80 PERSPECTIVES ON BUSINESS AND ECONOMICS | VOL 41 | 2023 economic challenges caused in part by Denmark’s aging population. This latter study explains that in order for immigration to be fiscally sustainable in Denmark, immigrants must be high-skilled and must satisfy the needs of the labor market. The study determines that this is not the case because of certain factors, such as weak economic incentives for immigrant labor market participation, barriers that prevent immigrants’ entry into the labor market, and skills mismatch between many non-Western immigrants and Denmark’s increasingly knowledge-based economy. The outcome of all this is a positing of non-Western immigrants as net beneficiaries rather than contributors to the welfare state, which causes a net drain of billions of euros annually. These results are summarized in a calculation by Hansen et al. (2017), based on projections made by the Danish Rational Economic Agents Model (2015) (Table 1). As Table 1 shows, both native Danes and non-Western immigrants make net negative contributions to the Danish economy while Western immigrants make net positive contributions (second-generation Western and non-Western immigrants have lower net contributions due to their younger age and resulting limited tax payment contributions). Further, when taking into account the large difference in proportions of the population of native Danes and non-Western immigrants, the loss of €2.2B (€0.55B from the first generation and €1.7B from the second generation) caused by all non-Western immigrants, who only make up 7.2% of the population, is significantly worse per person than the loss caused by all native Danes, who make up 89% of the population. In determining the causes for the net drain from non-Western immigrants, the analysis points to high effective minimum wages as one factor that makes it difficult for immigrants to find employment unless they are highly productive to begin with (Hansen et al., 2017). Another relevant study, by Nannestad (2004), also arrives at the same conclusions and points to high minimum wage as a reason. Nannestad also argues that the social benefits that immigrants receive while unemployed weaken their incentive to participate in the labor force. Furthermore, in his discussion of barriers to the entry of immigrants to the labor market, he points to the high tax pressure that results from Denmark’s welfare system, which may be unattractive to immigrants with a low market value. All these conclusions from 2004 continue to be echoed in more recent studies and debates. Such studies on the economic outcomes of immigration are particularly important because they inform the resulting policies and social interactions of immigrants in Denmark, especially with political debate over immigration continuing to intensify as the world undergoes global refugee crises. The Danish Finance Ministry examines the net contribution of immigrants to public finances; its results are shown in Figure 2. Torben Tranaes of the Danish Center for Social Science Research in 2018 references this study, stating that such data were what “changed the Social Democrats point of view,” making them Table 1 Predicted annual public revenue and expenditure, by origin, 2014 Source: Hansen et al., 2017.
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