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The public sector - the welfare state’s jewel?

The public sector is facing two challenges that may change the welfare state as we know it. Demographic headwinds and low productivity mean that Denmark must either turn down expectations about the quality of public services or rethink how the welfare state is designed. This report looks into whether the public sector is braced for the challenges - explore this executive summary of the full Danish report to find out.
Published November 2022

Around every fourth member of the Danish labour force works in the public sector, and all Danes are offered a relatively high level of service with access to, for example, childcare, education and health services. But the large public sector also poses a big challenge: The public sector handles a string of tasks with lower productivity growth than in the private sector. Among economists, this challenge is referred to as Baumol’s cost disease, and it is an obstacle to the ability of public service to keep up with developments in private consumption without having to increase the tax burden.

Also, Denmark is on the verge of a period when the number of people outside the labour market will surge while the number being of working age remains almost unchanged. More elderly people and the baby-boom generation mean that the demand for public services will grow. 

So overall, the public sector is subject to double pressure productivity-wise and demography-wise. In the years ahead, the politicians are therefore faced with tough prioritisation between letting public service follow the citizens’ growing need for public services as well as increasing expectations of quality or keeping taxes stable. This is putting Denmark’s welfare model under pressure and raises some compelling questions - explore these in the executive summary below. 

The themes of the report

  • • The Danish welfare model
    • The future of the public sector
    • The public labour market
    • Efficiency opportunities

We hope you enjoy the read!

Download the executive summary in English

Visit this page to download the full report in Danish