1998 Annual Review for Finland

This record reviews 1998's main developments in industrial relations in Finland

Introduction

Finland's recovery from the economic recession of the early 1990s was consolidated further in 1998. GDP increased by almost 7% in the first half of the year compared with the same period in 1997. However, by the end of the year growth figures had already slowed considerably, and the rate of increase for the entire year was expected to be slightly less than 5%.

Despite a rapid growth in employment, by the end of 1998 unemployment was falling at a lower rate than had been achieved at the beginning of the year. According to official labour force statistics, the rate of unemployment in the first quarter of the year fell by 1.6%, whereas in the third quarter of the year, the decline was less than 1%. Unemployment thus fell to 11.5% in 1998, and is anticipated to fall further to 10.5% in 1999.

The rate of increase in consumer prices remained at around 1.5% in 1998. The public deficit was reversed and there was a surplus in public funds.

A "rainbow" coalition government of left- and right-wing parties - the Social Democratic Party (Suomen Sosialidemokraattinen Puolue) the conservative National Coalition Party (Kansallinen Kokoomus), the Left-Wing Alliance (Vasemmistoliito), the Greens (Vihrea liitto) and the Swedish People's Party (Svenska folkpartiet) - remained in power. Parliamentary elections are due to be held in March 1999.

Key trends in collective bargaining and industrial action

The industrial relations sphere remained relatively stable throughout the year, which can largely be attributed to the two-year central incomes policy agreement covering the period from January 1998 to January 2000 (FI9801145F). The agreement covers 98% of wage earners and provides for wage increases which raise average labour costs by about 2.6% in 1998 and 1.6% in 1999. Many management staff received disproportionate increases in benefits as share options increased considerably in value (FI9804158F). This was seen in some quarters as undermining the agreed wage moderation.

The labour market "peace obligation" which applies during the period of validity of the central agreement was evidently observed, as no major strikes took place in 1998 - though there were disputes over contracting-out in Helsinki public transport (FI9802149F) and over pay and bargaining rights for some firefighters (FI9802152N).

Special working groups started negotiations on several labour market issues, as agreed in the incomes policy agreement (see below). This process will continue throughout 1999.

Collective bargaining is becoming increasingly decentralised to company level (FI9812186F), especially in the area of working time (FI9803153F). This process was acknowledged by the government's decision to extend opportunities for the conclusion of local-level agreements to cover employers not organised in employers' organisations (FI9810180N) - a move that aroused strong opposition in the labour movement (FI9810179F). A research programme into local-level collective agreements, agreed by the social partners in the incomes policy agreement, was launched in June 1998 and the results will be available well before the expiry of the agreement (15 January 2000), allowing them to be used in the next round of negotiations. Trade union organisations have argued that local-level agreements require "rules of the game" (FI9809178N) which outline minimum conditions, negotiated within the framework of agreed models.

Industrial relations, employment creation and work organisation

The social partners have become actively involved in discussions on modernising workplace organisation. For example, the tripartite National Workplace Development Programme (FI9707122F) has to date launched 245 projects. These already cover a total of 400 workplaces and 20,000-25,000 employees. The aim for 1999 is 280 projects covering 500 workplaces and 35,000 employees. The aims of the current Programme include developing the organisation and structure of work to support lifelong learning and the acquisition of multiple skills. It is seen as essential that all work, including part-time and temporary jobs, should contain elements which support learning and vocational development. A decision on continuation of the Programme is due in 1999, and the Ministry of Labour has already proposed its continuation to the Ministry of Finance.

A social partners' investigation into workloads began during spring 1998 on the basis of the framework set out in the incomes policy agreement. This issue raised an intensive debate, as several surveys indicated increased levels of stress at work (FI9811182F).

The social partners' working group on working time published its report in June (FI9806167N). A sub-report entitled Practical working hours arrangements presented flexible working time arrangements already implemented in various sectors. The Ministry of Labour was working on a guide to different models for flexible working hours and the flexible arrangements permitted under current employment legislation. Generally, the issue of working time was a subject of some disagreement among the social partners - see below.

In relation to flexible working, by October 1998 the use of the "job alternation" sabbatical leave scheme had increased by by 40% since 1997 (FI9709131N). As agreed in the incomes policy agreement, a new scheme combining a part-time pension and part-time work is being tried out from the beginning of July 1998 until the end of 2000. The age threshold for participants has been lowered by two years to 56 years, while from April 1999 unemployed people can also combine part-time work with a part-time pension if they have been in full-time work for a total of 12 months during the 18-month period preceding the start of the part-time work. A joint working group of the Ministry of Labour and the social partners considering more time-efficient ways of working began work in spring 1998 with an examination of questions relating to "working hours banks" and career breaks. There was also discussion of introducing an element of flexibility into the Annual Holidays Act.

The social partners are monitoring the numbers of people in "atypical" work. Both the Ministry of Social Affairs and Health and the Ministry of Labour have commissioned reports and initiated research projects into the increase in fixed-term employment and its implications for unemployment and exclusion from the labour market. A number of measures have been taken in this area:

• the Study Leave Act was amended in 1997, extending the right to study leave to all employment relationships which have lasted at least three months, with the aim of giving people in temporary jobs better access to study opportunities;

• the Act on the Job Alternation Leave Experiment was amended from the beginning of 1998, providing a limited extension to part-time workers of the right to this sabbatical leave;

• an assessment is being conducted of whether the "training insurance" system, the third phase of which is being implemented, could improve the training opportunities open to workers in temporary jobs;

• a "job rotation model" to assist people in their acquisition of skills is to be launched in the near future in cooperation with the social partners. This would rely partly on publicly funded training and would contribute to supporting training opportunities for people with atypical employment contracts;

• the National Workplace Development Programme (see above) includes part-time and temporary work; and

• trade unions believes that the inclusion of employees on fixed-term and temporary contracts in company training schemes will require the integration of in-house staff training with publicly funded labour market training. The Ministry of Labour will examine this question when implementing the national lifelong learning strategy.

There has been a concerted effort in relation to employment creation initiatives on the part of a variety of actors.

At the local level, a total of 26 partnership projects have been launched with European Social Fund (ESF) funding and support from the Ministry of Labour. A monitoring report on the progress of the partnership projects, published in spring 1998, compares the results of Finland's partnership projects with the experiences of Ireland. In Ireland, partnership began to bear fruit relatively slowly, one or two years after the launch of the projects. Similarly in Finland, the best results will require time to emerge. The partnership projects have led to the creation of networks, and unemployed people themselves have been given an opportunity to influence their chances of finding employment. The social partners have participated in several projects, and there have been many projects in the not-for-profit "third sector". Preliminary estimates suggested that by the end of March 1998, the partnership projects had created jobs for around 1,000 individuals. Particular attention has been given to elaborating a system of assessment for the partnership projects.

At the political level, the reform of Finnish labour market policy identified the third sector as a potential source of new jobs and "activation" measures, particularly for those unemployed people facing the threat of exclusion from the labour market (FI9805161F). A new form of support was introduced in early 1998 - a "combination subsidy", aimed at creating new employment opportunities in voluntary organisations and other not-for-profit bodies for those who have been unemployed for a minimum of two years. Job creation is also being assisted through "employment-policy project support" aimed especially at third-sector organisations, which can be used to cover the organisation and administration costs of job-creation projects.

The combination subsidy aims to create 10,000 jobs every year. By the end of June 1998, it had created 3,500, but the pace picked up after a slow start and the target appears achievable. By June 1998, employment-policy project support had been granted to over 200 job-creation projects.

Job-creation initiatives have also been targeted at knowledge-intensive production sectors. The emphasis in Finland's industrial and business structure is shifting towards such sectors and product groups, while technology-intensive services continue their steady growth. Ensuring the growth of these knowledge-intensive sectors is one of Finland's key goals. This involves increasing public funding for technology, with a target of spending 2.9% of GDP on research and development (R&D) in 1999. The consistent national policy of public R&D funding can be seen as constituting a structural change in the economy and employment. Growth has been swiftest in areas requiring a high level of technological expertise, while technology has also been successfully applied in improving the competitiveness of more traditional sectors. Approximately 30,000 new jobs have been directly created in high-technology sectors since 1997, with around 30,000 more created indirectly. An extensive information technology industry training programme has been launched to secure the rapid availability of labour for the new high-technology sectors, partly funded by the ESF.

In recent years, services have made a major contribution to the improvement of the employment situation in Finland. In 1998, employment in the service sector was already approaching the peak level of the beginning of the decade. The improvement has been particularly strong in the private services sector, which has now recovered from the recession. The growth in jobs in private services is expected to continue sustaining the strong improvement in the overall employment situation and raising the sector's share of the Finnish economy to levels found in other countries. If this trend is to continue, action will need to be taken to internationalise services and increase both supply and demand for consumer services.

The Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusliitto, SAK) has called for an improvement of private services (FI9810181N) through reforms in the taxation of labour and the reduction of VAT on services, as well as a maintenance of core employee terms and conditions in a context of increased competition and contracting out.

Many of these ideas were taken on board in June 1998, when the Economic Council, chaired by Prime Minister Paavo Lipponen, discussed a Ministry of Trade and Industry working group report on the development of the private services sector. This report and its recommendations are to be used in formulating further action to improve the operating environment of the private services sector. The proposals include cutting income tax and reducing indirect labour costs, improving the functioning of the labour market, raising the level of skills and human resources, removing market obstacles and promoting internationalisation.

The government decided in November 1997, in connection with the incomes policy agreement (FI9801145F), to reduce taxes on labour further in 1998 and 1999 by a combined total of approximately FIM 5.5 billion. The reduction in social security contributions included in this sum amounted to around FIM 1.3 billion in 1998. The legislation dealing with income tax and social security contributions for 1999 was passed in spring 1998; the cuts are equivalent to about 3.5% of the total paybill. The reduction in income tax from the start of 1999 is to be compensated by an FIM 700 million increase in the annual yield from the taxes on electricity and carbon dioxide emissions.

The government's programme contains the target of removing all social security contributions levied on employers which provide for benefits not related to earnings. However, the state of public finances has not so far permitted a reduction in these contributions. In the event that the contributions can be reduced, a number of different target groups have been suggested: support for small businesses; reducing the contributions in respect of older workers; or reducing the contributions in respect of low-paid workers. All the models proposed would face major technical obstacles, as the current payment system for social security contributions has not been designed to handle the variety of detailed data on individuals necessary for creating a graduated system.

Developments in representation and role of the social partners

The year saw little change in the structure of representation of the social partners. The main exception came in December 1998, when four service sector trade unions affiliated to SAK signed a letter of intent concerning a merger (FI9812188N). The merger of the Union for Commercial Employees (Liikealan ammattiliitto); the Hotel and Restaurant Workers' Union (Hotelli- ja Ravintolahenkilökunnan Liitto), the Caretakers' Union (Kiinteistötyöntekijäin Liitto) and the Technical and Special Trades' Union (Teknisten ja Erikoisammattien Liitto) will create a 200,000 strong union, which will be the second largest in Finland.

The EU Directive on European Works Councils (EWC s) was implemented in Finland in 1996. Generally, EWCs appear to be fitting well into the national industrial relations system, which is characterised by an increasing number of multinationals, as well as a growing role for local-level agreements.

Industrial relations and the impact of EMU

The government and the social partners in Finland have fully endorsed EMU. In 1997, negotiations between the social partners led to an agreement on "buffer funds" aimed at protecting workers against economic fluctuations within EMU. In 1998, the idea of company-specific "balance-sheet buffers" was launched by the Employers' Confederation of Service Industries (Palvelutyönantajat, PT) (FI9901189F). These buffers would be accumulated in periods of economic upswing and spent to the benefit of employees when enterprises are facing hard times.

Conclusions and outlook

Working time was one of the key issues of debate between the social partners in 1998 (FI9807169N). The positions on both sides are very clear, as the trade unions would like to cut working time (FI9808174N) or at least use flexible working time arrangements that would assist in facilitating a more balanced reconciliation of work and family life. Particular criticism was levelled against the increase in paid and unpaid overtime work (FI9812187N).

By contrast, the employers reject any ideas of general reduction of working time. Instead they are prepared to introduce more flexible working time arrangements at company level, which could benefit both parties (FI9809177N). This debate has become more intense with the approach of the parliamentary elections in March 1999, and working time is likely to be an important issue in the elections. This is also true of debates over the issue of stress at work, which were prominent in autumn 1998 (FI9811182F). (Juha Hietanen, Ministry of Labour)