New collective agreements for public sector employees

New collective agreements for state and municipal employees were reached in February. In the municipal sector the agreement affects about 430,000 local government employees and around 88,000 workers in the state sector. Municipal workers have been offered a general pay increase of 1.2%, an additional 0.8% to be allocated following local negotiations and a one-off bonus of €100 for many employee groups in May. Central government workers will receive an increase of 1.3%.

Local government opens 2011 negotiation round

The 2011 bargaining round began in rather complicated circumstances. In the aftermath of the economic crisis, the unemployment rate is slowly falling and, after relatively high pay increases between 2007 and 2010, the competitiveness of the Finnish economy is in question. Some sectors are still feeling the effects of the crisis, whereas other sectors are recovering quickly.

The ongoing bargaining round has been conducted in a cautious atmosphere and neither side wished to make the first move. However, the local government sector succeeded in agreeing a new pay solution.

In the municipal sector, the pay deal is a combination of a general pay increase of 1.2% and an additional locally negotiated pay increase of 0.8%, which will be shared according to conclusions reached in local negotiations. In addition, a bonus of €100 for many employee groups was expected to be paid in May.

All together, the cost impact of the agreement is around 2.4% and the agreement expires at the end of 2011.

In the central government sector, wages and salaries will be raised by 1.3%, backdated to 1 February 2011. On 1 May 2011, a locally negotiated component of, on average, 0.5% and a 0.2% equality component were to be added to wages and salaries.

The central government agreement essentially improves the rights of employees in situations where their tasks are changed so as to be less demanding. According to the agreement, state employees’ pay cannot be reduced during the 24 months following such changes. The new state collective agreement expires on 29 February 2012.

Both sides of negotiations described them as exacting. One trade union in the public sector was pleased with the level of pay increase, saying the main aim was to award pay rises that would maintain employees’ purchasing power. The Commission for Local Authority Employers (KT) considers the negotiation result as tolerable in view of the difficult circumstances.

Financial sustainability gap of public sector concerns

The financial situation in both municipalities and in the state has been and remains relatively weak. In the next few years more money needs to be found to close up the so-called financial sustainability gap in the public sector – this means current tax rates are unlikely to yield sufficient tax revenue from an ageing population to finance public expenditure.

The Confederation of Finnish Industries (EK) announced its target for the spring negotiation round and emphasised the familiar message of competitiveness and safeguarding employment. EK reminded negotiators that in the worst years of economic crisis real earnings increased by an average of 6.8%, and real earnings increased even more in the public sector than in the private sector.

EK has been worried about Finland’s decreasing competitiveness compared to other European countries, especially Germany. For the past decade, Finland’s labour costs have risen more than the average in European countries.


Public sector pay increases are at approximately the same level as predicted inflation for 2011 and are in line with collective agreements made last autumn. As a result, employees cannot expect any rise in purchasing power during the agreement period. It has been difficult for trade unions to accept a pay increase that in practice means a decrease in employees’ real income.

Pertti Jokivuori, University of Jyväskylä

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