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EU enlargement two years on: what challenges to the Nordic labour market?

| Text: Jon Erik Dølvik and Line Eldring

The growing mobility of labour from EU-8 after 1 May 2004 has contributed to increasing production and employment, curbing of prices and interest rates, and extending the room of manoeuvre in economic policies in the Nordic countries.

Individual migration has varied significantly across the Nordic countries; the influx has been growing strongly in Norway and Iceland, while Finland and Sweden have seen limited inflows. Mobility related to crossborder services has increased markedly in all Nordic countries, and seems to exceed regular labour migration in key sectors. This development has given rise to new challenges in terms of regulation, enforcement and control. 

Movement of workers:

In contrast to Sweden, the other Nordic countries of Denmark, Finland, Iceland and Norway introduced transitional arrangements in 2004 for the movement of labour from the EU-8.After two years, the Nordic countries had as a whole issued around 75,000 first-time work permits to citizens from the EU-8 and around 30,000 renewals, of which Norway accounted for more than two thirds. A large share of the permits applied to shortterm work. More than 2/3 of the migrants came from Poland.

Whereas the permits issued in 2005 accounted only for a supplement of 0.4 percent to the entire Nordic labour force. The permits issued in Norway 2006 will most likely exceed 2 percent of the labour force. In Iceland the percentage is considerably higher - placing these countries next to Ireland when it comes to labour migration from the EU-8.

By “greasing the wheels” of the labour market, labour migration has so far strengthened the upswing and thereby boosted domestic employment and reduced unemployment in the Nordic area. If we assume that future migratory flows will vary in accordance with the business cycle, as previously seen in the Nordic countries, and assuming that intra-Nordic mobility will decline for demographic reasons, labour immigration of this magnitude is unlikely to cause serious imbalances in the labour markets.

The transitional arrangements have apparently had little influence on the total volume of mobility, and have mainly had an impact on the relative distribution of labour migration and service mobility. Accordingly, Finland and Iceland lifted their transitional arrangements from 1 May 2006. Denmark relaxed its regime, made it possible to pre approve enterprises that have collective wage agreements, and will repeal its regime on 1 May 2009 at the latest, as will Norway.

The gradual removal of external control of access to the national labour markets is likely to prompt a tightening of internal rules and controls. In order to prevent the emergence of a secondary market for low-paid labour from EU-8 when the transitional regimes are phased out, Norway and to some extent Denmark - where the coverage of collective agreements in parts of the private sector is markedly lower than in the other Nordic countries - may face hard choices over how to ensure equal pay and treatment without compromising national traditions of voluntary regulation.

Growth in posting of workers:

The Nordic experience has highlighted the difficulties of having separate regimes for individual labour migration on the one hand, and labour mobility through services on the other. Differences in the conditions for wage setting, taxation/ duties, control and enforcement, have given a certain rise to strategic circumventions. In addition to reducing regular labour migration, these have contributed to distortions of competition, dumping of wages, tax evasion, and creation of disorderly conditions in parts of the Nordic labour and service markets. Besides harming common interests and bona fide enterprises, this has in some areas exerted pressures on norms and standards in the Nordic labour markets.

Since none of the Nordic countries have a statutory minimum wage, and extension of collective agreements is practiced only in Finland, Iceland and partly in Norway, the growing service mobility from the EU-8 has challenged Nordic traditions for regulation, control and enforcement in the labour market. Finland has, like Iceland, taken major steps towards establishing a statutory minimum wage embedded in collective agreements for posted labour. Sweden and Denmark rely on the autonomous collective agreement model, where the trade unions coerce service providers into entering agreements, if necessary by using solidarity actions and boycotts.

In Norway, parts of the collective agreement in construction has been generalised and the unions recently tabled a motion for further nationwide extension. Within very different regimes, the governments and social actors in the Nordic countries have taken a range of initiatives to improve regulations and enforcement of conditions for posted workers, for example:


Against the backdrop of the Laval/Vaxholm case, the central social partners in Sweden signed a framework agreement in 2005, offering foreign providers of services a guarantee of industrial peace during negotiations if they join the relevant employers' association and accede to an adapted version of the collective agreement in the industry concerned.

Registration schemes:

In 2006 Finland and Iceland imposed mandatory registration on foreign sub-contractors and their workers, while Norway in 2004, for tax purposes, obliged all foreign enterprises and employees to register. Denmark recently introduced a similar scheme for the construction industry.

Access to information on wages:

The Swedish framework agreement established that the trade unions in the employing enterprise should have the right to information on wages and working conditions among sub contractors. Both in Iceland and Finland, trade unions have been granted extended rights to access wage information from enterprises with posted workers, and the new Finnish ombudsman for foreign sub-contractors shall submit information on the conditions for the posted workers. Also in Norway, certain union rights of access to information on wages in sub-contracting firms were agreed upon in 2006.

Builder liability;

A proposed Finnish bill concerning “the reporting duties and responsibilities of the purchaser when hiring external labour” will make the purchaser of sub contracts responsible for clarifying whether the supplier is adequately registered and has paid all mandatory fees, whereas reports must be submitted on pension and insurance schemes, collective agreements and working conditions. Failure to report can entail imposition of fines. Builder liability is also being debated in the other Nordic countries.

Temporary work agencies;

In Finland, legislation stipulates that if a manpower supplier is not bound by a local or generalised collective agreement, the temporary worker should be paid according to the agreement of the contracting enterprise. In 2005, Iceland introduced a new act hammered out in tripartite negotiations. It obliges work agencies to submit a report eight days prior to the start of any work, including the address and a contact person, both in Iceland and in the home country. Wages have to comply with minimum rates in the relevant Icelandic agreement. The enterprise is registered in the Directorate of Labour, unregistered enterprises are barred from supplying services, and if services are delivered for more than ten days, the names, addresses and qualifications of the individual workers must be submitted.

Need for transnational cooperation

While the EU/EEA regulations for free movement provide frameworks for registration, access to information and control of the foreign service providers' employees, this regime is currently under review in the context of the evaluation of the Posting of Workers Directive and the adoption and implementation of the service directive. In addition to domestic challenges related to reform of the internal regimes for regulation and control, the Nordic countries currently have a window of opportunity in terms of influence on developments at the EU level in accordance with Nordic goals and interests. In these processes, the countries on both sides of the Baltic Sea have a lot to gain from learning from each other's experiences and initiatives, and from making a co-ordinated approach to the EU.


Relevant publications in English

Dølvik, Jon Erik og Line Eldring (2006), The Nordic Labour Market two years after the EU enlargement. Mobility, effects and challenges.TemaNord 2006:557. København: Nordisk Ministerråd.

Dølvik, Jon Erik og Line Eldring (2006), Status report January 2006:The impact of EU Enlargement on labour mobility to the Nordic countries. Memo from a Working Group under the Labour Market Committee of the Nordic Council of Ministers. Oslo: Fafo, 07.02.2006 

Dølvik, Jon Erik og Line Eldring (2006), Industrial relations responses to migration and posting of workers after EU enlargement: Nordic trends and differences. In:Transfer- European Review of Labour and Research 2/2006 

Dølvik, Jon Erik og Line Eldring (2005), Mobility of labour and services across the Baltic Sea after EU enlargement: Nordic differences and commonalities. Executive Summary of Report delivered to the Nordic Council of Ministers. TemaNord 2005:566, Copenhagen


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