The Covid-19 pandemic and the rise in remote work has exposed some of the structural challenges of implementing more flexible work environments and better opportunities to work from a distance. As an example, the fact that people are spending more time in their second homes puts pressure on service provision in some rural regions, and during the pandemic, employers and employees in the cross-border Oresund Region have run into taxation issues due to the restrictions to mobility.
Multilocality has been brewing for a while
When asked about the current state of remote work in the Nordic Region, Research Professor Tor Arnesen of the Inland Norway University of Applied Sciences highlights the advanced digital infrastructure and well-organised Nordic labour markets.
“The whole concept of remote working and multilocal living has been brewing for a while, especially in the middle and upper classes,” he says. “It’s part of a systemic change, where people have gained more command of time and space. Physical mobility has increased, working hours have become more flexible, and to that, you can add digital mobility.”
“In this perspective, the pandemic can be considered as a big nudge,” he adds, referring to Richard Thaler’s popular theory of nudging. In short, this theory is about altering people’s behaviour without restricting any options or significantly changing economic incentives. “The pandemic hasn’t created anything new when it comes to remote work and multilocality, but rather exploited the structural and functional changes that have emerged over the last 20 years.”
Visible challenges in rural areas
With all these aspects in place, the only thing people in the Nordic countries need to establish a multilocal lifestyle, often associated with the Nordic passion for the outdoors, is a place away from home. There are currently around 580,000 second homes in Norway, of which approximately 60 per cent can be considered a suitable base for remote work.
“The pandemic has brought attention to a potential problem in rural areas with many second homes,” says Arnesen. “The second homes are being used to a much larger extent than before, which puts pressure on civil infrastructure and public services, such as healthcare, waste treatment, and safety and fire services.”
This has significant consequences for the municipalities’ budgets and planning.
“Another issue is that it’s difficult to plan and make policies for invisible citizens,” he says. “The second home population is not counted as inhabitants of these areas, which skews the distribution of tax revenue. “If you look at the official statistics, which form the bases for public finance and the transfer of funds from the state to municipalities, they do not mirror this hyper-mobility.”
Taxation barriers due to restricted mobility
Cross-border communities and labour markets across the Nordic countries were faced with a different set of challenges. Kate Plaskonis is an Adviser at Greater Copenhagen, a collaborative organisation for growth and development in the metropole region around Copenhagen, consisting of 85 municipalities in Southern Sweden and Eastern Denmark. 4.4 million people live in the area, many of which regularly cross Oresund for work.
“As most cross-border regions, Greater Copenhagen was hit by the pandemic due to separate national policies and guidelines, and differences in how the two countries chose to deal with the pandemic,” Plaskonis says. “Commuters couldn’t get to their jobs as they followed recommendations from the health authorities. While many of them were able to carry out their jobs from a distance, the restricted mobility has created challenges with taxation and documentation for employers as well as employees.”
The reason is that when working across the borders of Denmark and Sweden, the general rule is that employees pay taxes in the country where they spend more than half their time, often referred to as the 183-days rule. If a Danish worker spends more than 183 days in Sweden during a period of twelve months, they pay their taxes in Sweden.
“For many workers, the pandemic has shifted this balance,” Plaskonis explains. “The situation led to more administration for commuters, counting and reporting their days at work, and even resulted in higher taxes for some of them.”
A blow to the cross-border labour market
The restricted mobility also had negative consequences for companies relying on cross-border workers. Recent Swedish legislation requires companies to register as an economic employer if they have employees working in Sweden, even if they have no permanent establishment in the country.
“Those working from home were considered to have their workplace in Sweden,” says Plaskonis. “This created difficulties for Danish companies, as registering as an economic employer would require them to pay the higher Swedish taxes. The only way to get around this during the pandemic was to avoid hiring Swedes, which of course was a blow to the region’s integrated cross-border labour market.”
The future is here – and it’s digital
In general, Kate Plaskonis encourages the Nordic governments to be more attentive to cross-border issues and address the obstacles in the digital labour market.
“The future is digital, and we must remain competitive to attract talent. The competition will be fierce, so we should fix these issues as soon as possible. If we concentrate too much on national policies, we can easily miss out on the many opportunities in the cross-border regions.”
Professor Tor Arnesen emphasises that in wealthy and well-organised countries like the Nordics, the transition toward a more digitalised labour market is an organisational issue much more than a technical one. He says that every nudge in society stresses the systems, organisations and individuals involved. In this case, the state, companies, and employees are trying to establish a new balance regarding the hybrid workplace.
“We see that very large private sector industries have signalled their approval of hybrid workplaces, and while the public sector has been less clear, ministries and public institutions have also started hiring people for remote positions. Moreover, remote work is now being integrated into the formalised agreements between Nordic employers and employees. It’s going to be very exciting to see how this develops in the coming years.”