Mapping of Norwegian R&I policy agencies, measures and beneficiaries

The Norwegian research and policy portfolio cover a wide range of measures addressing various explanatory factors for what hinders and promotes economic growth.

Innovation Norway (IN) and Research Council of Norway (RCN) are the two main agencies, but SkatteFUNN is by far the most important single measure. Grants (incl. advisory services) aimed at fostering research, innovation, and business development totalled to about 20 billion NOK in 2017, whereas industry relevant measures aimed at fostering research and innovation totalled to 10,5 billion NOK. The remainder includes funding for basic research and research infrastructure (corresponding to about 60 percent of the RCN portfolio, but also parts of H2020 and RFF portfolio) as well as business development measures (corresponding to about 60 percent of Innovation Norway portfolio and all measures administrated by regional authorities).

Funding for industry relevant R&I measures1. By primary goal2 and recipient sector.3 Grants and advisory services only. 2017. In billion NOK.


Source: Samfunnsøkonomisk analyse AS (samspillsdatabase)

Note: 1Covers grants and advisory services to identifiable recipients, not research funding channelled to universities and research institutes not covered by the basic funding scheme for research institutes. The funding neither includes funding for profiling activities, loans, equity and guarantees, nor administrative cost. 2 SØA categorisation ct. chapter 2 and annex. 3 All commercial companies registered in Norway. Research institutes and university colleges organised as AS are not included as private sector. Others includes Universities and other higher education institutions, research institutes, public sector and international organisation.

There has been a steady growth in public funding for measures to stimulate R&I over the past decade (measured in total grant-based funding) with a particularly strong growth/development during period from 2013 to 2016. During this period, growth was stronger for industry relevant R&I measures than for measures for basic research and business development. The growth is largely driven by growth in funding from SkatteFUNN, but also funding from Enova, EU programs and FHF (marine research). Industry relevant R&I funding through the main agencies Innovation Norway and RCN has remained relatively unchanged during this period.

Total industry R&I-funding to private sector is estimated to 7,3 billion NOK in 2017 (out of 10,5 billion NOK in total). The remainder is channelled to HEI sector and research institutes and others (public organisation and international recipients). Since 2013, the vast majority of the increase in R&I funding has been channelled to the private sector due to the strong growth in predominantly SkatteFUNN, but also Enova and FHF.

In monetary terms, SkatteFUNN is by far the most important single measure. In 2017, the budgeted tax deduction for the scheme was estimated to 5,6 billion NOK, which is over four times that of 2010. Actual costs/expenditure the same year is estimated to some 3,7 million NOK , corresponding to 35 percent of all industry related R&I grants. Other important measures are BIA (RCN), Environmental technology program (IN), Innovation Contracts (IN), basic funding for industry relevant research institutes (RCN), and cluster and centre programs. SkatteFUNN and the 19 largest grant-based measures and programs make up about 85 percent of all industry relevant R&I-grants during the period of 2016 and 2017. The remaining funding comes from a variety of measures, thematic or not.

The various measures play different roles in the R&I policy portfolio. SkatteFUNN is particularly suited for smaller R&I projects due to the simple application procedures and thus particularly relevant for SMBs and young firms. RCN-programs, Enova and H2020 measures are particularly suitable for larger and more complex R&I projects. The differences can be observed in private sector beneficiaries’ characteristics; beneficiaries of SkatteFUNN and IN are relatively speaking younger and smaller than those of RCN, Enova and EU programs. However, the share of more mature firms in SkatteFUNN has increased over the last years. One possible explanation is the increase in the threshold for R&D tax credit , making the measure more suitable for larger R&D projects.

With regards to recipients’ cross measures, we observe that the same recipient uses different R&I programs simultaneously and over time. It is reasonable to see the interactions between agencies and measure because programs play different roles in the companies' R&I work. However, it cannot be ruled out that certain programs overlap in objectives and scope. Here, it is conceivable that companies can "shop" between programs. To avoid "program shopping", there is a need for good coordination between program owners, as well as coordination between the policy agencies of what challenges the various programs are meant to face.

In economic terms, instruments that are sector and theme neutral, such as SkatteFUNN, BIA, SFI and Innovation contracts, made up about two thirds of all industry relevant R&I-funding in 2017. Over the past five years funding for open instruments has increased faster than that of thematic instruments. There has been a strong growth in funding for measures related to renewable energy, climate and environment, but a decline in funding for other thematic programs, resulting in modest growth in funding for all thematic programs.

Given the increase in funding for open programs, is seems as if open programs no longer complement the thematic programs, but that thematic programs complement the open programs. This shift in relative importance raises the question about what role thematic programs should play in the future. Thematic program allows for a strategic channelling of resources and long-term competence building and technology development, but how many thematic programs do Norway need? As a small country Norway can most likely not develop world class competences in all areas (meaning that the number of thematic programs should be lower). Clear delineation and strategic coordination are important to ensure an efficient and competitive research and innovation system.

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The main report can be found here.

Possibilities for low-skilled immigrants in the Norwegian labour market of tomorrow

In the past decades, immigration to Norway has been high, both in historical terms and compared to other countries. Recently there has been a shift in the composition of immigrants, from EU labour migrants to low-skilled immigrants from vulnerable states. How will immigration of low-skilled individuals develop in the years to come? And what will be their possibilities in the labour market of tomorrow?

We project future labour supply from immigrants by combining Statistics Norway’s projections of future immigration and the Wittgenstein Centre’s projections for education levels in 201 countries. Under certain assumptions about participation in the labour force, we project that 74 per cent of immigrants in the Norwegian labour force in 2040 will be low-skilled and 26 per cent high-skilled.

The immigrants’ opportunities in the future Norwegian labour market will depend on the number of jobs available and the competition from Norwegian-born job seekers. Using our own model, extrapolating recent trends, we project future employment by educational attainment. Our projections estimate that the employment of workers with high skill levels in the Norwegian labour market will be higher in 2040 than today. The demand for low-skilled workers will however be significantly lower. The demand is projected to be especially reduced in many of the industries where large portions of low-skilled immigrants are employed today, such as in the retail and transport industries.

Our projections indicate that, in addition to those not participating in the labour force, 19 per cent of all low-skilled workers will be out of work by 2040, unless they acquire more relevant skills. Among workers with only primary/lower secondary as their highest educational attainment level, the projected unemployment rate in 2040 is 25 per cent. Most empirical findings support the view that immigrants, on average, are more likely to lose in the competition for jobs that are suitable for low-skilled workers.

Reduced demand for low-skilled labour, combined with increased low-skilled immigration, will put a greater strain on the Norwegian welfare system. Furthermore, a surplus of low-skilled labour in 2040 could increase low-wage competition. This may reduce the unemployment among low-skilled, but at the cost of increased inequality and reduced real wages among those already employed.

In order to secure the Norwegian model in the years to come, we point out three measures that seem salient:

  1. Increased government efforts and incentives aimed at making business and individuals invest continuously in lifelong education and training. More formal training and development of skills, regardless of whether the workers are immigrants or Norwegian-born, will reduce a possible surplus supply of low-skilled labour.

  2. There is a need to increase the efforts and incentives for immigrants to take part in formal education and training in order to participate in the Norwegian labour market, including learning Norwegian.

  3. Continued and reinforced prioritising of younger men and women, as well as families when it comes to refugee quotas.

The alternative to the measures above is probably a significant increase in income inequality in Norway through lower real wages for low-skilled workers.

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Evaluation of the regionally differentiated social security contribution scheme

Social security contributions through employer-paid payroll tax have been regionally differentiated in Norway since 1975. The objective of regionally differentiated social security contributions (RDSSC) is to reduce or prevent depopulation in the most sparsely populated regions of Norway by stimulating employment through reduced employment costs. The scheme is the most comprehensive regional policy measure in Norway.

Using detailed micro data on Norwegian firms and employees and state of the art empirical methods to study changes in the scheme, we find evidence that most of the tax incidence resides with the employers, implying that a change in payroll tax has relatively limited effects on wages. We find that employ-ment increases directly because of reduced wage costs, allowing firms to reduce product prices to in-crease production and gain market share. The scheme also contributes indirectly to increased employment by shifting some of the tax reduction on to workers through higher wages, thereby increasing household demand for locally produced goods and services. In addition to positive effects on employ-ment in existing firms, a descriptive analysis indicates that employment also increases through the establishment of new firms.

Overall, our estimates indicate moderate employ-ment effects. However, it is reasonable to assume that the effects of changes in payroll tax are not lin-ear. A small change could be expected to have a small or no effect, because the risk and costs associated with reallocating resources reduce firms’ incentives to change their behaviour. However, if pay-roll tax had increased from the lowest to the highest tax rate, i.e. from 0 to 14.1 per cent, we would expect substantial effects. This is supported by our calculations, which show that such a jump would in-crease the share of firms with negative operating profits considerably. This suggests that RDSSC makes an important contribution to maintaining activity and employment, especially where the rates are low or zero. Thus, we cannot conclude from our moderate estimated effects that the impact of the scheme is low. The estimates should rather be considered conservative.

We find that RDSSC does enhance beneficiaries’ competitiveness domestically, which is the intention of the scheme. Most firms receiving aid from RDSSC offer services locally, clearly limiting the potential impact on international competition and trade. The share of export-oriented firms is not significantly higher in the zones with reduced rates. Furthermore, the exporting firms in the zones with reduced rates tends to be capital-intensive, thus gaining relatively little from a tax scheme that reduces the relative cost of labour. We also argue that the scope of import competition is limited by a high level of specialisation and low intra industry trade. The evaluation also finds that the vast majority of exporting firms receive support that is under the threshold for de minimis aid and is thus not defined as anti-competitive state aid according to EU rules. We conclude that there is little evidence of RDSSC having a distortive impact on competition and trade to an extent contrary to the intent of the EEA agreement.

We put forward a clear recommendation of continuing the scheme, although we also suggest considering the possibility of allowing municipalities to choose between RDSSC and receiving the same amount of support but in the form of separate free income. We suggest that such an option be limited to municipalities in the zones with tax rates close to the highest level.

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Evaluation of SkatteFUNN

SkatteFUNN was introduced in 2002 as a measure to increase research and development in the Norwegian private sector and has grown to become one of the most important policy instruments for this task. The scheme has previously been evaluated in 2008. The Ministry of Finance has commissioned Samfunnsøkonomisk analyse AS to conduct a new evaluation, presented in this report. The evaluation has been completed in accordance with the European Commission Staff Working Document, Common methodology for State aid evaluations.

We conclude that the benefits of SkatteFUNN, including increased R&D investment, innovation and productivity and beneficial effects on competition and trade, very likely exceed the costs of negative distortive effects and misuse. This leads us to a clear recommendation that SkatteFUNN be continued. 

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Evaluation of Norwegian Innovation Clusters

Since the early 2000s, Norway has had a strategy to strengthen industry clusters through a national cluster programme. The Arena programme was launched in 2002, since when it has supported nearly 70 cluster projects. Norwegian Centres of Expertise (NCE) was launched in 2006 to further strengthen interaction in the Norwegian innova-tion system. NCE has supported 15 projects. In 2014, Arena and NCE were merged into one pro-gramme: the Norwegian Innovation Clusters programme (NIC). At the same time, Global Centres of Expertise (GCE) was initiated as a third level. GCE supports three cluster projects.

Arena targets clusters of newly established and/or immature collaboration initiatives. Arena clusters can be relatively small and primarily have a regional position, or be larger with a national position. Arena offers support for cluster projects with a duration of three years (phase 1). In addi-tion, there is an opportunity to apply for a two-year extension of the project (phase 2). The grant per project is normally within NOK 1.5-3 million per year.

NCE targets clusters with a well-established national position and further national and international growth potential. NCE offers support for up to ten years. The grant per project is normally within NOK 4-6 million per year.

GCE targets clusters with a well-established position within global value chains. GCE does not offer financial support for cluster development. The current cluster programme limits GCE projects to maximum ten years. The grant per project is normally within NOK 8-10 million per year.

Norwegian Innovation Clusters has grown to become an important industry policy instrument over the years. The cluster programme had a total budget of NOK 166 million in 2016. The introduction of GCE increased the size of the programme by about 25 per cent.
Innovation Norway has commissioned Samfunnsøkonomisk analyse AS to conduct this evaluation of the Norwegian Innovation Clusters programme, as well as an evaluation of seven completed cluster projects.

The main objective of this evaluation is to assess the extent to which the programme meets the needs of the target group, whether the operation and organisation of the programme are appropriate and whether the effects are in accordance with the objectives.

The evaluation assessed the following:

  • The extent to which the market or system failure constituting the rationale for the pro-gramme still exists, and whether and which alternative measures are available to com-pensate for these failures (relevance).
  • Whether the cluster projects have achieved their stated objectives and whether they collectively contribute to achieving their programme level’s objectives and the programme’s shared objectives (effectiveness).
  • The organisation and operation of the cluster programme, including an assessment of whether changes to the organisation and operation have contributed to the programme’s relevance, effectiveness and efficiency.

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The size of labor market crime in Norway

In this report, we have estimated the size of labor market crime in Norway between 1973 and 2015. Labor market crime is characterized by profit-driven crime in the labor market. The phenomenon is complex and include various offenses. Actions related to labor market crime include violations of the pay and working conditions, tax evasion and social security fraud.

Both employers and employees may have incentives to commit such actions, but the society will always lose. Labor market crime results in loss of income for law-abiding businesses, deterioration of individual industries, and unfair competitive conditions for law-abiding businesses.

There is an increasing awareness that labor market crime represents a major social problem. Both former and present governments have compiled strategies, and implemented several measures to combat such crime. Nevertheless, there is a lack of information on of the scope. Better knowledge about and understanding of the scope of this form of crime is necessary to implement appropriate measures.

Two estimation methods are combined to calculate the development of labor market crime

Criminal acts are hidden, and hence are difficult to identify. It is therefore necessary to use special estimation methods, to estimate the scope. In general, these methods can be divided into direct approaches (when one has access to crime data from the control agencies) and indirect approaches (when one does not have such data). However, there will always be considerable uncertainty attached to this type of analysis.

In this project, we have been granted access to rarely available data for revealed tax evasion. Therefore, we can utilize both direct and indirect approaches. The direct approach gives us an estimate of the level of labor marked crime in Norway as a share of GDP, while the indirect gives us the development over time.

In our direct approach, we utilize control data for Norwegian businesses to calculate the value of labor market crime related to taxation and fraud of social security. The size of tax evasion is calculated from predicted probabilities for labor marked crime for all businesses in Norway. Combined with social security fraud figures from NAV, it gives us an estimate of the level of labor market crime, measured as a share of GDP.

Then we have used an indirect approach called MIMIC (Multiple Indicators Multiple Causes) to estimate changes in the size of labor market crime over a longer period (1973 to 2015). In this model, we use cause and indicator variables, which are assumed to be highly correlated with labor market crime, to say something about the changes of labor market crime over time.

The size is estimated based on tax evasion and hidden created value

We use two different measures of tax-related labor marked crime. The first one calculates the amount of tax evasion. The second one calculates the size of created value associated with illegal activities that are hidden from the outside world. Calculations of tax evasions have been carried out previously, but not related to labor market crime. The hidden created value, as far as we know, has never been estimated. We estimate hidden created value using data for unreported income and social security contributions that were revealed by controls. We believe that this estimate captures more of the activities related to tax evasion. This is because created value captures both black labor and tax evasion, as well as the fact these businesses often also commit other offenses (for example breach of the Working Environment Act). Therefore, we find that the measure based on created value provides significantly higher estimates, than when based on tax evasion only.

To estimate the scope of social security fraud, we have utilized aggregate statistics from NAV and existing literature. To create a level of labor marked crime as a share of GDP, we add the estimate of the average social security fraud to the results of tax-related labor market crime.

Tax evasion amounted to around NOK 12 billion in 2015, while hidden created value amounted to NOK 28 billion

The figure below illustrates our main estimates for the scope of labor market crime in Norway. The different paths represent the estimates based on tax evasion and hidden created value, both as part of mainland GDP. Estimates for 2010 to 2014 are based on microdata and have a greater yearly volatility relative to the earlier years, which are based on predictions from the indirect approach.

For 2015, we estimate that the share of labor market crime measured with hidden created value, was 1.2 percent of mainland GDP, or about NOK 28 billion. This includes both hidden income and social security contributions, in addition to an estimate of relevant social security fraud. If we consider labor market crime as tax evasion and social security fraud, the proportion is 0.5 percent, or about NOK 12 billion.

The figure exhibit a declining trend in the 1970s and 1980s. This reflects a period of a steadily increasing proportion of wage earners, which in our estimates contribute to less labor market crime. The figure show that labor market crime increased in 1988, and remained high for several years. This was during and right after the Norwegian banking crisis, and the collapse of the housing market. Many enterprises and individuals experienced financial difficulties and unemployment rose. The relatively steep decline that begins in 1993 coincides with a period of strong growth in the Norwegian economy, unemployment slowed and the proportion of wage earners increased more markedly. Labor market crime seems to fall when economic growth is strong and vice versa. Higher economic growth is correlated with more opportunities in the legal market.

The growth in labor market crime in the 2000s coincides with a period of strong labor immigration. High demand for labor, and far higher wage levels than in Eastern Europe, made Norway a very attractive destination for job seekers from the east. The supply of relatively low-skilled workers has probably allowed more labor market crime, as labor immigrants are easier to exploit, than Norwegian workers.

Towards the end of the 2000s the growth in labor market crime slows down. This can indicate that the implemented measures to reduce labor market crime and social dumping has had an effect. This includes measures such as the generalization of collective agreements (allmenngjøring av tariffavtaler), regulations on pay and working conditions in public procurement processes, infringement fees, information and duty obligations, introduction of HSE cards and approval schemes, equal treatment rules for hired labor and enhanced collaboration and information sharing between government agencies. In addition, the reduction in oil prices in 2014 led to a slowdown of the Norwegian economy and emigration of many migrant workers. Our estimates of the hidden created value and tax evacuations in 2015 are on the same level as the average for the period from 2009 to 2015. This indicates that the size of labor market crime is no longer increasing.

Robustness and uncertainty

The estimates presented in the figure above are based on median values or predicted probability of labor market crime and tax evasion. We have also calculated the scope based on average values. However, these are characterized by extreme observations, causing the average values to be several times higher than the median values. The main reason is that the distribution of businesses turns out to be highly skewed, both in terms of evasion and predicted probability. This means that most businesses have a low probability of committing labor market crime and evade small amounts, while a few have high probability and evade large amounts. These extreme observations pull the average values up. Thus, there is reason to believe that estimates for evasion and created value based on average values overestimate the size of labor market crime, and that estimates based on median values re closer to reality. Estimates based on average values an therefore be understood as an upper bound.

Nevertheless, using average values s important if one is to compare our labor market crime estimates with estimates for other types of crime, because the average is most commonly used in the literature. Our estimates based on median values provides a more robust estimate, that is, it is less affected by major disclosures that occur a few times, which raise average values. The relatively large difference between the median and average estimates indicates high uncertainty.

We have conducted different specifications of the models, and the results are robust in terms of model selection. However, none of the estimates captures the value of breach of labor and wage conditions, which harm workers and activity in the law-abiding part of business. This indicates that the estimates should be interpreted with caution and seen in conjunction with other surveys, including those who do not analyze the size as a percentage of GDP.


A key issue related to both an assessment of scope, development over time and evaluation of implemented measures aimed at combating labor market crime is the lack of high quality data sources. Access to statistics is necessary to be able to follow the development and size of labor market crime in total and across different parts of the economy. It is therefore very important that the agencies currently working on this issue continue the work of collecting high quality statistics related to labor market crime.

Although our estimate is uncertain, the need to advance and strengthen the measures against labor market crime is significant. In particular, interaction and information sharing between agencies is essential. Labor market crime is a societal issue that affects the responsibilities of several governmental agencies and underlying units. A continued joint effort could contribute to increase the overall impact of the agencies' different instruments.

Scenarioes for future skills demand in Norway

Scenarioes for future skills demand in Norway

This report summarizes four different scenarios with projections of skills demand in Norway. As a part of the project we organized a workshop, in close collaboration with the Ministry of Education and Research, where relevant uncertainties were discussed.

Based on the discussions at the workshop, we decided to focus on the following two uncertainties; Uncertainty related to the future of the “Norwegian worklife model”, and uncertainties related to the level of ambition and commitment of an international climate change agreement.

The costs of inadequately educating asylum seekers and refugees

The costs of inadequately educating asylum seekers and refugees

Economic Analysis Norway (Samfunnsøkonomisk analyse AS) has calculated the socio-economic costs of children and young people who come to Norway as asylum seekers or refugees receiving inadequate primary and secondary education.

On average, quantified factors amount to about NOK 3.8 million in 2015 prices per child. In addition, there are non-monetised effects on the individual’s quality of life, on crime rates and democracy.

Moreover, the analysis looks at conditions in schools that can improve the pupils’ chances of going on to achieve success in education, the labour market and society in general. The analysis also sets out proposals for measures that schools can implement to facilitate the future success of pupils.

Evaluation of «SkatteFUNN» - A feasibility study

Evaluation of «SkatteFUNN» - A feasibility study

This report proposes a comprehensive methodology for evaluating the Norwegian tax deduction scheme; SkatteFUNN. The SkatteFUNN research and development (R&D) tax incentive scheme was introduced in 2002, and is a governmental program designed to stimulate R&D in the business sector. The rationale behind initiating an R&D tax incentive scheme is the overall issue with companies not investing at a socially optimal amount in R&D, because of positive external effects are not fully internalised by the decision makers.  SkatteFUNN should, first and foremost, stimulate R&D investments in the business sector (first order effect), and ideally also lead to innovations (second order effect) and to a more knowledge based economy (third order effect).