The latest World Happiness Index report released in March positioned Australia in 12th place. An impressive performance, but Australia consistently ranks below the Nordic countries, who stand unchallenged at the very top of the index.

For Australia to become an even better place to live, improving the quality of people’s working lives is essential. This requires changes to our industrial relations system, which plays an important role in governing work arrangements. Despite political and cultural differences, the Nordic countries offer important lessons on how Australia can achieve this.

More effective industrial relations in the Nordic countries contributes to better work-life balance, fairer wage distribution, less gender inequality, and generally superior macroeconomic outcomes to Australia.

While Australia prides itself on being a liberal economy, government plays a much more interventionist role in the labour market than in the Nordic countries. Despite their social democratic histories, Nordic governments respect the autonomy of employers, workers, and their representatives – employer associations and trade unions – so long as they can ensure business competitiveness and fair wages and working conditions.

The limited role of government in the Nordic countries does not mean workers lack protection. On the contrary, multi-employer collective bargaining and works councils enable workers to engage with employers on equal terms. These mechanisms give workers voice and empower them to identify productive work practices, which is good for business. This requires recognition that managerial prerogative does not always deliver the best outcomes.

The relationship between Nordic employer groups and unions is sometimes characterised as a “conflictual partnership”. This alludes to the tension between workers’ desire to improve wages and conditions and employers’ aims to reduce costs and increase profits. However, and unlike Australia’s adversarial industrial relations tradition, the Nordic countries’ partnership approach includes mutual respect for the legitimacy of different interests.

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This mutual recognition helps employer groups and unions to jointly develop arrangements that are both efficient for employers and fair for workers. Businesses can hire and fire easily, which helps them to continually innovate and remain internationally competitive. At the same time, workers have extensive protections ensuring those affected by change are given new opportunities rather than being disadvantaged.