Pressure on wage negotiations due to economic crisis

Prior to the collective bargaining rounds for 2010, Sweden’s largest employer organisations are arguing for zero salary increases, due to the global economic crisis. Trade union representatives contend that the employer organisations are using the economic situation as an excuse to cut salaries. Preparations for the 2010 wage negotiations have already started. About 500 out of a total of 600 central agreements are to be settled in the bargaining rounds.

Employers call for zero wage increases

On 26 May 2009, a discussion article was published in the Swedish daily newspaper Dagens Nyheter by managing directors of the Confederation of Swedish Enterprise (Svenskt Näringsliv) and the six largest employer federations in Sweden. The latter comprise the:

• Swedish Construction Federation (Sveriges Byggindustrier, BI);

• Almega – Forum for Service Companies (Almega);

• Association of Swedish Engineering Industries (Teknikföretagen);

• Swedish Trade Federation (Svensk Handel);

• Transport Group (TransportGruppen);

• Employers’ Association of the Steel and Metal Industry (Stål och Metall Arbetsgivareförbundet).

The employer organisations argue that wages should not be increased in the 2010 pay negotiations, preparations for which have already started. About 500 out of a total of 600 central agreements are to be settled in the forthcoming collective bargaining rounds. The employers consider a zero increase wage strategy at national level as the best way to ensure employment during the current economic recession. Instead of determining wages in central agreements, pay should be settled locally at company level.

More flexible working hours

Furthermore, the employer organisations maintain that there is a need for more flexible regulations regarding working hours, to allow employees to work longer hours when there is more work and to have time off during a downturn.

Starting salaries too high

The employers’ article also contends that starting salaries are too high. They believe that this contributes to high rates of unemployment among young people, because it is expensive to hire young and inexperienced people. Sweden has high initial wages for young workers in an international perspective; the country also has the second highest rate of unemployment among young workers in Europe.

More flexibility at local level

As temporary lay-off pay is not available in Sweden to reduce the number of employees, the employer organisations argue that Swedish companies need other measures to manage the current lack of demand in the market. In their opinion, the possibility of reaching flexible local agreements is therefore important as it can save companies during a temporary downturn. If this option is curtailed, many of Sweden’s internationally competitive companies will fare badly and lost job opportunities may not return to Sweden after the recession, according to the employer organisations.

The Confederation of Swedish Enterprise points out that the recent development of lower consumer price increases will strengthen purchasing power. Central agreements without pay rises will therefore not hold back consumption – a point that trade unions put forward (article (in Swedish), 27 May 2009).

Trade union response

The main response of trade union representatives to the arguments of the employer organisations is that a freeze in wage increases will have negative effects on the national economy. The result would be a decrease in demand, lower consumption and subsequently a deepening of the recession. Unionen is the trade union for professionals in the private sector; its President, Cecilia Fahlberg, believes that it is unreasonable that companies give bonuses to managers and dividends to shareholders, while workers will not get rewards for their efforts. The Chair of the Union of Metalworkers (IF Metall), Stefan Löfven, considers that young employees are entering a labour market with insecure terms of employment – not high wages. Several trade union representatives point out that the employers’ arguments are the standard rhetoric of wage negotiations, as they always claim that there is no room for pay increases (article (in Swedish), Dagens Nyheter, 26 May 2009).

The Swedish Trade Union Confederation (Landsorganisationen, LO) highlights that the current economic situation is not a crisis of high wages, but rather a crisis of lack of demand. Pay increases are therefore important to maintain demand in the Swedish economy. Trade unions concede however that the scope for wage increases is more limited now than during the economic boom. The Chief Economist at LO, Lena Westerlund, believes that there is room for an increase of about 2.5%–3.5% in the current recessionary climate (article (in Swedish), Dagens Nyheter, 28 May 2009).

Possibility of small wage increases

The National Institute of Economic Research (Konjunkturinstitutet, KI) normally advocates moderate pay increases. KI is currently of the view that small wage increases could be useful for particular companies in times of recession, but that it could be harmful for the economy as a whole (article (in Swedish), Lag och Avtal (monthly business magazine), 26 May 2009). KI estimates that any pay increases should not be higher than 3.3% in the period 2010–2012 to keep unemployment at a low rate.

Karolin Lovén, Oxford Research