Debate over role of agreements and legislation in labour market regulation

In autumn 2002, the presidency of Denmark's Economic Council published an analysis of the Danish model of labour market regulation. It found that regulation in the form of collective bargaining, which is a characteristic feature of the Danish industrial relations system, in under pressure - due, among other factors, to globalisation and the single European market. However, other studies find that the current bargaining-based model actually has a positive effect in Denmark

A report on the Danish economy published by the presidency of the Economic Council (Økonomisk Råd) in autumn 2002 includes a special analysis of the Danish model of industrial relations - ie the special tradition of labour market regulation in the form of collective agreements between the social partners rather than legislation, which has for more than a century characterised industrial relations in Denmark (DK9908140F). The Economic Council, on which the social partners are represented, is an independent body established by statute in 1962. The presidency of the Council is composed of three professional economists – the so-called 'wise men' (Vismændene) – and it is the presidency which has in its most recent report undertaken the special analysis of the importance of the Danish tradition of labour market regulation.

Danish model under pressure

The presidency study finds that external pressure from globalisation and the single European market are putting under pressure the Danish tradition of concluding collective agreements, rather than using legislation, to regulate the labour market. On the basis of a comparative study of developments in labour market policy in Denmark, the Netherlands and UK, the report conclude that this strong external pressure generates a trend in the direction of a uniform policy, whether implemented by collective agreements or legislation.

The strong traditions of legislation in a number of EU Member States have also had an impact on EU regulation in the labour market and social field which makes it difficult for the Danish social partners and political system to continue to use regulation based primarily on collective agreements, states the report. This has been seen, for instance, in connection with the implementation of a number of EU Directives, such as that on part-time work (DK0106125F). The social partners in Denmark – with the two largest central organisations, the Confederation of Danish Trade Unions (Landsorganisationen i Danmark, LO) and the Danish Employers’ Confederation (Dansk Arbejdsgiverforening, DA), in the forefront – have sought implementation of Directives exclusively in the form of agreements, but due to pressure from the EU a model has instead been developed whereby supplementary legislation ensures that all employees – including the 20% or so who are not covered by any collective agreement – will be covered by the Directives' provisions.

According to the presidency, it is actually irrelevant whether legislation or agreements are used; the result will, under all circumstances, be more or less the same. The social partners will not conclude agreements which de not have general political acceptance. By way of example, they mention occupational pension schemes which have been introduced through collective bargaining, but which would have been designed in the same way if they had been introduced through legislation.

Danish model defended

In a research paper examining the analysis made in the Economic Council presidency's report, the Employment Relations Research Centre (FAOS) in the Department of Sociology of the Copenhagen University, argues that the introduction of occupational pensions schemes, which took place during the period 1989-91, is not a good example in this context. These schemes could not, it is argued, have been introduced through legislation during that period, but only by conclusion of collective agreements. By using the collective bargaining system, general acceptance was ensured among employees that they would trade wage increases (and short-term consumption) for pensions (and thus long-term savings). This made it possible to retain and further develop the incomes policy which had been formulated in cooperation between the social partners and the government through their 'joint declaration' of December 1987 (DK9901102F).

With regard to political measures, FAOS argues, it is thus not so much implementation in the form of agreements or legislation that it the central question, but rather a matter of policy coordination between the social partners, one the one hand, and the government and parliament (Folketing), on the other hand. The Danish model is thus not exclusively a bargaining model, but has always been characterised by a balance between agreements and legislation. The Danish model is not a system which gives social partner organisations a right to implement what they wish without any consideration for the political system. They are subject to the main principle of the representative Danish political system: parliament is the supreme authority. This means that the social partners will always have to find a solution if an issue is defined by a political majority as a political problem. If the social partners fail to do so, they will have to live with a politically dictated solution.

Nevertheless, according to the FAOS study, the main emphasis has been on regulation through collective agreement in matters such as the direct regulation of pay and working conditions, and on involvement of the social partners in more politically-oriented measures. The normal procedure has been to use regulation through agreements, or in the form of legislation on the basis of a prior agreement between the two sides. The argument in favour of this method has been that it means that it will be organisations with direct connections to the enterprises where the regulation is to be implemented that will have both influence and responsibility. This enhances the possibilities for finding the right solutions and ensures a more effective implementation of and compliance with the rules.

International studies of the satisfaction or dissatisfaction of business managers with the legislation and rules which regulate the labour market also show that Danish managers have a much more positive attitude than managers in the EU generally, states FAOS. It seems natural to conclude that this may, to a high extent, be related to the fact that managers in Denmark – because of the bargaining model – have a sense of having genuine influence, through their organisations, on the regulatory framework within which they operate.

Commentary

It is a new development that the Economic Council presidency's regular report should present a detailed analysis of the Danish organisational and bargaining system. This reflects an interest – also among economists – of the importance of institutional factors for the development of the national economy. The analysis is a thorough and fair analysis of the pros and cons of the special Danish collective bargaining model. However, in their conclusions the 'wise men' tend to take a critical view of the bargaining model which is arguably not supported by evidence in their own text. The Danish model, with its balance between agreements and legislation has a stronger viability that the Economic Council presidency seems to give it credit for. However, this does not mean that the Danish model will continue more or less unchanged in the future. The model will, on a continuing basis, have to prove that it is an effective instrument to resolve problems of labour market regulation. If the social partners fail to develop and agree on the right solutions to issues which a majority in parliament perceive to be problems, then their influence will diminish and the Danish model will change into one of regulation based mainly on legislation.

Contrary to the 'wise men', FAOS researchers do see any major threats in the development of EU labour market regulation. In Denmark, an implementation method for Directives has been developed which means that it will, as the general rule, be the social partners who will formulate the content of any legislation which may turn out to be necessary. Typically, this legislation will be in compliance with the content of the agreements which have been concluded between the social partners about the implementation of an EU Directive. In addition, a new practice has developed for the conclusion of agreements between the social partners at European level - ie the application of the main principle of the Danish model. Although it is doubtful how far this new European practice can be developed, it may – in combination with regulation which is more characterised by the EU's 'open method of coordination' (ie the process of setting common objectives and agreed indicators, regular reporting and the identification of best practice, as used in the implementation of the European employment strategy) – be seen as a reflection of the fact that the EU pressure on the Danish model has rather decreased than increased over the last few years. There seem to no very substantial new EU Directive in the labour market policy field in the pipeline at present.

However, the possibility cannot be excluded – in a longer perspective – that new pressure may arise through a new wave of EU regulation. EU cooperation tends to move in shifting periods with many initiatives and intervals of standstill. This may, at some point of time, lead to a pressure on models based on collective bargaining, such as the Danish model. The same could be the result of a possible incorporation of parts of the Charter of fundamental rights of the European Union (EU0012288F) into the new EU constitution which is on the agenda of the work of the EU Convention (the body charged with proposing a new framework and structures for the EU, notably in the light of enlargement - EU0201231N). Here the collectively-oriented bargaining model may clash with the individually-oriented legislative tradition which has so far been predominant in the EU. (Jørgen Steen Madsen, FAOS)