OECD claims that Norway needs sound macroeconomic policy

The OECD presented its annual review of the Norwegian economy in February 2001. The report confirms that the Norwegian economy is still doing extraordinarily well, but suggests that the country is still struggling to produce a sustainable incomes policy.

On 26 February 2001, the Organisation for Economic Cooperation and Development (OECD) presented its annual economic survey of the Norwegian economy. The report confirms that the Norwegian economy is still doing extraordinarily well, but suggests that Norway still is struggling to produce a sound macroeconomic and incomes policy. The current "solidarity alternative" (the cooperative venture on incomes policy that began in the 1990s), according to the OECD, has not fulfilled its objectives, mainly due to significant labour market tensions and increasing oil revenues. The report is particularly concerned about the present tight labour market, which among other effects has meant that wages have risen faster in Norway than in the "euro-zone" (the EU countries which have introduced the single currency).

The report claim that incomes policy has not been as successful as hoped, because increasing labour costs in the past five to six years have led to a deterioration of Norwegian competitiveness. Furthermore, the centralised bargaining system has reduced flexibility at the micro level, especially in the public sector. The OECD thus calls for greater emphasis on wage negotiations at the company level, as well as a relaxation of the regulations concerning employment contracts and overtime work. It is further emphasised that measures must be taken in the short term to reverse the rapid rise in early retirement, sick leave and disability pensions. Further drops in labour force participation must be avoided since labour shortage problems are already substantial, and will make it even harder to cope with the ageing of the labour force in the future. As such, the OECD supports the recent recommendations of the "Sandman" public committee that considered the present sick pay scheme to make employees bear a greater share of the financial burden of sickness absence (NO0010109F).

The report considers in more detail the challenges related to the ageing of the population. It calls for an abolition of the early retirement scheme (AFP), which provides fairly generous benefits and strongly encourages retirement before 67, and for its replacement by a system of flexible retirement, coupled with a change to the tax code to remove incentives to retire early, thus encouraging employees to remain in employment much longer. Furthermore, the report also proposes restructuring the present national insurance pensions scheme, for example by shifting the indexation of pensions partly from wages to prices, and by calculating pension rights over the entire work history instead of the best 20 years, as at present. It further proposes merging the various types of occupational pension schemes (NO0101119F) with the earnings-related part of the national insurance scheme in order to ensure full coverage of the retired population. The OECD also propose using the Government Petroleum Fund (NO0011111F) for funding pensions in a reformed pension system, by earmarking parts of the fund for new pensions rights.

The recommendations made by the OECD are beyond doubt controversial, and both the sick pay scheme and the pensions scheme are presently subject to significant public debate in Norway. Trade unions are generally opposed to changes to the present sick scheme that may weaken the position of employees, and as such are sceptical over the recommendations of the Sandman committee. The recommendation to abolish the AFP will also be met by significant opposition by the trade unions (NO0101119F). In its response to this proposal, the Norwegian government states that a committee will soon be established to consider the current scheme further.

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