Public committee proposes continued cooperation on incomes policy

A public committee that has been considering the issue of "employment and value creation" in Norwegian working life delivered its report in late June 2000. The committee emphasises the objective of maintaining wage growth at the level of Norway's trading partners, with the view to safeguarding high levels of employment and a stable economy. The committee supports a continuation of cooperation on incomes policy matters, with a strong coordination of wage formation.

A public committee with the task of considering the issue of "employment and value creation" (sysselsetting og verdiskapning) in working life delivered its report on 30 June 2000. The committee, established in April 1999, comprised representatives from all the leading organisations in Norwegian working life.

The "Holden committee" (named after its chair, Steinar Holden, a professor of economics) was set up against a backdrop of instability in the Norwegian economy in 1998, with an expected decline in employment. The Holden committee's mandate was extensive, and included an analysis of the challenges facing the Norwegian economy as a result of increased "globalisation". In this connection, the committee was asked to consider strategies that might contribute to sound and balanced development in the Norwegian economy, and to consider ways in which to alleviate economic cycles. Among the issues considered was how incomes policy might serve this purpose. The committee was also asked to consider a wide range of issues concerning the economic context within which Norwegian industry operates, and the challenges connected with workforce developments in the years to come. This rather extensive mandate was reflected in the committee's approximately 800-page report, which considers a wide range of aspects relating to the Norwegian economy. So far, the committee's views on incomes policy and wage formation have been the most contentious.

Incomes policy and wage formation

The committee adheres to the findings of previous public committees (NO9903120F) by emphasising the objective of maintaining wage growth at the level of Norway's trading partners, with a view to safeguarding high employment levels and a stable economy. The importance of the ability to manage wage growth developments is further stressed, given that most EU countries pursue economic policies that aim to promote low wage and price growth. The committee bases its view on the conviction that the social partners are best served by safeguarding real wages through low nominal wage increases combined with low inflation, and that the best way to bring about low wage growth is through a central coordination of wage formation. This will allow for a lower rate of unemployment than would otherwise be the case.

The committee's views on incomes policy and wage formation are as follows:

• trend-setting sectors. The industries most vulnerable to competition should still set the agenda. The committee wants to see a continuation of the practice of letting the Norwegian industries subject to most international competition establish the economic framework for national wage growth developments. However, it does not follow, according to the committee, that these industries are to determine the general profile of the subsequent wage settlements, nor to establish the context for social reforms. The committee is also of the opinion that the model is weakened by the fact that estimates for wage growth among white-collar workers are not currently part of the equation, only blue-collar workers. The committee thus also wants models to be considered that influence the salaries of white-collar workers as well;

• increased coordination. The report points to the importance of increased coordination among social partner organisations with the view to reaching agreement concerning central principles prior to wage negotiations. The wish for more coordination also includes closer contact among different employers' organisations before agreements are reached in the trend-setting sectors;

• efficiency/local flexibility. The committee points to the fact that a more rigorous coordination of wage formation may affect the flexibility of individual enterprises and as such take place at the expense of efficiency. In bargaining areas with only a limited degree of flexibility in local wage formation at present, a greater proportion of available wage funds should be set aside for local negotiations;

• the introduction of social reforms. The committee draws attention to the fact that the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO) and the Confederation of Norwegian Business and Industry (Næringslivets Hovedorganisasjon, NHO) together have had a significant bearing on the major reforms introduced in collective agreements, and that there has been a lack of participation from other organisations. The implication of this could be that reforms may have been introduced in ways that makes them less adaptable to other sectors. As such, the committee stresses the need for improved coordination among main confederations with regard to the introduction of social reforms;

• wage formation in the public sector. The committee argues that the public sector bargaining system has increased discrepancies between employees with higher education levels in the private and public sectors. A reason for this is that the dominant union confederations in public sector, LO and the Confederation of Vocational Unions (Yrkesorganisasjonenes Sentralforbund, YS), are both in favour of a policy whereby low-wage groups receive higher percentage increases than high-wage groups and in which there are only limited funds for local wage adjustments/negotiations. This has contributed to compressing the wage structure in the public sector. The committee itself makes no recommendations on how wage formation in the public sector may be altered, but concludes that the parties themselves will have to agree on the main principles for reform; and

• management salaries, share options and employee co-ownership. The committee considered several matters in relation to management salaries, and expresses uneasiness about the prospect of rising management salaries generating less support for moderate wage policies among other groups. The committee does not want to interfere directly in wage formation for management, but indicates that it may be advisable to work out voluntary guidelines with a view to limiting unreasonable wage developments among management groups. The committee also proposes to monitor the award of shares and options as a form of wage compensation, in the same way as for other forms of compensation.

The committee's report considers a wide range of other issues, and emphasises the need for efficiency in the private as well as the public sector.

Commentary

The Holden committee supports a continuation of cooperation on incomes policy matters, with a strong central coordination of wage formation, whereby industries subject to competitive pressures are to provide the general framework for wage growth developments. As such, the committee is carrying forward the views of several public inquiries carried out in the 1990s.

What is new, however, is that the committee outlines what it regards as a wide range of deficiencies in the present model of wage formation and incomes policy. These are problems that have been discussed on several occasions in recent years, without acquiring a formal place on the incomes policy agenda. The fact that the committee, with its representative base, chooses to emphasise these problems should indicate that we are entering into a more profound debate on the main principles of, and the balance of power within, the existing cooperation on incomes policy in Norway.

One issue placed on the agenda is wage formation for groups with higher education in the public sector. The committee argues that the way wages are determined today, with LO's public sector unions dominant in cooperation with one or more of the other union confederations, creates problems in recruiting employees in the public sector. The fact that the committee suggests that the compression of wage levels in the public sector has gone too far will most probably generate significant debate within LO, although the organisation itself has contributed to placing the issue on the agenda (NO9911163F). Most of the solutions discussed in the committee will be controversial, and the committee is careful not to recommend specific models.

A recurring feature of the committee's analysis is the emphasis on the need for improved coordination between the various organisations on both sides of the labour market. Thus, the committee is favouring the continued gradual incorporation of a greater number of social partner organisations in cooperation on incomes policy (NO9908145F). The report also highlights the current dominant role of LO, NHO and manufacturing industry in wage formation and incomes policy. These analyses may partly be explained by the fact that LO and NHO are increasingly being challenged by other organisations in terms of size and incomes policy ambitions (NO9911162N). At the same time, the committee's approach seems to be an indication of the two organisations' unwillingness and incapacity to take responsibility for pursuing settlements that safeguard moderate wage growth, also in periods marked by high employment and favourable economic developments. As such, the committee's work may suggest that LO and NHO now want to encourage the other organisations to take more responsibility for achieving moderate wage growth.

The committee's report also attempts to balance centralisation/coordination with the need for flexibility in wage formation and wage systems and structures. It is nevertheless careful not to indicate in which areas such alterations may take place. On the other hand, the committee emphasises the need to include white-collar groups within the framework set for desired wage growth, and for developments in management salaries also to be considered. Reports asserting that white-collar workers and management have witnessed more favourable wage developments than other groups have led to a state of unease prior to and during wage settlements in recent years.

The Holden committee's 800-page report contains several analyses and recommendations which may generate debate and discussions among the social partners in Norway. The report also shows that most members of the committee have been able to raise their concerns about, and objections to, the present system, while at the same time it reflects a general consensus about the continuation of the type of wage formation that dominated Norwegian industrial relations throughout the 1990s. Some of the problems considered by the committee have been so acute that some commentators have predicted the end of centralised negotiations. Thus, the committee's report may be viewed as an attempt to modernise Norwegian incomes policy without changing the main principles of it. It is too early to assess the extent to which the new perspectives that have been formulated will be reflected in future incomes policy. Inquiries such as that of the Holden committee play an important role, mainly by creating a common understanding of the main objectives of national incomes policy. In a more day-to-day perspective, Norwegian incomes policy is marked by pragmatism and compromise, rather than formal agreements and invariable principles.

The report is to be considered by the relevant organisations. This process will indicate the degree of support for the recommendations of the committee within the social partner organisations. (Kristine Nergaard, FAFO Institute for Applied Social Science)