## Wage and Inflation Dynamics in Denmark

_Selected Issues Papers, July 19, 2023_

## Source details

**Canonical URL:** [Wage and Inflation Dynamics in Denmark](https://www.imf.org/en/publications/selected-issues-papers/issues/2023/07/18/wage-and-inflation-dynamics-in-denmark-536738)

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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

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### 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.

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## Content in this bundle

- **Wage and Inflation Dynamics in Denmark; Selected Issues Paper No. 2023/052**
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  - [Wage and Inflation Dynamics in Denmark; Selected Issues Paper No. 2023/052 (PDF)](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023052.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/selected-issues-papers/issues/2023/07/18/wage-and-inflation-dynamics-in-denmark-536738_