Challenging the Nordic labour market model

The much vaunted Nordic labour market model is not without its flaws and could benefit from borrowing elements from the rest of Europe, writes Nima Sanandaji of think-thank Captus.

It is often claimed that not only labour unions themselves, but also individual workers and companies benefit from the Nordic system of strong unions.

The Nordic model is also said to lead to a peaceful situation in which conflicts are avoided. But a recent study by Företagarna (Federation of Private Enterprises) challenges these social democratic viewpoints.

One could say that the Nordic labour market model is relatively free, in the sense that there are few regulations. On the other hand, the system gives disproportional power to the unions. To give an example, Swedish unions basically have the power to coerce companies into signing union contracts.

Other European labour market models differ from the Nordic model in a number of important ways.

With the continental European model, for example, wage negotiations occur in a less central manner. Unlike in the Nordic countries, companies in continental European countries tend to be more organized in comparison to the unions.

The Anglo-Saxon model is based on decentralization and individual choice. There is somewhat more regulation, but usually the result is still a more flexible system as union power is more balanced.

Lastly, the South European model is similar to the continental European model. However, there are more regulations and companies are even more organized during negotiations.

One of the main justifications for the privileged position of Swedish unions is that the Nordic model leads to fewer days lost due to labour market conflicts compared to other models. So is this true? As the report by Företagarna shows, the Nordic model is only slightly better than the South European model in this perspective.

But then again, there are fewer days lost to conflicts per worker in the free market Anglo-Saxon model compared to the Nordic one and fewer still in continental European countries. (It should also be noted that the Eastern European model is similar to the Anglo-Saxon one, but is not included in the report due to lack of statistics.)

As Företagarna show, many Swedish companies do not seem satisfied with the power position of unions. Fully 23 percent claim that they have been forced by unions into signing union contracts.

Understandably, 74 percent of firms resent a situation whereby unions can force companies into signing contracts. Only 5 percent defend this system without reservation. On the whole, however, most Swedish companies do support the Swedish system, but wish to see more liberal regulations within the system.

Various labour market systems have their benefits. There are no simple answers, other than that we would all gain from being open to the benefits of the different systems and critically examining preconceived notions regarding the superiority of the Nordic model.

Nima Sanandaji