Comment by Nils Karlson – Nordic Economic Policy Review 2025: Wage formation and the Nordic model

Abstract

Nils Karlson critiques Ejrnæs and Rasmussen’s analysis of public-sector wage formation, arguing that the authors underestimate the structural challenges caused by highly centralised wage-setting in the Nordic model. He highlights three major issues: strict public budget constraints, Baumol’s cost disease, and the distinct dynamics of labour conflicts in the public sector. These factors limit wage flexibility, hinder incentives and recruitment, and contribute to persistent skill shortages. Karlson concludes that the problems are broader and deeper than suggested and likely require more far-reaching reforms than the authors propose.