Social harmony is at risk in the land of egalitarianism. Burnt by the recent oil glut, more and more Norwegians are pulling out of the labor force. Left unchecked, it could be detrimental for one of the world’s most generous welfare states.
According to Statistics Norway, the percentage of people of working age in employment fell to 70.6 percent in 2016, a 21-year low. The decline started with the financial crisis of 2008 and has hardly stopped since. It’s not just the number of unemployed that’s going up -- the jobless rate reached 5 percent last year -- the number of people giving up trying to find a job is also rising.
Jeanette Strom Fjare, an economist at DNB ASA, Norway’s biggest bank, says that while the recent depression in oil prices "reinforced the downturn," long-term factors are also impacting on workers’ participation in western Europe’s biggest crude producer. They include an aging population and the growing use of automation and robotics to replace low wage jobs.
Reduced employment levels mean lower tax receipts. The government is constrained by law on how much it can compensate for any funding shortfalls by dipping into its massive oil kitty, so lower tax receipts risk impacting on the supply of welfare, potentially widening social differences -- a capital offence in a country that treasures equality.
"The current set-up of the welfare state will become a heavy burden to carry going forward given the taxation and expenditure approach that we have today," Marius Gonsholt Hov, an economist at Handelsbanken said.
The government has nevertheless been on a spending rampage, causing concern at the central bank.
A breakdown of the jobless figures suggests the oil-dominated regions along the country’s south-western coast have taken the hardest punch.
What’s more, the growth in unemployment has particularly affected men in low income classes with little education. Strom Fjare points to figures showing marked increases in the number of recipients of work assessment allowance in the oil regions, a possible sign that the downturn has increased sick leave. That’s a real problem for country which offers a sick leave equivalent to 100 percent of the worker’s salary for up to a year. Incidentally, disability benefits in Norway are universal, not just for affected workers, meaning someone who has never worked can still expect to receive help from the state in the region of 40 to 50 percent of the national average wage.
Vibeke Madsen, head of Norway’s largest employer organization for service and retail businesses, says things are bound to get worse. Virke estimates that 30 percent of "traditional" jobs are set to disappear as the economy transitions away from manual labor to machines. Rune Bjerke, head of DNB, says he expects the number of employees working at his bank to be more than halved within the next five years.
"We have known about these problems for a long while now," Gonsholt Hov said. "If we want to achieve something, then we have to reach major agreements, particularly on the pension side and labor participation," he said.
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