The Nordic labour market after the pandemic

Author: Gustaf Norlén
DATA AND MAPS: Gustaf Norlén

The Nordic Region has had a joint labour market, with free movement between the countries, since 1954. The similarities in how the national labour markets are regulated means that people often refer to ‘the Nordic model’. The most important feature of the Nordic model is that it is built on self-regulation and negotiation between labour market parties without too much state involvement. The role of the state in the negotiations varies slightly between the countries – for example, Finland has more of a focus on tripartite dialogue. The self-regulatory system has led to a competitive business sector, a low risk of wage-induced inflation and good conditions for workers regulated by collective agreements. The state provides a strong welfare system, including state-subsidised unemployment funds and transitional agreements for skills enhancement. Denmark, in particular, is known for its flexicurity system, which makes it easy for companies to lay off staff, but at the same time, the state provides good benefits and reskilling opportunities for workers (Kjellberg 2023; Brandal et al. 2013). This model is dependent on a high level of labour force participation, and the Nordic Region has had one of the highest employment rates in Europe for a long time, especially for women and older adults (defined as over 55).

Like the rest of the world, the Nordic labour markets were severely hit by the effects of the pandemic. However, while the effects of the pandemic were ‘deep, far-reaching and unprecedented’ (ILO 2020), most of the effects were isolated to the first wave in spring 2020. During this period, 70% of the employed people in the world lived in lockdown or were subject to severe mobility restrictions, and this figure rises to 90% when we include countries and regions that recommended decreased mobility (ibid.). During the pandemic, the Nordic governments introdu­ced or expanded furlough systems and other support mechanisms that mitigated the impact compared to many other countries. The Region has subse­quently experienced a ‘v-shaped’ recovery from the pandemic, with a strong labour market (Jokinen & Norlén 2022).

This chapter provides an overview of the labour market since the pandemic, with a focus on the labour force participation rate for groups and regions. It concludes by looking at what happened to remote work after the pandemic.

The Covid-19 pandemic had a significant impact on the labour market in two main ways. Firstly, employers faced challenges related to being unable to operate from their workplaces due to lockdowns and restrictions. Secondly, the labour market was disrupted in both supply (due to interruptions in the supply chain) and demand (resulting from lockdowns and changes in consumer behaviour). During the initial wave of the pandemic, travel to work in the Nordic Region declined by 45%. In Sweden, 42% of those in employment worked at least some of the time from home. However, a majority of the workforce in the Nordic Region worked in occupations that did not allow for transitioning to remote work, and many workers were laid off, either in the short term (furlough) or permanently. In the first wave of the pande­mic, 9% of the Nordic labour force faced short-term layoffs, although furlough systems mitigated the effects on unemployment levels. Unemployment primarily affected specific sectors, including accommodation, restaurants and transport. However, in some sectors, such as public administration, information/​communica­tion and the financial sector, there was no significant overall impact on employment (Jokinen & Norlén 2022).

Many measures and support schemes were introduced during the pandemic. These proved beneficial in the short term and mitigated the economic impact on house­holds and society (Tapia & Tragotsis 2022). This meant that while the impact on employment was far-reaching, it was mainly concentrated in the first wave of the pandemic. In fact, following the pandemic, the number of people in employment reached record highs in all of the Nordic countries, as well as in Greenland and the Faroe Islands. In total, there are more than 14 million people in work in the Nordic Region. Figure 4.1 shows the employment rate (for those aged 20–64) between 2005 and Q3 2023. The effects of the pandemic took the form of a fairly steep decline in most countries, followed by a quick rebound in what has been called a ‘v-shaped’ recovery. By comparison, the recovery from the financial crisis in 2008/​2009 was much slower. Employment rates in Denmark, Finland, Sweden, Greenland and the EU as a whole are the highest they have been in 20 years. In Norway and the Faroe Islands, employment rates are almost back to their previous peak. Figure 4.1 shows the employment rate for the 20–64 age group. It should be noted that the proportion of people over 65 in work is also rising.

The high employment rates indicate the strong demand for labour after the pandemic, not only in the Nordic Region but in all of the OECD countries (Causa et al. 2022). This high demand has led to higher rates of employment, including in groups that have previously had less contact with the labour market, such as people born abroad (Konjunkturinstitutet, 2023). The tight labour market is driven by megatrends such as demographic and technological change, as well as climate change and the green transition (ILO 2017; Alsos and Dølvik 2021). However, the labour market is also linked with economic cycles, and there is often a delay before the employment effects are felt (Duval, Eris & Furceri 2011). Although it is not yet visible in the employment statistics, there are early signs of a downturn, especially in sectors such as construction and trade (Regeringskansliet 2023; SSB 2024a; Valtioneuvosto 2023).

The impact of the pandemic on employment was primarily focused on a few sectors, mainly transport, accommodation and food services (Jokinen & Norlén 2022). Table 4.1 shows the percentage change in employment by sector between 2020 and 2022. Since 2020, there has been a recovery in the accommodation and food service sector in all countries. All of the Nordic countries also saw an increase in the information and communication sector, as well as in public administration and defence. Every country except Sweden saw an increase in the health sector. Otherwise, the development has been more scattered across the countries.

Although the general picture is one of strong recovery and high employment rates, there are still national and regional variations. At a national level, all of the Nordic countries have employment rates higher than the EU average (74.6%). The highest rates (measured for the age group 20–64 years in November 2022) were in the Faroe Islands (93%), Åland (86%) and Iceland (83%), followed by Sweden (82.2%), Denmark (80.1%), Norway (80.9%), Finland (78.4%) and Greenland (75%). Of the EU countries, only the Netherlands (82.9%) had a higher employment rate than Sweden in 2022.

As shown in Map 4.1, most of the regions and municipalities had employment rates above 75% (the green areas on the map) in 2022, meaning that three-quarters of people aged 20–64 were in work. In addition to the Faroe Islands, Iceland and Åland, the Swedish regions of Jämtland-Härjedalen, Halland and Jönköping also had employment rates of more than 85%. The only regions with employment rates under 75% were the Finnish regions of North and Southern Karelia and Keski-Suomi.

On a municipal level, the highest employment rates were found in rural municipalities, mainly in Iceland and the Faroe Islands, as well as some municipalities in Österbotten in Finland (such as Pedersöe and Korsholm). Of the intermediate municipalities (between urban and rural), the highest employment rates were in the Swedish municipalities Habo (Jönköping), Hammarö (Värmland), Nykvarn (Stockholm), Gällivare (Norrbotten), Kungsbacka (Halland), Svedala (Skåne) and Mosfellsbær (Höfuðborgarsvæðið) in Iceland. Of the urban municipalities, the employment rate was highest in Garðabær and Kópavogur in the Capital Region of Iceland, Tyresö and Täby in the Stockholm region, Partille in Västra Götaland in Sweden, and Bærum and Rælingen in Viken in Norway.

The lowest employment rates were in rural municipalities in eastern and northern Finland, e.g. Rautavaara in Pohjois-Savo and Puolanka in Kainuu, but also Lolland in Region Sjælland, and Hasvik in Troms og Finnmark. That rural municipalities have both the highest and lowest employment rates is partly explained by their small populations because a few individuals can make a big statistical difference. Rural municipalities, in general, are more single-industry dependent and, therefore, more affected by disruptions in these industries. On average, however, rural municipalities have slightly higher employment rates than urban and intermediate areas. Of the Swedish municipalities, Lund stands out due to its low employment rate. It is a big university city, and students account for a large share of the population, which shows another limitation of the employment rate as the single indicator of a well-functioning labour market. Other urban areas with employment rates under 75% include Jyväskylä, Turku, Tampere, Oulu and Lahti in Finland, Brøndby and Odense in Denmark, and Malmö in Sweden.

The employment rate in Finland has long been lower than in the other Nordic countries. This has been explained by higher structural unemployment, a lower share of workers in the public sector, lower labour force participation among older adults, and lower spending on labour market policies (Valtioneuvosto 2022; FFC 2021). While the employment rate is still lower in Finland than in the other Nordic countries, it has been rising faster during the last couple of years. All Finnish regions and almost all municipalities have higher employment rates than before the pandemic. A big part of this is due to those who have entered the labour market but were previously inactive, i.e. not actively looking for a job (Valtioneuvosto 2022). It can also be noted that Finland is the only Nordic country to have a declining working-age population – compared to 2013, there are now 80,000 fewer people in the age group 20–64 years.

The Labour Force Survey (LFS) is the official source for labour market statistics and the only source that is comparable across countries. The data comes from a standardised survey that is conducted in the same way in all EU countries, as well as in many non-EU countries, including in Norway, Iceland and the Faroe Islands.

The LFS divides the working age population (defined as those aged 15–74) into three categories: employed, unemployed and outside the labour force.

Employed: A person who did some work, minimum one hour, during the reference week, or ­­who was not at work, but had a job from which they were temporarily absent.

Unemployed: Someone who was not employed during the reference week, but who is currently available for work within two weeks, is actively seeking work (within four weeks from the reference week) or has a job that will start in more than three months from the reference week.

Outside the labour force (formerly known as economically inactive): A person who is neither employed nor unemployed according to the definitions above.

Workforce: Employed + unemployed.

While the Labour Force Survey constitutes the official labour market statistics and is comparable between countries, it is survey-based, and therefore it is not possible to break down the findings to the lowest geographical level (e.g. municipalities). National registers are the other source of labour market data.

The register data is based on records of all individuals within the countries, and therefore allows for detailed breakdowns. However, it is not possible to make exact comparisons between the countries since the data collection methods and definitions vary slightly. For our municipal maps, we have, therefore, harmonised the register data so that it corresponds to the labour force survey.

Employment rate: People in employment as percentage of the population in a certain age group.

Unemployment rate: Unemployed people as a share of the workforce (i.e. employed + unemployed).

In this chapter, we have chosen to focus on the employment rate rather than the unemployment rate. While the unemployment rate is a good short-term indicator of the economy, which focuses on those who are immediately available for the labour market, it conceals the part of the population that neither is in employment nor looking for a job.

Employment rate is not the only indicator of a functioning labour market. It should be noted that while a high employment rate is considered positive at both individual and societal level, full employment can also mean that it is difficult for companies to find the right competences, which can slow down growth. It can also mean that very few are in higher education, which could in the long run lead to problems related to the competences needed for the labour market of the future. It should also be noted that many labour markets consist of more than one municipality, a local labour market is the geography where supply and demand of labour meet.

The pandemic mainly affected groups already in precarious positions, such as young people, immigrants and those with lower levels of education (Jokinen & Norlén 2022; Sánchez-Gassen et al. 2021). These groups were overrepresented in the occupations and sectors that were hardest hit by the pandemic but also, in general, tended to have a weaker connection to the labour market. The same pattern has been visible in other crises, such as after the financial crisis in 2008/2009 (Monastiriotis & Laliotis 2019). This section focuses on labour market trends by country of birth, gender and age. 

The category ‘foreign-born’ is quite heterogeneous and consists of everything from labour migrants to refugees – two groups who face quite different conditions and have different connections to the labour market. The Labour Force Survey allows for the analysis of differences in labour market participation, differentiated by country of birth. Map 4.2 shows the employment rate in 2022 for those born in an EU country (top left) and those born outside of the EU (bottom left), as well as the change in employment rate between 2020 and 2022 for those born in the EU (upper right) and outside the EU (lower right).

The employment rate for people born in another EU country – a group that includes a large proportion of labour migrants – has been on par with the employment rate for native-born people for a long time. As can be seen in the top-left figure in Map 4.2, in 2022, all NUTS2 regions except Southern Denmark had an employment rate of 75% or more for this group. The highest employment rate was observed in the Swedish NUTS2 regions of Middle Norrland, Stockholm and Western Sweden, followed by Oslo in Norway and Iceland.

The employment rate for people born outside of the EU (a group that largely consists of refugees) has been lower for a long time than that of native-born people and those born in the EU. While the employment rate for people born in non-EU countries is still lower than for natives (a 15 percentage point difference (pp) in Sweden, 11 pp in Norway, 7 pp in Denmark and Finland, and 2 pp in Iceland), this gap has been closing in the last couple of years since the pandemic.

Between 2020 and 2022, the employment rate for those born outside of the EU rose almost eight percentage points in Denmark (to 72%), seven in Finland (70%), six in Iceland (81%), and five in both Norway (70%) and Sweden (69%). This means that all the countries except Iceland recorded their highest employment rate for this group since 2000.

The highest employment rates for those born outside of the EU in 2022 were found in Northern Norway (82%), Iceland (81%), Copenhagen Region (Hovedstaden) (76%) and Stockholm (74%). In the southern parts of Finland and Norway and most of Denmark and Sweden, the employment rate is still below 75%. However, all regions saw an increase since the pandemic. Northern Norway and Innlandet in Norway, Etelä Suomi in Finland, Southern Denmark and Northern Jutland in Denmark, and Northern Middle Sweden all had an increase of more than ten percentage points between 2020 and 2022.

The increased employment rate for foreign-born people, and especially for those born outside the EU, can be explained by the high demand for labour and the fact that much of the labour reserve consisted of foreign-born people. In Sweden, for example, more than half of all unemployed people are born abroad (SCB 2023). Previous studies have shown that it takes 6–8 years before a cohort of foreign-born people reaches the highest degree of employment (Østby & Gulbrandsen 2022). The refugees who arrived during the refugee crisis in 2015/2016 are now reaching that stage. Studies in Sweden show that the increase is mainly in lower-paid jobs. This contrasts with the native-born population for whom growth has mainly been in high-paid jobs (Konjunkturinstitutet 2023).

The Nordic model, with its focus on full labour market participation, alongside policies such as subsidised childcare and generous parental leave, has significantly boosted female employment rates (Måwe 2019; Kangas & Kvist 2018). The rates are among the highest in Europe, although other European countries have caught up in recent years. In 2022, the Faroe Islands had the highest female employment rate in Europe, at 90.2%, followed by Iceland (82.1%). Estonia also performed strongly (80.4%), with the Netherlands, Lithuania, and Switzerland recording rates comparable to those in the Nordic Region.

Research suggests that previous economic crises, such as the financial crisis, mainly affected jobs predominantly held by men. One contributing factor is the dominance of men in the private sector, which tends to be more susceptible to economic shocks (Jaba et al., 2015). This trend is reflected in Figure 4.2, which illustrates the percen­tage point disparity in employment rates between men and women.

After 2008, this gap decreased in most countries. However, the effects of the pandemic seem to have been less clear. In 2022, only Greenland recorded a higher employment rate for women than for men. Åland has consistently displayed a higher employ­ment rate for women over many years. Otherwise, the most notable observation from these figures is that very little has happened in terms of the diffe­rence between female and male labour market participation. The clearest trend is that the differences between male and female employment are decreasing across Europe as a whole.

Although the Nordic Region’s labour force participation is relatively balanced, there are gender differences in terms of occupational preferences, and these differences are often evident in educational choices. Although women outnumber men in higher education overall, approximately 70% of those in STEM fields (science, technology, engineering and mathematics) are men (Jansson & Sand, 2021). Only 17% of the workforce in Sweden, Finland and Norway are employed in occupations with a gender balance between 40–60%. These occupations include architects, lawyers and university teachers. Among the most female-dominated occupations (more than 90% female) are early childhood educators, childcare workers and nurses. Conversely, vocational occupations like electricians, plumbers, carpenters, mechanics, housebuilders, drivers and mechanical engineers remain largely male-dominated (more than 90% male

Own calculation's based on NSIs.

).

The impacts of the pandemic were keenly felt by young people (OECD, 2023). In the Nordic Region, individuals aged 15–24 experienced a significant reduction in total hours worked of approximately 10% from 2019 to 2020. This decrease was slightly more pronounced in Denmark and Finland and somewhat less so in Norway. In addition, the number of young people classified as neither in employment, education, nor training (NEETs) also rose during the pandemic (Andersen, Holden & Honkapohja 2022). Since a high proportion of the people in this age group are studying, the NEET rate may be a more useful indicator. Between 2020 and 2022, the NEET rate has decreased in all of the Nordic countries except Norway and Denmark. Youth unemployment also rose in Norway, primarily because more young people were actively looking for jobs (SSB 2024b).

Older adults (55+) were less affected by the pandemic. In general, this age group has a stronger attachment to the labour market, and a higher proportion work in occupations where remote work was possible (König & Seifert 2022). For quite some time, the Nordic Region has boasted a higher employment rate among older adult workers compared to the rest of Europe, although this gap has narrowed somewhat in recent years. In 2022, 75.5% of the Nordic population aged 55–64 were employed, whereas the EU average stood at 62.3%, representing a difference of 13 percentage points. In 2012, however, this difference was 21 percentage points, and in 2002, it was 29.

Map 4.3 illustrates the employment rate for those aged 55–74 in 2022. It shows variation between the Nordic countries, with Finland exhibiting a lower employment rate for this age group. The highest rates were observed in the Faroe Islands (62%), Greenland (61%), Åland (56%), and the Swedish regions of Jämtland-Härjedalen (55%) and Jönköping (54%).

One of the pandemic’s most significant effects on the labour market was that it increased the possibilities for remote working – most of the people who could work from home did so. In Sweden, where monthly LFS data was published, the share of people working at home peaked at 42.7% in January 2021 (Norlén et al. 2022). However, not all jobs can be done remotely, and differences in occupational structure meant that the share of people working from home was bigger in urban than rural areas (Eliasson 2023). The speed and relative ease of this shift raised two questions related to regional development: Will remote work be the new normal? And if people are able to live farther from their workplace, will this change movement patterns?

Regarding the first question, following this up over time is challenging, as there is a lack of comparable and reliable data. The most comparable source is the Labour Force Survey, which has included a question on remote work for a long time. According to the LFS, before the pandemic (2019), 15% of workers in the EU and 28% of workers in the Nordic Region (usually or sometimes) worked at home. In 2021, the share had increased to 25% in the EU and 38% in the Nordic Region before dropping slightly in 2022 to 23% in the EU and 37% in the Nordic Region. As Figure 4.3 shows, in 2022, 46.1% worked at least partly from home in Sweden, with 44.3% in Iceland, 43.8% in Norway, 41.3% in Finland and 35.5% in Denmark.

The regional data available for Norway (KDD 2023) and Sweden (Eliasson 2023) shows that there are still significant differences between urban and rural areas. For example, in Norway in 2022, the share of those working from home was almost twice as high in Oslo (~60%) than in Møre og Romsdal (~30%) (KDD 2023). In all of the countries except Finland, the share of those who worked from home sometimes is higher than that of those who did so usually (defined as over half of the time). This is interesting, as it means that those who only sometimes work remotely still need to live fairly close to their workplace.

Regarding changes in movement patterns, there have been signs of increased outmigration from the cities during the pandemic and increased in-migration, mainly to smaller and medium-sized cities and suburbs of bigger cities, as well as some more attractive rural municipalities (Tønnessen 2021; Randall, Jensen & Vasilevskaya 2022; Eliasson 2023). As highlighted in Chapter 1 of this report, in 2022, there was a shift in internal net migration, which again turned positive in inner urban areas (except in Norway) and towards pre-pandemic movement patterns. This suggests that, at least in terms of internal migration, the new normal is similar to the old normal.

The effects of a more flexible labour market, with greater opportunities for remote working, can also be seen in other areas. As highlighted in two recent Nordregio reports on the effect of remote work on planning in urban (Granath Hansson & Guðmundsdóttir 2024) and rural (Bogason, Brynteson & Salonen 2024) areas, hybrid work, in which workers split their time between urban and rural areas, is here to stay. This creates both opportunities and challenges for different regions. For example, municipalities can use remote work as a strategy to attract people with the right skills. Hybrid work can also create opportunities to live in more than one location – i.e. workers may choose to reside in a second home for some of the time (ibid).

This chapter has looked at the development of the labour market since the pandemic. While the pandemic was a shock to the labour market, its impact was much shorter-lived than that of the financial crisis. In terms of employment rates, the labour market quickly recovered, and the employment rate for the Nordic Region reached its highest level in at least 20 years in 2022. Sectors that were badly affected by the pandemic, such as accommodation and food service, bounced back, but other sectors, too, have seen increased employment, e.g. the information and communication sector and public administration and defence.

Employment rates for foreign-born people have increased more than for the native population, rising 5–8 percentage points in the Nordic countries between 2020 and 2022. This means a record-high employment rate for people born abroad (outside the EU). The employment rate for older adult workers has also increased in the last decade. This means that groups that previously had little contact with the labour market are now in work, which is indicative of a tight labour market.

This high level of employment and the labour shortages that it implies are attributable both to factors related to the economic cycle and to the megatrends that affect the labour market in the long term. For more about the megatrends and reasons for the labour shortages, see Chapter 5 and Chapter 6 of this report.

One of the pandemic’s most visible effects on the labour market was the expansion of opportunities for remote work. While remote work has continued since the pandemic, most workers (63%) still never work from home. There have been some post-pandemic trends involving changes in migration patterns, but it is too early to say whether these constitute a short-term effect or something more permanent.

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