High pay increases agreed in 2007 sectoral bargaining round

Following the centralised national incomes policy agreement for 2005−2007, which provided for relatively moderate pay increases, the sectoral or branch-level collective bargaining round has resulted in high pay increases for all employees. Due to the level of pay increases in the sectoral agreements, the government has decided not to reduce employees’ income tax in 2008.

On foot of the centralised national incomes policy agreement for the period 2005–2007, the sectoral collective bargaining round has provided for relatively high pay increases for all employees. Pressure to increase pay resulted in some industrial action or the threat of action, although such efforts did not involve any notable damage to the social partners. The central and local government sectors are now almost totally covered by new collective agreements. By mid December 2007, 100% of the employee groups that were involved in the 2005−2007 national agreement were covered by new collective agreements. In branches representing 10% of employees, the existing agreements are valid up until the spring of 2008.

The new branch-level collective agreements for the chemicals and metalworking sectors – which were the first to be reached in the 2007 negotiation round – were expected to serve as a benchmark for wage increases in other sectors (FI0707019I). These agreements offered a pay increase of between 8% and 9% over the agreement period, in addition to a €350 lump-sum payment in 2007. While this level of pay increase has served as a benchmark in industry sectors, the pay increases were even higher in the public sector, reaching about 11% over the 28-month agreement period.

Trade unions and employers mainly satisfied

The trade unions are generally satisfied with the content of the sectoral agreements. Nevertheless, the unions have emphasised that the door must remain open to centralised national incomes policy agreements in the future.

The Chair of the Federation of Public and Private Sector Employees (Julkis- ja yksityisalojen toimihenkilöliitto, Jyty), Merja Ailus, points out that the wage increases reached in the sectoral rounds are evidently higher than the rate of inflation. According to Ms Ailus, the sectoral bargaining round has the ability to improve relations between the trade unions and their members when members know who is negotiating on their behalf.

According to the Confederation of Finnish Industries (Elinkeinoelämän keskusliitto, EK), the new collective agreements will result in a 3.3% increase in labour costs for employers in the private sector. In 2008, the average labour cost increase will reach 5.3% overall. Thus, in the private sector, it is expected that the labour cost increase will amount to an average of 10% over the entire agreement period. EK considers the branch-level bargaining round as being worthwhile, despite its costliness, since the new collective agreements have delegated much of the decision-making power of settlement to the company level.

The Managing Director of the Finnish Business and Policy Forum (Elinkeinoelämän Valtuuskunta, EVA), Sixten Korkman, did not sensationalise the impact of the pay increases. According to Mr Korkman: ‘General opinion is that the rise of income level index will be about 5% in 2008.’ He added that it was natural that sectoral agreements included high pay increases after the moderate wage increases provided for in the last centralised national incomes policy agreement.

Freezing of government income tax

Due to the level of pay increases secured in the sectoral agreements, the government has decided not to reduce income tax in 2008. As the Minister of Finance, Jyrki Katainen, states: ‘Because of high pay increases, the purchasing power will increase notably. If there will be additional government tax relief too, inflation will rise.’ Meanwhile, many economists predict that economic growth will fall by between two and three percentage points over the period 2009−2010, after which the government may then introduce some income tax relief measures.

Mr Katainen has recommended that the national incomes policy agreement be included as an option in selecting the most expedient negotiating arrangement, although he added that the centralised agreement does not fit in well with modern working life in instances where sectoral and workplace-specific productivity differences are large. Mr Katainen has requested that company-level bargaining be promoted more effectively among both employers and employees.

Pertti Jokivuori, Statistics Finland

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