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WORKING IN NORWAY

Will wage increases from strike deal lead to higher prices in Norway?

This week the parties in the wage settlement negotiations agreed on a framework to increase wages by 5.2 percent. But it might not all be good news as a prominent Norwegian economist has warned.

Published: 21 April 2023 17:11 CEST
Wallet
On Thursday, the unions rejoiced over what they deemed a significant victory, but economists swiftly cautioned about the possible negative impact of the deal that ended Norway's general strike. Photo by Nicolas J Leclercq on Unsplash

A four-day general strike in Norway’s private sector ended on Thursday afternoon after the parties in the labour conflict reached an agreement.

The Norwegian Confederation of Trade Unions (LO) and the Confederation of Vocational Unions (YS) represented the employees, while the Confederation of Norwegian Enterprise (NHO) represented the employers.

The two sides agreed on a framework of 5.2 percent wage growth, with a large proportion of this given in general supplements.

While the unions were celebrating what they called a “historic win,” economists were quick to warn about the potential adverse effect of the deal on inflation.

A wage-price spiral in the making?

The agreement between the unions and businesses in this year’s wage settlement could lead to price pressure, chief economist Harald Magnus Andreassen at Sparebank 1 Markets told the news bureau NTB on Friday.

“If we set aside the industry and the power producers, then the rest of the business world is not doing so well. The increased prices were less than the rise in costs last year,” Andreassen said.

With wage growth of 5.2 per cent, these companies will be clearly pressured to increase prices, according to the economist, who believes the business world outside of industry and energy sectors will struggle with this year’s wage settlement.

Furthermore, the chief economist warned that the combination of the wage settlement and increased productivity could lead to inflation over time being well above 2 percent, which is the inflation target of Norway’s central bank (Norges Bank).

Other economists have also warned of the danger of a wage-price spiral forming, as rising wages put upward pressure on prices and inflation.

What will happen with interest rates?

In the run-up to the 2023 wage settlements talks, there has also been some discussion in Norwegian media on whether the outcome of the negotiations could – indirectly – lead to higher interest rates down the road.

Andreassen thinks the settlement will not lead to higher interest rates than what is already planned by Norges Bank.

“Norges Bank assumed wage growth of 5.1 percent. So this does not change much for them; Norges Bank will not reassess the outlook for wage and price growth (based on this outcome),” Andreassen said.

He pointed out that it is difficult to say anything for sure about inflation and interest rate trends, but he encouraged people to be aware that interest rates will rise.

“We could very well get a mortgage interest rate of around 5 percent. Adjust your personal finances today, and expect interest rates to rise. Use less money and pay down more debt. For many who have a lot of debt today, that is obviously the most sensible thing to do,” he said.

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IMMIGRATION

Nordic countries urged to set common working from home rules

The Nordic countries should have common conditions on working from the place of residence, including working from home, to fulfil the objective of an integrated labour market, says a report by the region's Freedom of Movement Council.

Published: 25 September 2023 11:41 CEST
Nordic countries urged to set common working from home rules

The proposal is part of a series of recommendations to simplify tax agreements to facilitate free movement of people and make the region “the most integrated” in the world by 2030, as agreed by Nordic Prime Ministers.

The Freedom of Movement Council argues that the pandemic revealed the flaws in the current system, as a large proportion of cross-border workers had to operate from home, facing taxation in two countries, different tax levels and mounting bureaucracy.

“Now that more companies are open to their employees working from home, the current Nordic tax agreement just isn’t keeping up. I hope this analysis will pave the way for dialogue and that the end result will be simplification and less bureaucracy,” said Karen Ellemann, secretary-general of the Nordic Council of Ministers.

Internationally less known than EU free movement rules, the region has a special agreement on free movement of people that dates back to the 1950s.

Under the Nordic Passport Union, citizens can move within the region without travel documents or residence permits and enjoy more rights than those granted to EU citizens within the European Union. Non-EU residents, however, only partially benefit as they do not have the automatic right to work in another Nordic state.

The Nordic free movement area covers Denmark, Finland, Iceland, Norway, Sweden, the Faroe Islands and Åland. Greenland is not part of the Passport Union but is in practice subject to some of its provisions.

The Nordic governments set up the Freedom of Movement Council as an independent body to identify obstacles to this principle and propose how to remove them.

In an interview with The Local, chair Siv Friðleifsdóttir said the Council has identified over 100 barriers to free movement and prioritised 30. The tax system is one of them.

“The Nordic countries currently have several agreements that regulate cross-border and remote working. Common to all of them is that they’re based on the countries’ need to protect their tax base,” the Council notes.

INTERVIEW:

The report, prepared by consultancies KPMG and Resonans Nordic, points at four problems in particular: rules for domestic work, registration obligations in more than one country for employers, as well as taxation of wages and pensions when working in another Nordic state.

The Council therefore proposes to set common conditions on “permanent establishment” when working in the country of residence, including from home. It also suggests to tax salaries in the country of employment and consider work from home in the country of residence equal to work in the country where the employer is located.

In addition, advance tax should be reported and collected in the employer’s country to avoid having different rules for the same salary.

Pension contributions should be mutually recognised as deductible in another Nordic states and returns taxed only under the legislation of the country where the pension plan is established, the Council argues.

In the Øresund region, between Denmark and Sweden, a fully integrated labour market could generate combined annual socio-economic gains of 2.9 billion Danish kroner, the report estimates.

“Our countries have a lot to gain from having a flexible common labour market. It can solve the problem of skills shortages in one country and the problem of unemployment in another. In other words, a functioning labour market is a strong catalyst for our countries’ economies,” says Siv Friðleifsdóttir, chair of the Freedom of Movement Council.

The full report is currently only available in Danish but translations are expected in the coming weeks.

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