Municipal Nordics face common challenges

What exactly is the state of our municipalities? And what challenges are we facing?

The Nordic Labour Journal has been in touch with those who are working closely with these matters: the Nordic municipal organisations.

The short answer is that things are not terrible, but these are challenging times. How can the municipalities continue to deliver services to an increasingly demanding public?

Challenge number 1: We are getting older

Everyone the Nordic Labour Journal has been in touch with argues the most significant challenge we are facing is demographic change:

• A strong increase in the proportion of older citizens, especially the 80+.
• A reduction or weak growth in the working-age population.
• More municipalities, especially smaller ones, are experiencing population decline.

In Norway, the number of people over 80 will double in the coming decades. Things are pointing in the same direction in Sweden, Denmark and Finland. Meanwhile, the working-age population is not growing as quickly.

“For the first time in modern history, the number of working-age people will not increase. At the same time, there will be a doubling of the over-80s, and many of them will need health and care services. 

“Labour shortages increase the risk of an “all against all” struggle, but we can fight this through the Norwegian, or Nordic, model,” says Tor Arne Gangsø, Director of Labour Relations at the Norwegian Association of Local and Regional Authorities (KS).

Kristian Vendelbo is the CEO of the Danish Local Government Association (KL). Photo: KL 

Kristian Vendelbo, CEO of the Danish Local Government Association (KL) also knows exactly what he should answer when we ask him to list the challenges facing the municipal sector. He believes there is only one challenge worth talking about in this context: 

“The combination of an ageing population and considerable labour shortages is our greatest challenge going forward,” he says.

Challenge number 2: Labour shortages

A key question is how to solve the demographic problems when there is also a shortage of labour. The Nordic countries share the following challenges too:

• Increased need for labour in the health, care and education sectors.
• Low availability of skilled labour makes recruitment challenging.
• Increased need for labour market policies to mobilise employable groups.

Chief economist Emelia Värja at the Swedish Association of Local Authorities and Regions (SKR), believes it is not possible to solve the staffing crisis through recruitment alone. Instead, municipalities must encourage people to stay in work for longer, increase full-time employment and rethink working methods.

“Demographic trends and weak population growth also point to a slow increase in the number of employed people, while the need for staff in the welfare sector remains high. This is one of the greatest challenges to our welfare societies.

Chief economist Emelia Värja at the Swedish Association of Local Authorities and Regions (SKR). Photo: SKR

“Groups who remain outside of the labour market are usually far from being employable. This calls for different labour market policy initiatives that can help match people to jobs,” says Emelie Värja at SKR. 

Challenge number 3: More money is far from a complete solution

Norwegian municipalities faced an acute economic crisis in 2024 because of high inflation and interest rates. The state set aside an extra 10 billion kroner (€868m) for the municipalities in 2025 and 2025, but they still saw a deficit of nearly 4 billion kroner in 2024. 

More money is not enough to solve the municipalities’ challenges, argues KS in Norway.

Tor Arne Gangsø, Director of Labour at KS. Photo: KS

“We cannot hire or pay our way out of these challenges because there will simply not be enough labour. To secure sustainable welfare services in the future, the municipal sector must use its resources more efficiently and we must mobilise as much labour as possible.

"This will require major changes and we must rethink how we organise the services and work,” says Tor Arne Gangsø, Director of Labour at KS.

Challenge number 4: A need for big investments

Among the Nordics, Norway’s municipal economy seems to be under the greatest stress. Yet there are challenges elsewhere, including:

• Tighter budgets as a result of high inflation, interest rate rises and unpredictable income streams.
• Significant investment needs, including infrastructure, maintenance, climate transition and preparedness.

Finland reports persistent deficits, mainly because of national reforms giving municipalities greater responsibility without sufficient funding. 

“Successive governments have widened the municipalities' responsibilities, but attempts at reducing standards and easing the municipalities’ economy have proven near impossible. Instead, the state has tightened its overall control over the public sector.

“The municipalities have launched their own transition measures to cut expenses and reduce services, which has eased the financial burden,” says Chief Economist Minna Punakallio at the Association of Finnish Local and Regional Authorities (Kuntaliitto). 

Chief Economist Emelie Värja at SKR says Sweden’s municipal sector is generally strong. 

“We have had two tough years with high cost increases, particularly in pension expenses. We are now past this and things are looking better. Despite strong investment growth, the sector's financial strength has remained stable or even improved, indicating that the municipal sector has managed to cope," she says. 

Future investment needs in Sweden will, however, have a different kind of dynamics, according to Värja. Several smaller municipalities with falling populations are struggling to finance necessary investments. 

Challenge number 5: Big differences between small and big

What is needed to secure sustainable municipal services in the future? There is often a focus on the need for modernisation and smart solutions. Technology, better planning and more cooperation between volunteers and businesses are highlighted as key tools.

At the same time, there are significant differences between small and large municipalities, which create different conditions for change. 

Chief Economist Minna Punakallio at Kuntaliitto in Finland. Photo: KL

"Finland as a whole is heading towards economic growth, but some municipalities may need to realise that growth is not always the solution. Instead, it’s about adapting wisely. 

“One question is how we can organise high-quality services and ensure good quality of life across the country – even in areas with few residents," says Chief Economist Minna Punakallio at Kuntaliitto in Finland. 

Challenge number 6: Gaining acceptance for static service levels

In Denmark, money is not the main problem as long as the municipalities manage their finances well, according to Kristian Vendelbo, CEO at  KL. He is more worried about whether citizens actually accept the premise for the financial balance – the fact that the service level in the municipality remains unchanged.

“The question is whether Danes will accept that strict financial control will not lead to improved services,” says Vendelbo. People’s expectations rise in step with increasing prosperity, and the demands for public welfare too."

At the same time, he points out that good welfare is about more than financing – it is linked to access to skilled labour. There is already a labour shortage in the public and private sectors, and this challenge will grow in the coming years.