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Mismatch in the Norwegian labour market

Mismatch in the Norwegian labour market

Unemployment has declined rapidly in step with the reopening of society, but a larger amount of people is still without jobs than before the coronavirus crisis. At the same time, new job vacancies have risen sharply. This suggests that low demand is not the reason behind the high number of unemployed workers. Growing mismatch in the labour market could result in wage pressure at a higher unemployment level than we have been used to.

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Economic Outlook September 2021 cover image showing a butterflyDuring the coronavirus crisis, economic activity has been held back by restrictions to contain the spread of the virus. Especially parts of the services sector including hotels and restaurants, travel and transport, and culture have been hit by restrictions and bans. Many were put on furlough and only returned to work after the restrictions were lifted. Restrictions on travel to Norway have also hit sectors that have not been locked down but are highly dependent on foreign labour. Labour shortages in manufacturing, construction, and parts of the agricultural sector, have made it difficult to meet demand. While in the healthcare sector, demand for labour has increased as a result of the health crisis.

The coronavirus crisis differs sharply from previous economic crises. The formerly strong link between demand for goods and services and the unemployment level has weakened. Both in Norway and internationally we see increased mismatch between the qualifications and wishes of those who are still out of work and the qualifications that employers seek.

The increasing mismatch in the labour market is a direct consequence of the coronavirus restrictions. It is therefore reasonable to believe that the problems will diminish when the remaining restrictions are eased and lifted. But the problems will not entirely disappear. Many who have been on furlough for a long time may have decided to change careers during the pandemic. Employers may therefore struggle to recruit people with the right skills even after the restrictions are lifted. And the virus is still among us. It may take a long time before, for example, tourism is back at pre-crisis levels. Many people will probably have to adapt and learn new skills. This takes time.

Graph: A / Growing mismatch in the labour market / B / Unemployment to job vacancies ratio is back to normal

The natural rate of unemployment may have risen.

Kjetil Olsen, Nordea Chief Economist

The effects of the growing mismatch are twofold: First, it may take longer to bring unemployment down to pre-crisis levels despite strong overall labour demand. Second, wage pressures may emerge, leading to stronger wage growth at a higher unemployment level than before. The natural rate of unemployment (or NAIRU) may have risen. Overall, the mismatch issues in the labour market can result in higher wage growth and, in turn, higher interest rates than we currently foresee.

This article originally appeared in the Nordea Economic Outlook: A new phase, published on 1 September 2021.


Dane Cekov, Nordea Analyst
Dane Cekov, Nordea Analyst

Kjetil Olsen, Nordea Chief Economist, Noway
Kjetil Olsen, Nordea Chief Economist, Norway

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