In this essay, Ilkka Kärrylä compares labour market institutions and practices in the Nordic countries. Which practices in “the Nordic model” are included in the Programme of Prime Minister Petteri Orpo’s Government and how do the labour market reforms carried out in Finland differ from Sweden, for example?
“The Nordic model” is a much-used, positive expression. When Prime Minister Petteri Orpo’s Government was formed in summer 2023, this expression became a hot topic of discussion in Finland, as the Government used the Nordic example to justify its extensive package of labour market and working life reforms. But is it really the case that Finland has not carried out the reforms that have taken place elsewhere, and has our country been unusually “rigid” compared to the rest of the Nordics, as the Government claimed to defend its programme?
This essay is based on my report, published in spring 2024, where I compared the labour market institutions and practices of the four largest Nordic countries, such as collective bargaining systems, wage formation, right to industrial action, and unemployment benefits. As a conclusion I showed that the package of reforms introduced by Prime Minister Orpo’s Government is an unusually extensive state intervention into the labour market by Nordic standards.
In reality there is no single “Nordic model”; instead all the Nordics have their own labour market institutions with their historical differences. Over the decades these have been reformed in various ways. In Sweden, a higher level of local wage bargaining has been introduced into collective agreements since the 1990s. On the other hand, the collective protection against arbitrary dismissal is stronger there than in the other Nordic countries, and in the 1970s employee representatives gained a strong right of co-determination.
A distinctive feature in Norway is its national unemployment insurance and the lowest trade union membership levels of all the Nordic countries, but some wage settlements are still centralised, and general wage increases are common.
Denmark has less labour market legislation than the other Nordics, and collective agreements pay an important role. A strong protection against arbitrary dismissal has never been enter into law, and wage formation is fairly decentralised, but Denmark has maintained a high level of earnings-related unemployment benefits and extensive services for the unemployed.
Distinctive features in the Finnish system include things like strong generally applicable collective agreements, a relatively high share of the general wage increase which is guaranteed for all in wage formation, low staff participation in business administration, flexible working time regulations, and the furlough system.
According to Prime Minister Orpo’s Government, the corresponding labour market reforms were carried out in the other Nordic countries a long time ago. In many respects this is inaccurate. In my report I compared nine significant changes included in Prime Minister Orpo’s Government Programme with the situation in the other Nordic countries. Depending on how they are interpreted, only between two and four of these are currently in effect in Norway, Sweden and Denmark.
In terms of contents, the changes that are underway will not push Finland particularly far from the other Nordics, but once they come into force, they will certainly reduce the status of Finnish employees to the lowest level of all the studied countries in some regards. The Government has gone significantly further than the other Nordic countries in particular when it comes to the earnings-related unemployment benefits. The earnings-related unemployment benefits were already the lowest of all the Nordics for the monthly income levels of 2,200–3,500 euros, which is a fairly common income in Finland, and when the 20–25 percent staggering was introduced, it worsened even more. The Government also made cuts to the general housing allowance, which previously compensated for the weak income protection, as well as the child increase. Low-income families with children and part-time workers were particularly badly hit by these cuts.
Prime Minister Orpo’s Government restricted the right to industrial action in line with the restrictions that have been put in place in the other Nordic countries, but in the other countries these restrictions have not been made through legislation, but rather through legal praxis, which is often open to interpretation. In Sweden there are no clear restrictions on supporting industrial action.
Implementing an “export-driven wage model” through legislation also differs from the other Nordics, where it is included in the collective agreements. Unlike what one might believe based on the public discussion, the Norwegian, Swedish and Danish agreements include clauses which allow sectors where wages are lagging behind to receive higher wage increases than the export sector. Female-dominated sectors have also occasionally managed to reduce wage gaps through industrial action.
Increasing the scope of the Co-operation Act to companies with at least 50 employees is a significant goal which has not been given much attention so far; in the other Nordic countries the limit is 0–20 employees. It is also unusual in the Nordic context to define the parties of local agreements in law, but Finland is also a special case in terms of how generally applicable the collective agreements are, which is used as a justification for the need for reform.
When both individual and collective redundancies are considered, job security will be the second lowest in the Nordics, after Denmark. In future, companies with fewer than 50 employees could carry out collective redundancies without change negotiations, and they would no longer be obligated to re-employ former employees. There are, however, no plans to improve the services for the unemployed or the unemployment benefits to reach the levels of the other Nordic countries to balance out the reduction in protection against arbitrary dismissal.
The Government has also cherry-picked some of its reforms, such as the statutory unpaid first day of sick leave, which exists in some form in Sweden, but not in Norway or Denmark. Sweden and Denmark also have weaker individual protection against arbitrary dismissal than Finland’s current level.
The content of some of the reforms of Prime Minister Orpo’s Government clearly take things further than in any of our Nordic neighbours. The main difference between the Government’s actions and the other Nordics is, however, the scale of the reform package and the way it was prepared, almost entirely disregarding the views of employees. Normally “the Nordic model” has meant basing labour market legislation on compromises between the organisations.
However, Prime Minister Orpo’s Government has not agreed to comprehensive negotiations on the various reforms, which was the case for the principal agreement of the central organisations in Sweden in 2022 and the long negotiation process that preceded it. If this trend continues and future governments also introduce significant new labour market regulations through legislation without compromises achieved by the trade unions and employer organisations, then this could even be called a system change in Finland.
Finland was the last of the large Nordic countries to adopt national collective agreements and the related culture of agreement and finding compromises in the 1940s. If the approach of Prime Minister Orpo’s Government takes hold, Finland may also be the first who gives up these kinds of agreements, at least in terms of labour market legislation. If regulation is increasingly reformed through legislation, then the collective agreements will also lose their importance even if they are still used in various industries. The rounds of negotiations for these agreements are also likely to become more difficult if they become the employees’ only legal forum to defend their rights. This is quite likely to mean that industrial action becomes more common.
Even though this Government’s reform package is historically extensive, a lot of the old will still be retained – at least for now. Wage formation is still somewhat more centralised in Finland than it is in the other Nordics. Here, the decisions are primarily in the hands of the trade unions and employer organisations, however.
Using legislation to intervene in wages, for instance by enforcing a larger share of local agreements in the determination of wages, would be an even more radical step away from the approach of the other Nordic countries than the statutory “export model”. However, agreeing on a more decentralised wage formation has become more difficult since Finnish Forest Industries parted ways with EK. At the moment, the Government’s reforms are putting a strain on labour market relations and do not make it easier to reach a consensus on increasing the share of local agreements.
It is also difficult to predict how removing the ban on local agreements from non-union companies and allowing agreements without a union representative will impact the generally binding nature or the position of trade unions. Will it reduce employers’ interest in unionising even further, which could eventually abolish the generally binding nature in more and more sectors, as the trade union movement fears?
The employee side thinks that more local agreements will also make it more tempting for employers to engage in unlawful breaches of employment terms when agreements can be negotiated with elected representatives who may be less familiar with employment terms and legislation. Unlawful local collective agreements and subcontracted work done according to Eastern European employment terms, for instance, are already common, because there are not enough resources to monitor for infringements, and sanctions are minor.
The Finnish labour market model is at a watershed. If future governments continue with one-sided interventions and legislation, Finland will end up with a different labour market model than the other Nordic countries. But it is too early to judge what this would mean in practise; would Finland perhaps end up closer to the Anglo-Saxon or Southern European model, where collective agreements play a smaller role and unionisation is only really important in sectors with the strongest negotiation position? It is also unclear how large a boost these reforms will turn out to be for economic growth and employment. It does however seem likely that at least in the foreseeable future, Finnish labour market relations will be characterised by larger conflicts than we have become used to in the last few decades.
Ilkka Kärrylä Post-doctoral researcher in Nordic economic history, University of Helsinki
