The Nordic Model - Embracing globalization and sharing risks

Both the welfare state
and macroeconomic
stability have contributed
to the acceptability
of local and
individual wage
negotiations
Demands for flexibility
are no assault on the
Nordic model
allow market forces and the personnel policy of firms to influence
individual pay. Furthermore, inasmuch as voters desire redistribution
(as they clearly do in all Nordic countries), the welfare state
now operates a large redistributive mechanism. It thus makes less
sense to try to use the system of wage formation for redistributive
purposes.
Also, and as compared to the 1950s when collective pay
bargaining was established, the macroeconomic framework is now
much more stable. When the macroeconomic environment is stable
and inflation is low, the individual worker may feel much less
need to ensure a decent pay increase by collective action. Compare
this state of affairs to the 1970s when inflation was around 10 per
cent – in those circumstances it might have seemed a good idea
to ask the union to ensure that unanticipated inflation is matched
by corresponding pay increases.
In summary, we believe that a successful political reform
programme should build on the strengths of the Nordic model. It
is because of sound macroeconomics policies and social insurance
that Nordic labour markets can do without stringent employment
protection legislation and cope with individual pay bargaining. By
the same token, a successful political reform programme should
acknowledge the basic strengths of the Nordic model and not try
to reform all things at once. Opposition in trade unions is easily
triggered by the suspicions that reformers want to abolish everything:
unemployment benefits, pensions, public services, collective
agreements.
Incremental reforms make sense in our view. It should be
possible to design wage bargaining systems that allow firms to
operate flexible wage policies, also in Finland. It should be possible
to sustain social insurance and tax systems that alleviate
individual economic uncertainty, while keeping work incentives
sufficiently strong. If economic reform in countries like Finland
and Sweden is to gather political support, voters and unions must
be persuaded that the goal of reform is not to dismantle the entire
edifice of Nordic institutions, but rather to design schemes that
reduce deadweight losses. The Nordic labour market model and
collective agreements are not the issue: the challenge is more of a
political nature. Many characteristics of the Nordic labour market
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