0.45 percent increase in statutory work hours would increase actual work hours by 0.14 percent.
  - Near-term vs long-run considerations:
    - Workers will be paid for the extra workday (unlike calendar variation), which may increase the multiplier through higher propensity to consume from labor income.
    - The policy is permanent; households may eventually restore leisure, reducing long-run labor supply gains.
    - In the near term, the first effect likely dominates, implying labor supply impact could be larger than the 0.14 percent Rosso and Wagner estimate.
- Summary estimate:
  - Cancellation of Store Bededag is expected to increase labor supply by around ¼ percent (0.14–0.34 percent).

### H. Demand-side effects and consumption channels
- Negative demand side effects from cancelling the holiday are likely to be small.
- Domestic tourism spending proxy:
  - The share of domestic tourism spending in GDP in Denmark is 3.4 percent in 2019.
  - This suggests the impact could be between 0.01 and 0.06 percent of GDP, depending on whether only the domestic tourism spending of Store Bededag (Friday) or of the whole long weekend is foregone.
  - Simple calculations referenced: 3.36/52 =0.06 (upper bound) and 3.36/365=0.01 (lower bound).

### I. Comparison with alternative channels to raise labor supply
- Incentivizing longer hours worked:
  - Average hours worked per employed in Denmark is around 34 hours per week.
  - Government’s recent income tax proposal (reduction of marginal tax rates except for very high-income earners and increase in the earned income credit) is estimated to increase labor supply by 0.18 percent.
  - IMF (2019) illustration: reforming the structure of marginal effective tax rates while maintaining the guaranteed minimum income, in a revenue neutral way, could lead to a 0.5 percent increase in labor supply, with a slight deterioration of the Gini index (from 0.203 to 0.216).
- Disincentivizing early retirement:
  - Denmark’s ratio of people who retire early to the total has declined to around 50 percent.
  - Increasing effective employment by ¼ percent (the estimated effect of the cancellation of the public holiday) would require reducing the ratio of people using retirement schemes from 50 percent to 48 percent.
- Increasing employment of immigrants:
  - If all immigrants and descendants were employed at the same rate as people of Danish origin, the total number of employed would increase by 2.7 percent.
  - As an illustration, increasing effective employment by ¼ percent would require raising the employment rate of each immigrant or descendant group by 1.15 percentage points.
  - Employment rate of immigrants and descendants increased by 4 percentage points between 2019 and 2021.
  - Foreign nationals with wage income in Denmark, excluding those covered by the Ukraine Special Act, increased by 10.4 percent in 2022 compared to 2021.

### J. Equity, fiscal, and implementation considerations
- The Danish flexicurity model delivers high labor market participation and low structural unemployment; further increases in employment may involve tradeoffs.
- Tradeoffs to consider include equity considerations, fiscal costs, impact on productivity, and political economy constraints.
- Policy levers compared (illustrative magnitudes):
  - Cancellation of Store Bededag: 0.14–0.34 percent increase in labor supply.
  - Income tax proposal: 0.18 percent increase in labor supply (with some Gini deterioration).
  - Revenue-neutral tax-benefit reform (IMF illustration): 0.5 percent increase in labor supply (Gini 0.203 → 0.216).
  - Reducing early retirement scheme take-up from 50 percent to 48 percent: ~0.25 percent increase in employment.
  - Raising immigrant and descendant employment rates by 1.15 percentage points each: ~0.25 percent increase in employment.

### K. Main takeaways and suggested future work
- Wage pressures are expected to remain elevated in the near term due to realized inflation and tight labor markets.
- Some of the wage pressures are expected to be passed on to core inflation, sustaining elevated inflation; passthrough would be larger if inflation expectations become deanchored.
- Determined policies to fight inflation are important and will also affect slack; near-term fiscal policy should support disinflation.
- The cancellation of the public holiday is expected to have a small positive impact on labor supply: about 0.14–0.34 percent.
- The effect of cancelling Store Bededag is comparable in magnitude to:
  - Reducing the ratio of people using early retirement schemes by 2 percentage points;
  - Increasing the employment rates of different categories of immigrants and descendants by 1.15 percentage points each;
  - Achieving a similar labor supply impact through a revenue–neutral tax and benefit system reform.
- Continued exploration of alternative measures to increase labor supply is recommended, weighing tradeoffs in equity, fiscal costs, productivity, implementation feasibility, and political economy.

*Source: IMF staff estimates and analysis as presented in the provided chapter text.*

### References ____________________________________________________________________________ 13

### 1dnkea2023002 - References ____________________________________________________________________________ 13

### A. Introduction
- Nominal wage increases in Denmark have been modest despite elevated inflation and still-tight labor markets.
- Headline inflation in Denmark peaked at 11½ percent (year-over-year) in October 2022 and has eased since, but remains elevated.
- Nominal wage growth was around 3½ percent (year-over-year) in 2022:Q4, placing real wage growth into negative territory.
- Recent collective agreements called for wage growth of about 5 percent annually over the next two years.

### B. Inflation dynamics: key findings
- Energy prices drove much of the 2022 headline inflation surge; moderating energy prices are expected to mechanically reduce headline inflation.
- Core inflation is the more relevant near-term indicator and is decomposed into components sensitive to:
  - Post-pandemic reopening (pent-up demand)
  - Supply chain disruptions
  - Rents and others
- Empirical decomposition (following Gonçalves and Koeste (2022)) indicates:
  - Supply chain disruptions contributed to core inflation in Denmark, particularly in 2022.
  - Pent-up demand had a more sizable contribution to core inflation than supply disruptions.
  - The relative split between reopening-sensitive and supply-disruption-sensitive components in Denmark is broadly similar to the euro area.
- GDP deflator decomposition (national accounts identity) shows contributions from:
  - Unit labor cost (employee compensation) — relatively small in 2022.
  - Unit profit (gross operating surplus and mixed income) — had a sizable contribution in Denmark in 2022 relative to unit labor cost and relative to unit profit in the euro area.
  - Taxes.
- Sectoral drivers of unit profit increases include mining and utilities (energy sector) and a sizable portion from trade, travel, accommodation, and food.
- Historical evidence (experience from oil price shocks) suggests unit labor cost, while initially muted, is likely to increase subsequently, implying the contribution from wages to price deflators will likely pick up.

### C. Empirical approach and models
- Two complementary approaches used:
  - A wage Phillips curve model to investigate how nominal wage dynamics depend on headline inflation, slack, and other determinants.
  - An interacted panel vector autoregressive (IPVAR) model to assess how wage pressures pass through to core inflation and how that passthrough depends on inflation expectations and corporate profitability.
- Wage Phillips curve baseline specification (variables and features preserved as in source):
  - Dependent variable: nominal wage growth (w).
  - Regressors include: lagged nominal wage growth, unemployment gap (ugap) based on a trend unemployment rate estimated using the Hodrick-Prescott (HP) filter, lagged headline inflation (π lagged) as a proxy for adaptive inflation expectations, productivity growth (prod), an error-correction term (ecm) from a long-term cointegrating relationship between real wages and productivity, and inflation expectations.
  - Quarterly data for Denmark during 2000–22 were used.
- IPVAR model details (structure preserved):
  - Variables: import price inflation (πm), nominal wage growth adjusted for trend productivity (w), core consumer price inflation (π), and unemployment gap (u).
  - Model is a panel VAR with coefficients evolving deterministically according to an observed conditioning factor (anchoring of inflation expectations or corporate profitability).
  - Estimated for a panel of 27 European countries using quarterly data up to 2019:Q1 to exploit cross-sectional and time series variation.

### D. Empirical results — Wage Phillips curve
- Estimated slope on the unemployment gap is negative (Phillips curve holds).
- Lagged headline inflation correlates positively with nominal wage growth — wage formation has historically been partly backward-looking.
- The error-correction term coefficient is negative: deviations of real wages above their long-run relationship with productivity put downward pressure on nominal wage growth; deviations below induce upward pressure.
- All estimated coefficients in baseline specification are statistically significant.
- Rolling (16-year) regressions indicate a rising importance of slack and lagged inflation for wage dynamics in recent periods.
- Quantitative contributions in 2022:
  - Lagged inflation explained as much as half of nominal wage growth during 2022.
  - Tightness in the labor market (negative unemployment gap) contributed to wage increases.
  - Real wages deviated negatively from the estimated long-run relationship in 2022, implying the lagged error-correction term will feed into future wage increases.
  - Productivity growth mostly exerted downward pressure on wages in 2022.
- Model robustness: results are robust to alternative specifications; Model 10 constrains the sum of coefficients on lagged inflation and expected inflation to unity.

### E. Near-term outlook and passthrough to inflation
- Given historically backward-looking wage formation, the high headline inflation already realized implies elevated near-term wage pressures.
- Still-tight labor markets (negative unemployment gap) reinforce expected near-term wage increases.
- Survey indicators: employment expectations, job vacancy rate, and labor shortages suggest a pick-up in labor demand.
- Recent collective bargaining outcomes (about 5 percent growth annually during 2023–24) are broadly in line with the wage Phillips curve model implications.
- Factors affecting wage passthrough to core inflation:
  - Anchoring of inflation expectations: better-anchored expectations can limit passthrough because firms expect cost increases to be temporary and may be reluctant to raise prices.
  - Corporate profitability: firms with robust profitability are more likely to absorb wage cost increases (conditional on demand), reducing passthrough.
- IPVAR analysis uses anchoring of inflation expectations and corporate profitability as conditioning factors to generate conditional wage passthrough estimates; results are based on the panel of 27 European countries and are used to draw inference for Denmark.

### F. Main implications
- Wage pressures are expected to remain elevated in the near term due to realized inflation and tight labor markets.
- Some of the wage pressures are expected to be passed on to core inflation, sustaining elevated inflation.
- Determined policies to fight inflation are important given the potential for wage-price feedbacks.

*Source: IMF staff estimates and analysis; canonical source: https://www.imf.org/-/media/files/publications/cr/2023/english/1dnkea2023002.pdf*

### 15.      The analysis suggests that wage passthrough to core inflation is smaller when inflation

### Wage passthrough to core inflation and related findings for Denmark

### Main findings on wage passthrough
- Immediate impact of a wage shock on core inflation is relatively small but increases over time; the passthrough ratio is much larger at the end of the third year than at the end of the first year.
- Passthrough is smaller when inflation expectations are better anchored:
  - Less than 20 percent of wage growth would be passed on to core inflation (at the end of the third year) when expectations are better anchored.
  - That ratio can reach close to 50 percent when expectations are poorly anchored.
- Passthrough is smaller when corporate profitability is more robust.
- Indicative wage passthrough ratio for Denmark — based on the latest available anchoring and corporate profitability — is in the range of 25–30 percent (at the end of the third year).

### Inflation expectations, profitability, and their implications
- Near-term inflation expectations for Denmark over the next 12 months (derived from Consensus Forecasts) remain elevated at around 4½ percent, though they have edged down most recently.
- Medium-term inflation expectations in the euro area remain well anchored; for instance, the 5-year expectations from the Survey of Professional Forecasters are around 2¼ percent and are close to the 2 percent target.
- Aggregate corporate profitability in Denmark remains high relative to the euro area:
  - Aggregate profitability in 2022 was around 46 percent (driven by energy and transport sectors).
  - Euro area aggregate profitability is around 42 percent.
- High corporate profitability should help firms absorb some expected wage pressures, attenuating passthrough to inflation; however, firm-level variation matters and firms with thin profit margins could exhibit higher passthrough from wages.

### Wage dynamics and inflation persistence
- Wage formation in Denmark has historically been partly backward looking; the wage Phillips curve remains active.
- Tight labor markets and high headline inflation imply wage pressures are expected to remain elevated in the near term, sustaining high inflation.
- Some wage pressures are expected to be passed on to core inflation, making inflation more persistent; passthrough would be larger if inflation expectations become deanchored.

### Policy implications
- Determined policies to fight inflation are important and will also affect slack.
- Near-term fiscal policy should support disinflation.

### Cancellation of Store Bededag (public holiday): expected labor supply impact
- The Danish government approved cancellation of Store Bededag, effective in 2024, which implies an increase in annual statutory working hours by 0.45 percent.
- Tripartite agreement provisions:
  - Employees with monthly salary contracts will get a 0.45 percent increase in their annual salary.
  - Hourly contract workers (accounting for about 20 percent of employment) will be compensated according to hours worked on the new working day.
- Change in annual working days: from 222 to 223 (after deducting statutory annual leave and other public holidays).

### Estimates of labor supply impact
- Norm-effect approach:
  - Ministry of Finance estimates a correlation between statutory and actual annual working hours of 0.75 (period since the 1980s).
  - Based on that, the 0.45 percent increase in statutory work hours is predicted to result in a 0.34 percent increase in actual work hours.
- Cross-country empirical approach (Rosso and Wagner, 2022):
  - Rosso and Wagner find a working-day elasticity of GDP of around 0.2.
  - Mapping that result to labor supply using a labor share of 2/3 for Denmark implies the 0.45 percent increase in statutory work hours would increase actual work hours by 0.14 percent.
- Two competing adjustments when applying Rosso and Wagner to Store Bededag:
  - Workers will be paid for the extra workday (unlike calendar variation), which may increase the multiplier through higher propensity to consume from labor income.
  - The policy is permanent; households may eventually restore leisure, reducing long-run labor supply gains.
  - In the near term, the first effect likely dominates, implying labor supply impact could be larger than the 0.14 percent estimate from Rosso and Wagner’s elasticity.

### Technical and data notes (selected)
- Anchoring of inflation expectations is based on Bems and others (2021) and measures the deviation of Consensus inflation forecasts from the inflation target — less deviation implies better anchoring.
- Corporate profitability is defined as the gross operating surplus and mixed income of nonfinancial corporations as a share of their GVA.
- Long-run regression: the log-level of real wage is regressed on the log-level of real productivity; real wage and productivity indices set long-term average (2000–22) = 100; estimated coefficient for real productivity is close to unity and statistically significant.
- Database for wage Phillips curve: nominal wage = gross wages and salary per hour; productivity = gross value added per hour; headline inflation = HICP; variables converted to year-on-year growth rates; unemployment gap from HP filter; inflation expectations derived from Consensus Forecasts using a weighted average of current and one-year ahead forecasts.

*Source: IMF staff analysis and staff estimates as presented in the provided chapter text.*

### 0.14 percent.

### 0.14 percent.

### Expected impact of canceling Store Bededag on labor supply
- Cancellation of Store Bededag is expected to increase labor supply by around ¼ percent (0.14–0.34 percent).
- Cross-country empirical literature gives a lower bound of 0.14 percent; historical correlation between agreed and actual work hours in Denmark gives an upper bound of 0.34 percent.
- Mechanism and calibration details preserved from source:
  - Rosso and Wagner (2022) find that a 1 percent reduction (increase) in statutory work hours due to calendar variation reduces (increases) GDP by 0.2 percent.
  - Labor share (labor compensation as a share of national income) is 2/3 for Denmark; a 0.2 elasticity of GDP implies an elasticity of labor supply of 0.2*2/3=0.3.
  - A 0.45 percent increase in statutory work would increase actual work hours by 0.3*0.45=0.135 percent (as an illustrative intermediate calculation).

### Demand-side effects and consumption channels
- Negative demand side effects from cancelling the holiday are likely to be small.
- Domestic tourism spending is used as a proxy for consumption related to a public holiday.
  - The share of domestic tourism spending in GDP in Denmark is 3.4 percent in 2019.
  - This suggests the impact could be between 0.01 and 0.06 percent of GDP, depending on whether only the domestic tourism spending of Store Bededag (Friday) or of the whole long weekend is foregone.
  - Simple calculation referenced: 3.36/52 =0.06 (upper bound) and 3.36/365=0.01 (lower bound).

### Comparison with alternative channels to raise labor supply
- Incentivizing longer hours worked
  - Average hours worked per employed in Denmark is around 34 hours per week.
  - Government’s recent income tax proposal (reduction of marginal tax rates except for very high-income earners and increase in the earned income credit) is estimated to increase labor supply by 0.18 percent.
  - IMF (2019) illustration: reforming the structure of marginal effective tax rates while maintaining the guaranteed minimum income, in a revenue neutral way, could lead to a 0.5 percent increase in labor supply, with a slight deterioration of the Gini index (from 0.203 to 0.216).
- Disincentivizing early retirement
  - Denmark’s ratio of people who retire early to the total has declined to around 50 percent.
  - Increasing effective employment by ¼ percent (the estimated effect of the cancellation of the public holiday) would require reducing the ratio of people using retirement schemes from 50 percent to 48 percent.
- Increasing employment of immigrants
  - If all immigrants and descendants were employed at the same rate as people of Danish origin, the total number of employed would increase by 2.7 percent.
  - As an illustration, increasing effective employment by ¼ percent would require raising the employment rate of each immigrant or descendant group by 1.15 percentage points.
  - Employment rate of immigrants and descendants increased by 4 percentage points between 2019 and 2021.
  - More recent data: foreign nationals with wage income in Denmark, excluding those covered by the Ukraine Special Act, increased by 10.4 percent in 2022 compared to 2021.

### Equity, fiscal, and implementation considerations
- The Danish flexicurity model delivers high labor market participation and low structural unemployment; further increases in employment may involve tradeoffs.
- Tradeoffs to consider include equity considerations, fiscal costs, impact on productivity, and political economy constraints.
- Policy levers compared (and their illustrative magnitudes) include:
  - Cancellation of Store Bededag: 0.14–0.34 percent increase in labor supply.
  - Income tax proposal: 0.18 percent increase in labor supply (with some Gini deterioration).
  - Revenue-neutral tax-benefit reform (IMF illustration): 0.5 percent increase in labor supply (Gini 0.203 → 0.216).
  - Reducing early retirement scheme take-up from 50 percent to 48 percent: ~0.25 percent increase in employment.
  - Raising immigrant and descendant employment rates by 1.15 percentage points each: ~0.25 percent increase in employment.

### Main takeaways and suggested future work
- The cancellation of the public holiday is expected to have a small positive impact on labor supply: about 0.14–0.34 percent.
- The effect is comparable in magnitude to:
  - Reducing the ratio of people using early retirement schemes by 2 percentage points;
  - Increasing the employment rates of different categories of immigrants and descendants by 1.15 percentage points each;
  - Achieving a similar labor supply impact through a revenue–neutral tax and benefit system reform.
- Continued exploration of alternative measures to increase labor supply is recommended, weighing tradeoffs in equity, fiscal costs, productivity, implementation feasibility, and political economy.

*Source: 1dnkea2023002 - 0.14 percent.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1dnkea2023002.pdf_