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FEATURE

Are international workers the answer to Denmark’s labour shortage?

Denmark’s low unemployment rate is creating recruitment challenges for Danish companies. A recent government initiative aims to resolve the issue, but some say it overlooks the importance of international labour. 

Are international workers the answer to Denmark’s labour shortage?
Business organisations have called for Denmark to do more to enable companies to draw on skilled foreign labour. Photo by Darth Liu on Unsplash

On September 10th, Denmark became the only European nation with no Covid-19 curbs. Denmark is also one of only six European Union countries whose economy has surpassed pre-pandemic levels, reports Statistics Denmark. And, it is one of only four EU countries where unemployment is now lower than before the pandemic, according to recent figures from Eurostat.

Although this sounds like a hat trick of good news for Denmark, the country now faces a new challenge: maintaining economic growth while facing a severe labour shortage.

Earlier this month, Statistics Denmark announced that the number of job vacancies in Denmark reached its highest level in more than a decade. Data from the Danish Agency for Labour Market and Recruitment from the month of June show 22.5 percent of companies’ recruitment attempts were in vain. 

“It is gratifying that unemployment is falling rapidly in Denmark, but it also means that there will be fewer people taking vacancies,” said Steen Nielsen, head of labour market and policy at Danish Industry (Dansk Industri, or DI), an organisation representing approximately 18,500 companies across Denmark. 

“Without more employees, we will very soon experience a significant slowdown in economic growth,” Morten Granzau, DI’s deputy director, said.

What is Denmark doing about the labour shortage?

When Denmark’s government announced its 2022 budget proposal August 30th, critics claimed the proposal didn’t do enough to resolve Denmark’s labour shortage. Little more than one week later, the government announced a new initiative, Denmark Can Do More (Danmark kan mere I) that aims to increase employment by more than 10,000 people by 2030. 

The initiative consists of several efforts to increase Denmark’s labour force. It cuts the standard monthly unemployment insurance payment and shortens the eligibility period for new graduates to encourage them to join the labour force, requires some migrants to work a minimum of 37 hours per week to receive welfare benefits, and incentivizes employees to work past retirement age, among other policy changes.

It is the first in a series of reform proposals that aim to increase growth and employment in Denmark, according to the Ministry of Finance (Finansministeriet). 

Although Denmark’s business community says the initiative is a good start, it falls short of resolving Denmark’s labour shortage – especially in the short-term. DI, the Danish Employers’ Association (Dansk Arbejdsgiverforening), and the Danish Chamber of Commerce (Dansk Erhverv), among others, have expressed this concern and reiterated the important role of international labour.

“With just over 10,000 more sets of hands, the government only offsets what it has already lost in the workforce,” said Jakob Brandt, CEO of SMVdanmark, an organization representing 18,000 small and medium-sized companies in Denmark. For example, the 16,000 applicants for Denmark’s early retirement scheme and the 25,000 new public sector jobs created since the start of the pandemic.

According to hospitality trade association HORESTA, Denmark’s hotel and restaurant industry alone is short-staffed by 12,000 people. Recent data from Statistics Denmark shows that four out of five hotels and two-thirds of restaurants experienced labour shortages in August.

“The problems are of such a magnitude that we can not solve it alone with the people who are already in this country,” Kirsten Munch, political director at HORESTA, said.

What role does international labour play?

Within the same week the initiative was announced, the leaders of Denmark’s liberal, conservative, and far left parties all expressed the importance of foreign labour in resolving the shortage. 

Sofie Carsten Nielsen, leader of the Social Liberal (Radikale Venstre) party, said foreign labour may be the fastest way to alleviate the urgent need for labour. “We know how it works, and it does not take long negotiations,” Nielsen said. “Giving companies better access to pick up skilled labour outside Denmark and outside Europe is low-hanging fruit.”

One suggestion to attract foreign labour is to reduce the salary requirements for skilled non-EU nationals to qualify for Denmark’s Pay Limit Scheme (beløbsordningen), a visa scheme only currently available to those with a minimum annual salary of 445,000 DKK. 

“[Reducing the Pay Limit Scheme minimum compensation] will make us more competitive in terms of attracting the foreign workforce that many other countries are also longing for at the moment,” said Brian Mikkelsen, CEO of Dansk Erhverv.

However, the now-governing Social Democrats have continued to oppose the reduction of the Pay Limit Scheme‘s minimum salary requirement.

Minister of Employment Peter Hummelgaard said the party is “generally pleased” with the current arrangements for recruiting qualified foreign labour, but are open to adjustments if they prove necessary in the future.

“It is the government’s first priority to ensure that the unemployed who are already in Denmark have the opportunity to get a job,” Hummelgaard told The Local. “If there are areas that are not possible to cover with Danish labour, we must of course turn our attention to the EU and next to third countries for qualified foreign labour.”

The Danish People’s Party (Dansk Folkeparti) has also expressed opposition to reducing the scheme’s minimum salary to prevent underpaid labor and social dumping.

“Dansk Folkeparti prioritises finding or creating jobs for the group of unemployed people in Denmark who are able to work before importing a workforce from other countries,” Bent Bøgsted, the party’s labour market spokesperson, told The Local.

The anti-immigration party believes Denmark’s unemployed workers could meet current needs, albeit with some upskilling.

“Unfortunately we see employers favouring cheap labor from non-EU countries and Eastern Europe instead. …This is unacceptable,” Bøgsted said.

Will attracting international labour be included in future initiatives?

After the “Denmark Can Do More” initiative was announced September 7th, several parties in the country’s parliament continued negotiations on additional reforms to reduce the current labour shortage, along with industry stakeholders. 

“We (DI) are part of those discussions and though we don’t know what will come of those discussions yet, it’s clear that the government and other parties of parliament recognise the need for international labour as one way to solve that,” Søren Kjærsgaard Høfler, a political consultant in global mobility at DI, told The Local. 

“Though DI appreciates the suggested reforms we see a need to act now, since the situation on the labour market calls for action right now,” Høfler added.

Any additional policy changes may be included in the financial act coming out later this autumn. 

 “Whether we bring workers into the labour market sooner, keep them longer, or bring in foreign labour with fewer hurdles, everyone wants to make sure there is enough labour for Danish companies to thrive,” Høfler said. “Some problems can be resolved through structural changes in Denmark’s own labour market, but we also know international labour is crucial. It’s not either/or; it’s both/and.”

Updated September 21st, 2021 to include comment from Danish People’s Party and on September 22nd, 2021 to include comment from Social Democrats.

Member comments

  1. Reducing labor rates is the fastest way to put downward pressure on all labor rates as companies will always select cheaper foreign workers over more expensive nationals. This scheme is why real wages in the USA have reminded stagnant for years, pre-COVID, as citizens struggle to compete for jobs taken by immigrants, many illegal. Currently the US is suffering a labor shortage as well but a lot of that is due to political decisions which do not require any work from those receiving public assistance. Data indicates that low skilled workers if their family is included receive more in public assistance than they produce for a net loss! If this scheme is ever implemented there will be no going back. The solution may be short term contract workers who must leave at the end of their contract and can not bring family members or if they do they are not eligible for any financial assistance . And if they do not depart at the end of their contract the employer is fined.

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For members

TAXES

Should US citizens in Denmark hire a specialist tax advisor?

US citizens living in Denmark have file taxes in both countries and also have some tricky double taxation issues to contend with. Should they hire a specialist lawyer or accountant?

Should US citizens in Denmark hire a specialist tax advisor?

As a US citizen living in Denmark,  you have a lot of options when it comes to submitting your US tax returns.

The most financially savvy can identify all the forms they need and do it all themselves. You can use specialist software like TurboTax,  H&R Block, TaxAct, or TaxSlayer. You can hire an accountant or lawyer in the US, in Denmark, or in both, or you can go all out and hire an international specialist like KPMG, PwC, or EY. 

What do expats say? 

Frank, an American expat, said in The Local’s survey that he had yet to find an accountant who properly understood both the US and Danish tax systems. 

“Be careful to find a tax advisor who knows more than you could learn in an afternoon in a library,” he said. “I have not found that person yet.” 

He also said that people with pensions and investments in the US would also need to hire a financial advisor who could tell them how to manage their investments to minimise tax

“You’ll pay more for financial advice. The people who prepare US returns for expats only prepare the returns. They do not advise you on how to live to reduce your taxes.” 

One anonymous respondent, who spent more than 15,000 kroner on tax advice, said that they still believed it was worth it. 

“I could go to jail if I got it wrong. So, yes,” they said. “But I did not get the money back in less taxes.  Most tax professionals are only willing to work in their home system.It is very hard to find an international expert.” 

The difficulty in finding an expert versed in both systems led another respondent to do their taxes themselves.  “Most of them don’t seem to understand foreign tax laws for either US taxes or Danish taxes,” they grumbled.  

READ ALSO: The five worst tax traps for Americans living in Denmark

What do the big accountancy firms say? 

Elena Sevostyanova, a senior manager at KPMG in Copenhagen, said that the advantage of using a big multinational accountancy firm was that they had both US and Danish offices. 

“I have like a small team in our tax office which specialises in US and Danish taxation, so I, myself am an Enrolled Agent [a tax practitioner authorised by the US Treasury department to represent clients to the IRS], and we have a US Certified Public Accountant sitting with us in our team. And we have a whole team sitting in the US in Washington, just doing research and qualifying how things should be properly taxed in the US, which small accounting firms and local US CPAs don’t have the possibility to get an overview on.” 

Rasmus Kjærgaard Nielsen, Tax Director at PwC in Copenhagen, said that it could be useful to employ a tax advisor who is capable of requesting a binding ruling from the Danish tax authorities on how investments, assets, or pension holdings in the US should be treated under Danish law.  

“We have the possibility of asking for a binding ruling from the tax authorities, which requires them to to make a decision or take a position on how something should be treated, and then there is at least certainty.” 

Can you use your old US-based accountant to do your tax returns? 

A lot of Americans who move to Denmark will continue to use the same US-based accountant to submit their tax returns, or even continue using programmes like TurboTax but Sevostyanova warned that there could be issues with doing this. 

“This can work very well if you’re living in the US and just have income statement, dividends, and so on,” she said. “Where the problems come, and we see this with a lot of people who move to Denmark and continue to work with an accountant they have had in the US for many years, is that they are missing an understanding of the Danish system.”

She said she wasn’t even sure whether the TurboTax programme was able to generate the form people needed to fill in to report foreign tax credits, while US-based accountants rarely understood international tax. 

“Many don’t understand even the simplest things, like how to read a Danish tax return, because it’s very different taxation principle in Denmark versus the US. How do you apply for foreign tax credits? How do you tax foreign pension plans and Danish pension plans: they just don’t have this knowledge.” 

Might you also need to hire an investment advisory? 

If you have a lot of investments in shares, bonds, mutual funds, ETFs in the US, either in a retirement account or a standard investment account, you may need to hire a separate investment advisor, as even the big multinational accountancy firms tend not to give investment advice.

“We don’t provide investment advice, it’s purely from a tax perspective,” Sevostyanova said. “So we always say to our clients: ‘we can advise on the tax side, but you should remember, there is an investment side to things that we can’t advise on. So it’s also important to seek advice from an investment manager, if you have investments in the US.

“We can say, of course, mutual funds are not a good idea from a tax perspective, but maybe from an investment perspective, there’s a really good opportunity if you have them.”

Do you need to hire a big multinational every year, or is once enough? 

Sevostyanova said that some of her clients hired KPMG for their first tax return on arrival in Denmark and then either did it themselves, used a programme, or relied on their US CPA from then on. 

“The first year is the most complex, right? You have to report correctly, you have to understand how things go into the tax return, so what a lot of clients d is say, ‘look, guys, I want you to prepare my Danish return. I want you to prepare my US return’. And then, going forward, they understand the logic behind it,  how their foreign pension has to be reported, how to report mark-to-market investments and so on, and they just pick it up from then on themselves.” 

Others, she said, decided that it worth paying to save on the time and the hassle.  

“Some people don’t want to deal with their taxes at all. They don’t have time for it, so they just hire us for the ongoing engagement and they just review the standard returns.” 

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