Income developments in the great recession: status for the Danish prime-age working population a decade following the onset of the Financial Crisis

Abstract

AbstractTo assess the impact of the Financial Crisis and the Great Recession in Denmark this paper studies developments in Danish labor market income and disposable income from 1995 through 2019. We focus on the prime age working population of 25–54-year-old Danish citizens, with emphasis on labor market performance of the younger and less educated members of this labor force. The recession had a large and long-lasting impact on labor market earnings. Young individuals and, especially, those with least education suffered the largest setbacks to earnings developments. Disposable income was not affected in a similar way. Welfare state transfers and lower taxes softened the impact on disposable income, while the unprecedentedly low lending-rates and tax reform also elevated consumption possibilities. Tracking economic activity of the youngest cohorts after the onset of the Financial Crisis we find that catching up to earnings levels of previous cohorts took on average 8 years. For young men the setback to earnings was larger and catching-up slower. A decade following the onset of the Financial Crisis around 20% of young men, pertaining to the bottom of the earnings distribution, had still not caught up to the earnings of previous cohorts.