Wage and Inflation Dynamics in Denmark
Selected Issues Papers, July 19, 2023
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- Wage and Inflation Dynamics in Denmark
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Bibliographic details
- Authors: Raju Huidrom
- Published: July 19, 2023
- Series: Selected Issues Papers
- DOI: https://doi.org/10.5089/9798400251924.018
Summary
- Nominal wage growth in Denmark has so far been modest and outpaced by high inflation, putting real wage growth in negative territory.
- Amid still-tight labor markets, concerns have risen about wage pressures going forward and the eventual impact on inflation.
- The analysis suggests wage formation in Denmark has historically been partly backward-looking, and economic slack also has played a role.
- Given these factors, high inflation realized thus far and the tightness in the labor market imply that wage pressures are expected to remain elevated in the near term.
- Some of these wage pressures are expected to be passed on to core inflation, sustaining high inflation.
- Determined policies to fight inflation are important.
Analysis findings
- Wage formation dynamics:
- Partly backward-looking behavior in wage setting.
- Economic slack has influenced wage outcomes.
- Interaction with inflation:
- Modest nominal wage growth has been exceeded by high inflation, producing negative real wage growth.
- Elevated wage pressures, driven by labor market tightness and past inflation, are likely to contribute to sustained core inflation through passthrough.
Projections and scenarios
- Near-term outlook:
- Wage pressures are expected to remain elevated in the near term given realized high inflation and labor market tightness.
- Some of these wage pressures are expected to be passed on to core inflation, sustaining high inflation.
Policy recommendations
- Emphasize determined policies to fight inflation to prevent entrenched wage–price dynamics.
Content in this bundle
- Wage and Inflation Dynamics in Denmark; Selected Issues Paper No. 2023/052