Richer Poles Are Bad News for Denmark Facing Labor Shortages

Eastern Europeans head home just as Denmark needs them the most
Copenhagen Metro Team I/S (CMT) workers attend to rails at the entrance to a tunnel construction site for the new city Metro line in Copenhagen, Denmark, on Thursday, Jan. 30, 2014. The Copenhagen Metro is one of Denmark's biggest construction projects with seventeen underground stations expected to open in 2018. Photographer: Freya Ingrid Morales

Polish workers are building Copenhagen's new Cityringen metro line, while Danish farmers would struggle to produce enough of the country’s famous bacon without the help of Romanians. But with living standards now rising in eastern Europe, many of its natives are thinking about going home. That spells trouble for Denmark, which is already desperately short of labor.

Running at Full Capacity

Economists say Denmark's jobless rate can't get much lower

Source: Statistics Denmark, Bloomberg

Despite a progressive tightening of immigration rules by the center-right government of Prime Minister Lars Lokke Rasmussen, foreign workers have continued to trickle in and now account for nearly a tenth of the Scandinavian country's labor force, with eastern Europeans making up a sizable chunk of that, according to estimates by Nordea Bank AB, the region's largest lender. 

That hasn't stopped unemployment from dropping to its lowest level since the global financial crisis as the economy enjoys what Nordea calls "a solid upswing."

The arrival of about 80,000 foreign workers since 2013 helps explain why Danish inflation remains subdued despite half a decade of negative rates. According to Helge Pedersen, Nordea's chief economist in Denmark, annual wage growth could have been as much as 4.5 percent without them, compared with the actual rates of around 2 percent seen over the past five years. 

Poles, Romanians, Bulgarians or Czechs have been able to look for jobs around the continent since joining the European Union, which guarantees the free  movement of its workers. But years of EU membership – and the subsidies that come with it -- are now bringing the intended rewards to much of eastern Europe. Nordea notes that unemployment in Hungary or the Czech Republic is now at "post-communist lows," while salaries in Poland have doubled since the start of the millennium, says Eurostat, the EU's statistics agency.

Going Home

The inflow of eastern Europeans is slowing as more Poles and Romanians return home

Source: Statistics Denmark

Latest available data suggests many of them have taken note of improving conditions at home. According to Statistics Denmark, net migration from Poland and Romania has started to slow from its 2014/15 peak.

The potential tipping point comes amid repeated complaints about labor shortages in Denmark.

In November, the Confederation of Danish Industry said that nearly four out of 10 of its member companies were struggling to find qualified employees. This week, the Confederation of Danish Employers added its voice to calls for the government to attract foreign workers, citing estimates that suggest one in four firms in the construction industry are having to turn down orders because they can’t hire enough people. But the truth is that all kind of workers are needed across many sectors of Danish business.

Who Does What

Romanians and Poles play a key role in Danish manufacturing and in its service industry

Source: Jobindsats (2016 data)

Karen Haekkerup of the Danish Agriculture and Food Council says her associates complain about being ``completely out of labor.''

``If the eastern Europeans go home we'll need someone else to come in and take those jobs. Otherwise we'll lose orders and fail to boost exports,'' she said. 

It’s time the politicians took note, she said.

(For more economic analysis, see Benchmark)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE