How bright are the Nordic lights?

The three Nordic EU countries, Denmark, Finland and Sweden, are small open economies with well developed welfare systems and inclusive labour markets. They have performed relatively well in the last decade. In Finland and Sweden, catching-up effects after the crises in the early 1990s and ICT have played a role. Reforms have been intensively pursued, facilitated by a consensual governance setting, including in the 1990s a widely-shared sentiment of crisis.

The three countries have gone far in deregulating markets and enhancing competition. In the labour markets, overall light employment protection legislation combines with generous unemployment benefits. Reforms have focused on improving the efficiency of costly active labour market policies, including tightening availability criteria. The universal insurance, available as part of the welfare state, may have helped to gain acceptance of reform. Challenges include pressures on highly taxed labour in a context of increased global mobility of factors of production and the need to improve the efficiency of the large public sectors including in the provision of public services.