The Nordic Systems of Pattern Bargaining Are Facing Major Challenges

Lars Calmfors
Professor Emeritus, IIES, Stockholm University
Senior Research Fellow, Research Institute of Industrial Economics

The Nordic economies are heavily dependent on foreign trade. This explains why concerns over international competitiveness have long played a central role in wage formation. Earlier, wage setting was conducted through negotiations between national peak-level organisations. Over time, however, centralised bargaining has been replaced by industry-level negotiations. This shift has not led to the disappearance of coordinated wage formation; instead, it now takes place through so-called pattern bargaining. In this system, the manufacturing sector — representing industries exposed to international competition (the tradables or export sector) — concludes the first agreement in a wage round, thereby determining a norm for wage increases across the rest of the economy.

Pattern bargaining has been firmly established in Denmark, Norway, and Sweden since the late 1990s. It is less entrenched in Finland, where attempts by the government that assumed office in 2023 to strengthen the norm-setting role of the tradables sector have met resistance from public-sector unions.

According to informal reasoning, the tradables sector has particularly strong incentives to exercise wage restraint, as foreign competition limits its ability to pass wage increases onto prices. However, formal theoretical research has found little support for this proposition. Instead, it suggests that the mere existence of pattern bargaining — regardless of who sets the norm — promotes wage moderation. The key mechanism is that any norm setter must consider that other sectors will mimic its wage decisions, which will hurt her if the norm is set too high. Manufacturing’s role as the norm setter is rooted in its long-standing tradition of high unionisation rates, strong employer associations, and broad collective agreement coverage — all of which have granted it legitimacy. Particularly in Denmark, Norway, and Sweden, the manufacturing sector has also developed the operational capacity to fulfil this responsibility.

However, norm setting by the manufacturing sector faces serious future challenges. Aging populations will strongly increase the demand for labour in the health and care sectors at the same time as overall labour supply stagnates. Additionally, projected increases in defence spending are likely to drive up demand for personnel in the armed forces. These developments will require a reallocation of labour from the tradables sector to the public and non-tradables sectors.

There is a substantial risk that rigid pattern setting by manufacturing could inhibit desirable labour market adjustment.

There is a substantial risk that rigid pattern setting by manufacturing could inhibit desirable labour market adjustment. It may prevent other sectors from bidding up wages so that they can recruit the labour they need. This may require both higher overall wage growth than manufacturing would prefer and relative-wage increases in welfare services and the armed forces.

Labor shortages in the public sector also raise questions about the role of the government. On one hand, it has a responsibility to ensure the provision of public services, which may require it to use wage instruments to secure adequate labour supply. On the other hand, direct government intervention in wage bargaining could destabilise the pattern bargaining system. This danger would be particularly great if government interference is driven by political short-termism.

A recent example of government involvement is Denmark’s 2023 tripartite agreement, where the government provided local authorities with additional funds to allow wage increases in excess of ordinary collective-agreement rises in 2024–2026. The aim was to make welfare sector jobs more attractive. Although presented as a one-off measure, whether or not this will be the case remains to be seen. The risk that such interventions undermine responsible pattern bargaining is likely limited if they are based on broad consensus among labour market parties. The threat to overall wage moderation is probably much larger with wage rises above the norm obtained after labour market conflics, as has occurred in Finland.

Across all Nordic countries, the central challenge is to make pattern bargaining by the manufacturing sector flexible enough to accommodate future needs of labour reallocation, while at the same time preserving the tradition of wage moderation. Achieving this balance will require a high degree of pragmatism from all labour market stakeholders.