1998 Annual Review for Denmark

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

Introduction

For Denmark, 1998 was a year which marked the end of a period of continuous economic growth which had begun in 1993. The rate of economic growth dropped from 3.4% in 1997 to 2.4% in 1998, and a further decline to 1.6% is forecast for 1999. At the same time, the government budget surplus increased from 0.5% of GDP in 1997 to 1.2% of GDP in 1998 - ie from DKK 4.5 billion to DKK 14 billion. The rate of inflation remained almost constant at 1.8%, compared with 1997. Despite the decline in economic growth figures, the number of jobless continued to decline, with the average rate of unemployment ranging around 6.3% in 1998.

The slowdown in economic growth manifested itself in a balance of payments deficit of DKK 13.5 billion in 1998, the first such deficit since 1989. The competitiveness of Danish companies is perceived to have been weakened, and, at the end of 1998, the employers' organisations representing the manufacturing and the building/construction sectors expressed pessimism with regard to future prospects for economic and employment growth.

The previous minority coalition government led by the Social Democratic Party (Socialdemokratiet), which also includes the Social Liberal Party (Det Radikale Venstre), won the general election in March 1998 with a majority of one in the parliament (Folketinget). Despite this marginal majority, the government is widely expected to remain in office for an entire term, ie until early 2002. However, the turbulence accompanying the passing of a reform of the early retirement scheme at the end of 1998 (see below) weakened the government, thus making the prospects of a premature election more likely.

Key trends in collective bargaining and industrial action

The key event in Danish industrial relations in 1998 was the breakdown of the main private sector collective bargaining round in April, which led to a major strike that was ended by government intervention. For the first time in 13 years, negotiations between the member organisations of the Danish Employers' Confederation (Dansk Arbejdsgiverforening, DA) and the Danish Federation of Trade Unions (Landsorganisationen i Danmark, LO), ended in industrial action. Approximately 450,000 employees, rising to nearer 500,000 in the final days of the dispute, were affected by the 11-day general strike, which lasted from 27 April to 8 May. Just under a fifth of the Danish workforce was thus directly involved, and in its latter stages the dispute had increasingly serious knock-on effects for the rest of the labour market, including the public sector. In a move unprecedented when compared with the tradition developed since the inception of Danish collective bargaining legislation in the 1930s, the government intervened to end the dispute after a week of industrial action (DK9805168F).

The breakdown of the 1998 collective bargaining round was attributed to a number of factors inherent to the Danish system of collective bargaining (DK9807178F), and in particular the organisation and internal politics of the employers' side. Traditionally, the bargaining rounds for virtually all Danish collective agreements have been held at the same time in a two-yearly cycle. However, during the 1995 collective bargaining round, DA first effected a break in this rhythm of collective bargaining. The 1997 bargaining round in the private sector concentrated on the duration of agreements, with a return to a common expiry date a major issue, causing conflicts between DA's largest affiliate, the Confederation of Danish Industries (Dansk Industri, DI), and its other member organisations. The internal disputes are seen to have contributed to the souring of the industrial relations climate prior to the 1998 private sector bargaining round. DA sought in 1998 to maintain a tight grip on sectoral bargaining by giving the lead role to DI (DK9801147F).

Another reason suggested for the breakdown of negotiations was the economic and political environment surrounding the talks. While employees perceived companies to be faring well as a result of the prolonged period of economic growth, employers were becoming increasingly worried about a change in the economic climate and the impact of greater competition. In many of the countries where the key competitors for Danish businesses are located, pay increases were on a downward trend. This made wage moderation imperative for employers, especially in the eyes of export-sensitive Danish businesses. Employer and trade union expectations were therefore diametrically opposed even prior to the start of bargaining.

The bargaining round was complicated further by the proximity of the general election, which had been called for 11 March. Coming at a time when it seemed that bargaining in the vital industry sector had broken down (DK9803158F), the volatile political climate around the election contributed to an increase in the unions' demands. While, until then, demands for more holidays had been given relatively low priority, some of the unions' chief negotiators at this juncture began to attach more importance to the demand for the introduction of a sixth week of annual paid holiday (five weeks are guaranteed by law).

All these factors are seen to have contributed greatly to the raising of workers' expectations for the outcome of the bargaining round. The bargaining parties accepted a joint mediation proposal for the whole DA/LO bargaining area after the election (DK9804163F). However, in the subsequent membership ballot, the content of the deal was insufficient to persuade a majority of union members to vote "yes" to the proposed settlement (DK9804166N). This original settlement included: pay increases; provisions for improvements to pension arrangements; improvements in sickness and maternity benefits; a reduction in working hours for shiftworkers; the introduction of more flexible working hours; and additional time off (one or two extra days off per year). It has been argued that this settlement, which would otherwise have been perfectly acceptable to both parties, was rejected as a result of the factors described above.

After more than a week of industrial action, without the prospect of any immediate new bargaining solution, the government decided to intervene and enact legislation to end the dispute (DK9805168F). Political intervention has been part of the Danish collective bargaining model since the 1930s, but in 1998 the government broke with the tradition of staying as closely as possible to the proposed settlement agreed by both parties during the negotiations (but rejected by the members). The settlement finally imposed included one additional day's leave per year for all workers, plus two additional days off for family reasons, rising to three. It has been argued the government added these provisions on to the negotiators' proposals during the dispute partly in order to fulfill some of the family policy promises which had been an important item on the political agenda in 1998 (DK9806172F). It was also argued that the government adopted this course of action to help secure a "yes" vote for the Amsterdam EU Treaty in the referendum held on 28 May, only a few weeks after the end of the industrial dispute. Whatever the motivations, the new rules are likely to have a significant effect on bargaining outside the DA/LO area in 1999, including in the public sector.

The actual pay increases for around 85% of the workers covered by the DA/LO area settlement are set by subsequent company-level bargaining. As a result of the nature of the settlement at central level, employers were unable to moderate increases in wages and salaries in local bargaining during the course of the year. Towards the end of 1998, the annual rate of increase in wages and salaries reached 4.6%, compared with the previous year. Employers argued that the competitiveness of Danish companies had been damaged further as a result (DK9811193N). With the rate of inflation remaining below 2%, employees were able to enjoy significant increases in real earnings.

Industrial relations, employment creation and work organisation

In many ways, Denmark has been a pioneer in terms of job creation in the 1990s. In the early years of the decade, a period characterised by high rates of unemployment in Denmark, the main objective of labour market policy was to reduce unemployment through the introduction of leave schemes, early retirement programmes and so on. During the latter part of the decade, Denmark almost became a victim of its own success. Unemployment had been reduced to around 6% and the number of long-term unemployed and young unemployed people had declined significantly. From 1997, and with increasing emphasis in 1998, it therefore became necessary look at ways of increasing the supply of labour, as bottlenecks were beginning to emerge. In addition, increasing importance has been attached to the integration of disadvantaged groups into the labour market and to improving employment opportunities for individuals with a reduced ability to work . This can involve "flexi-jobs" with special terms for people with a disability, illness or reduced ability to work, whereby employers receive a wage contribution depending upon the employee's ability to work. Such jobs may be introduced by voluntary "social chapters" in collective agreements. An objective of the Danish National Action Plan (NAP) for employment (DK9805171N), in response to the EU Employment Guidelines is to create between 30,000 and 40,000 flexi-jobs before the year 2005.

The main keyword in the Danish debate on job creation is "flexibility". With falling rates of unemployment and increased time off being introduced by collective bargaining, it is becoming increasingly important for working time to be planned flexibly at the local and company level. The possibility of introducing such flexible working time arrangements was enhanced in 1998 by a collective agreement in the industry sector providing for a degree of annualisation of working time (DK9803158F). Previously, working time had to average 37 hours per week over a six-month period. This reference period can now be extended to one year, providing that there is a local agreement on the issue.

In September 1998, the central social partner organisations and the government reached an agreement on the content of the third labour market reform of the 1990s (DK9810187F). The objective of this tripartite agreement was to ensure the availability of skilled labour in times of low unemployment, in order to meet emerging skill shortages in a number of sectors. The elements of the reform include provision for job offers to be made earlier to unemployed people, for the quality of job offers to be improved, and for greater emphasis to be placed on helping the most vulnerable groups. The commitment to training and education for unemployed people is also strengthened. In addition, the period during which an unemployed person can claim unemployment benefits has been reduced from five to four years.

In November, the labour market reform was followed up politically, in connection with the state Budget settlement for 1999. The main element in this settlement was an adjustment of the early retirement benefit scheme with the clear objective of delaying retirement from the labour market (DK9812197F). The trend towards an ever-lower average age of retirement, which had fallen to around 61 years, was to be reversed. Therefore, the rules were tightened so that, in the future, a person who retires at the age of 60 will be worse off financially.

Developments in representation and role of the social partners

Following the industrial dispute which resulted from the failure to reach an agreement in the main private sector bargaining round, LO argued that these difficulties could have been avoided if effective tripartite negotiations had taken place between employers, trade unions and the government prior to the inception of bipartite collective bargaining.

It has been argued that the tripartite system of concertation, which has always characterised the Danish model of industrial relations, has been somewhat neglected since 1993 by a government unwilling to relinquish to much of its own power (DK9712154F). One exception in this area was the introduction of the labour market reform in the autumn of 1998 (see above). The key social partner organisations, LO and DA, were involved in consultations on this reform from the beginning and were able to identify much common ground, thus demonstrating the potential of the social dialogue at the level of labour market policy-making. At the time, the government was arguably almost surprised that the social partners were able, as it were, to deliver the goods.

The introduction of the reform of the early retirement benefit scheme, on the other hand, demonstrated the difficulties encountered in instituting a key policy reform without the close involvement and consultation of the social partners. In this case, parliament had a reform fully prepared before consulting the social partners. Although there was a significant degree of appreciation within LO of the need for policy changes in this area, the way in which they were arrived at led to much dissatisfaction and ultimately gave the reform a bumpy ride to the statute book.

The restructuring of the LO union confederation around six cartels (DK9801148F) experienced some difficulties, with the General Workers' Union (Dansk Specialarbejderforbund, SiD) deciding to withdraw 87,000 members from the Cartel of Employees in Trade, Transport and Service (Handel-,Transport- og Servicekartellet, HTS) (DK9806176N). There was something of a breakthrough for the independent trade union movement outside the three main confederations (DK9802153F) when the Danish Christian Trade Union (Den Kristeligt Fagforening, DKF) concluded a collective agreement with restaurant owners in Nyhavn, Copenhagen (DK9811195N). There was also some restructuring on the employers' side, including a merger of employers' organisations in the transport sector (DK9812100N).

Industrial relations and the impact of EMU

Denmark meets the criteria for joining EMU, and both the government and the non-Socialist opposition parties are in agreement that joining would be an advantage for Denmark both politically and economically. Nevertheless, as a result of a "no" vote in a national referendum on joining the single currency, Denmark currently remains outside "euroland". However, the launch of the euro in January 1999 restarted the debate on Danish participation, and it is now more likely that a debate with a subsequent referendum will be moved forward. Such a referendum is, however, unlikely to take place before 2000.

Conclusions and outlook

The Danish economy currently appears to be standing at a crossroads, where it is looking increasingly difficult to retain the momentum of economic growth and a labour market policy which has seen unemployment almost halve from 12.4% in 1993 to 6.3% in 1998. With increasing evidence of a shortage of labour in certain sectors, there has been a tendency for wages and salaries to increase much more rapidly in Denmark than in its neighbouring countries. The government tightened the reins in 1998 and hopes that pay and competitiveness will find a balance which will ensure that the balance of payments will again become positive. It is hoped that the introduction of tough new measures, which are likely to have a negative impact on employment, can be avoided.

A solution to the problem could be on the horizon, should agreement be reached between the social partners and the government on a new joint declaration which binds the parties to a tight economic policy aimed at securing competitiveness through wage moderation. It is also hoped that this will help to maintain a high level of employment. LO opted out of the previous joint declaration of 1987 after the government intervention in spring 1998 (DK9805169N), not because of its opposition to such tripartite cooperation, but in order to speed up the conclusion of a new binding agreement. An important question in 1999 will be whether the government and DA are interested in re-entering such an agreement.

An extremely difficult collective bargaining round can be expected in 1999 in those areas not covered by the 1998 settlement (DK9812198F), not least in the public sector. Here, the government has set the agenda with its private sector intervention in 1998. Public sector employees are likely to demand the same extra time off and are unlikely to take into consideration that the economic situation has deteriorated since spring 1998. (Jørgen Steen Madsen, FAOS)