Do employers tend to exaggerate plans for redundancies?

In late 1998 and early 1999, many export-oriented Swedish companies announced plans for widespread redundancies. Many critics claim that such announcements of large cutbacks in jobs are often exaggerated and, as a result, cause unnecessary worry for employees. The employers state that they are now subject to greater pressures from shareholders than they were 10 years ago.

Well-known Swedish companies including Volvo,Ericsson, Electrolux, SKF andSkanska announced programmes for widespread redundancies in November and December 1998 and in January 1999. According to statistics from the National Labour Market Board (Arbetsmarknadsstyrelsen, AMS), 4,500 employees were given notice in December 1998. The figures for December 1997 were 2,700. The latest available figures, for January 1999, show that 3,600 employees were issued with redundancy notices compared with 2,500 in the previous January.

Normally, the number of redundancy notices tends to decrease in December. Employers try to avoid spoiling the Christmas and New Year celebrations, according to AMS. However, this was not the case in December 1998 and this led to the beginning of a debate in the Swedish media. It was claimed that enterprises which were cutting down their staff tended to issue more redundancy notices to workers than was really required.

The obligation on employers to give notice to the County Labour Board (Länsarbetsnämnden) before a collective redundancy takes place is regulated in the Act on Certain Measures to Promote Employment. This states that any employer which intends to dismiss five or more workers as a result of reduced production must give notice to the County Labour Board. The redundancy notices cannot take effect until at least at least two months have expired from the date of notification. When more than 100 workers are affected, the period can last up to six months.

The redundancy notices reported to the County Labour Boards for December 1998 and January 1999 mainly affected manufacturing industry. For example, Volvo announced in December (SE9812133N) that 2,600 employees in Sweden were to be made redundant.

Is there a tendency to exaggerate?

Critics have suggested that companies tend to exaggerate the number of redundancies in prospect. Employers, it is argued, are more concerned with the interests of shareholders than the welfare of their employees. Company share prices tend to rise when the management gives the impression of being firmly in control. Others claim that by exaggerating the numbers of redundancy notices, employers are able to exert some leeway in negotiations with the trade unions.

"I cannot think of any company that would deliberately announce more redundancies than they thought were necessary," stated Anders Sandgren, chief lawyer at the Association of Swedish Engineering Industries (Sveriges Verkstadsindustrier, VI). "Perhaps when looking back after the dismissals have taken effect you can see that there did not have to be so many redundancy notices as you at first thought. But it is not possible to foresee the exact number at once."

Mr Sandgren also pointed out that the employers had been seeking a change in the legislation for a long time. The period of notice required for redundancy notices, he claimed, is much too long and it inhibits the ability of companies to react to crisis situations.

A spokesperson from the Swedish Metalworkers' Union (Svenska Metallarbetareförbundet), Roland Nilsson, stated that the 1990s as a whole have been very different from other decades. When one considers the 200,000 job losses affecting industrial workers in 1991-2, the smaller number of redundancies at present pale into insignificance. "When a big company such as Volvo issues redundancy notices for about 10% of its staff, it is quite a normal occurrence today," he added.

Nils Elvander, emeritus professor in labour relations, argues that it is to early to talk about a particular trend at present, "but if the issuing of redundancy notices gathers momentum it could become widespread and it will lead to large-scale fears for job security and tend to demotivate the workforce as a whole. It would be very much out of line with the philosophy of good practice that employers had traditionally adopted towards their staff."

The stock exchange

The increasing globalisation of capital and trade, the volatility of world stock markets and the crisis in Asia have all exerted pressures on the competitiveness of Swedish enterprises. Both Mr Sandgren and Professor Elvander emphasise that it is increasingly important to take account of the interests of shareholders. It is possible that, as a result, the larger companies are more likely now than they were 10 years ago to embark on workforce reductions.

Ann Christine Jans, a research economist at the University of Stockholm, is studying the effects on workers who receive notice of redundancy in two of the most populous counties of Sweden, Sörmland (except Stockholm) and Östergötland. She is constructing a database following the progression of all workers in these two counties who were given redundancy notices during 1989-96. So far, Ms Jans has established that not all planned redundancies actually took place. Preliminary figures show that only around 70% of notices issued actually took effect. She thinks that this rate may actually be much lower, as many of those who were given redundancy notice "disappeared" after the date of the first notification to the County Labour Board. For example, they found new jobs, took advantage of early retirement schemes with an enhanced pension provision from their employer, found other employment elsewhere in the same company or were reprieved as a result of negotiations with the trade unions. Some are still at the same workplace.

Commentary

There has been much public debate in Sweden in winter 1998/9 about the level of redundancies. Do companies exaggerate their need to dismiss some of their workers or not? The employers and the social partner organisations as well as a well-known economist, Nils Elvander, all say that they do not see anything unusual, at least for the time being. On the other hand, other research might eventually produce a different picture. (Annika Berg, Arbetslivsinstitutet).