Social partners reluctantly approve further cooperation on incomes policy

In summer 2000, a public committee issued its report on a "strategy for employment and value creation" in Norway. By the end of the year, the social partners had given their responses to the committee's recommendations on wage formation and incomes policy. The main impression is that there is a consensus, albeit rather reluctant, about continuing cooperation on incomes policy.

In autumn 2000, the social partners expressed their opinions on the report, issued in June, of a public committee that had considered a "strategy for employment and value creation" in Norway (NOU 2000:21). The report was expected to form the basis for a continuation of the "solidarity alternative" - the cooperative venture on incomes policy that characterised most wage settlements in the 1990s.

The so-called "Holden committee" deliberated a wide range of problematic issues in relation to the Norwegian economy (NO0007198F). The main focus of attention has been on the committee's recommendations concerning wage formation and incomes policy. The committee proposes the establishment of a model for wage formation that has as its main concern keeping the national wage growth at the level of Norway's main trading partners. This is to be accomplished by letting the so-called "trend-setting sectors" - ie those sectors or branches that lead the way in wage formation - set the overall framework for wage growth, and making this framework applicable to the rest of the economy through central coordination of wage negotiations. In reality, this would mean a continuation of the type of incomes policy pursued in Norway over the past 10-12 years (NO9903120F), but with stronger central coordination and extended representation for all the main trade union confederations. The committee also considered the more problematic aspects of the present model of wage formation, including that in the public sector. The committee also drew attention to the problems connected with the practice of having major social reforms negotiated between the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO) and the Confederation of Norwegian Business and Industry (Næringslivets Hovedorganisasjon, NHO), and then later transferred to the rest of the labour market.

Employers' responses

Employers' organisations are generally supportive of a model that involves stronger coordination of wage formation with the aim of maintaining a wage growth rate at the level of Norway's main trading partners. As such there are no indications to suggest that they want to abandon the tradition of incomes policy-making based on coordination at the central level. However, the organisations raise a variety of concerns and issues with regard to such a model, including how the term "trend-setting sectors" is to be understood. There is a general consensus about the need to develop a model that is flexible with regard to the distribution of overall wage increases in the various branches.

The largest employers' confederation in the private sector, NHO, argues strongly in favour of improving the present model for wage formation in order to achieve a wage growth rate that safeguards both employment in, and the competitiveness of, Norwegian industry. Neither the present model for coordinated central negotiations nor industry-level negotiations allow, according to the NHO, for an adequate system of wage formation. The argument is grounded in the fact that on several occasions in recent years the wage growth rate has been much higher than agreed to in advance (NO9902116F). NHO recognises that the alternative to stronger central coordination - wage formation taking place at the company level - is not a realistic prospect as yet. NHO, therefore, believes that Norway is faced with a choice between two alternatives: "to continue improving the functioning of the labour market and the economy and to improve the cooperative venture on incomes policy, or accept that unemployment will eventually rise and/or that the decrease in industrial employment vulnerable to international competition continues" (EIRO translation).

NHO is worried, however, about the future in light of the events of summer 2000, when LO's members in the private sector rejected the bargaining result achieved in the first round of negotiations between LO and NHO (NO0005192F). In its response to the Holden committee's report, NHO is sceptical over the unions' ability to "deliver" moderate wage settlements, and suggests that one of the major obstacles to this ability is the present practice of membership ballots over bargaining results. NHO concludes that "if it becomes evident that the commitments to cooperate in accordance with the recommendations of the Holden committee are not realisable, NHO must direct efforts to have all future wage formation take place at the company level, as the only alternative by which one may hope to achieve a combination of moderation and low unemployment" (EIRO translation).

The other employers' organisations are also supportive of the main principle of moderate wage settlements through stronger coordination within a "trend-setting sectors model". Many of them seem to define "trend-setting sectors" as those parts of manufacturing industry most vulnerable to international competition. In recognising the problems inherent in the present system, in which LO/NHO negotiations have a strong bearing on the negotiations in other bargaining areas, they further emphasise that a new model must allow for greater freedom to determine the distribution of wage increases within an overall framework for total wage formation.

The employers' organisations also agree with the Holden committee's comments on the problems involved in incorporating social reforms (ie changes to non-pay employment conditions) as part of moderate wage settlements. The basic reasoning behind this scepticism is partly based on the idea that such arrangements are seen to make wage settlements too costly, and partly because the costs of such social reforms have proven difficult to determine in advance, and as such have often ended up being a lot more costly than first anticipated. There is also a general dissatisfaction among the organisations outside the LO/NHO agreement area with the fact that social reforms negotiated by NHO and LO are made applicable to the rest of the economy, without the other organisations being able to influence the formation and content of such reforms.

Trade union responses

The four main trade union confederations, as well as the largest independent union organisations, have also given their responses to the Holden committee's report. The employee side too is supportive of the committee's recommendation for stronger central coordination, as well as the general principle of keeping national wage growth rate at the level of Norway's main trading partners. The largest confederation, LO, emphasises that a moderate wage policy presupposes a commitment on behalf of all parties to the framework set for the settlement. LO further stresses that the recent growth in management salaries and the fact that some groups of employees have enjoyed higher wage increases than others, makes it difficult to foster support for and compliance with a moderate wage policy. LO, however, as well as the other union organisations, rejects the idea of leaving social reforms out of the equation during wage negotiations.

The other organisations on the employee side, like those on the employer side, emphasise their dissatisfaction with the dominant position of LO and NHO. They want to do away with the practice of LO/NHO negotiations setting the framework and having a strong bearing on the subsequent negotiations in other branches or sectors. Several union confederations also stress that current wage formation in the public sector has generated a situation in which some groups are worse off than others, especially if compared with equivalent groups in the private sector. Furthermore, several organisations also suggest that, in consideration of the recruitment needs of some parts of the labour market, greater wage growth should be allowed in (parts of) the public sector than would be allowed for by strict enforcement of the principle that the industries vulnerable to international competition are to be the leaders in pay-setting.

Akademikerne, the confederation which organises groups with higher education, departs from the other organisations in its views on the committee's recommendations, because it calls for a strong decentralisation of wage formation.

Commentary

The responses to the committee's recommendations seem to suggest that the social partners support the main principles of future cooperation on incomes policy and a stronger coordination of wage formation, in a model in which the "trend-setting sectors" establish the framework for wage negotiations with a view to safeguarding high employment and increased value creation. It is also evident that such a cooperative arrangement will involve a greater number of organisations than the traditional LO/NHO configuration. As such, it is a continuation of developments in recent years whereby more actors have been able to exert influence on incomes policy-making in Norway.

At the same time, the responses also indicate that to put such an incomes policy into concrete terms will pose a significant challenge. Most of the organisations have issues which they feel very strongly about, and which they want to see resolved. It will pose a great challenge to find models that are able to accommodate all these demands and wishes, especially in light of the fact that there are indications to suggest that future wage settlements will be relatively moderate with regard to nominal wage increases. A significant problem will be to balance wage formation in the public sector between the wish for a continued levelling of wages through giving priority to groups with low wages, as is LO's expressed policy, and at the same time attending to groups with higher education levels and to the recruitment needs of the public sector. Another problem is how the trade unions will foster support among members for moderate wage settlements in times of prosperity in the economy and low unemployment. NHO's suggestion of abandoning membership ballots will not go down well with the labour movement. The problem of fostering support for moderation will be even greater if social reforms are excluded from wage negotiations, or if they become part of the general framework for these negotiations. Finally, in relation to the development of a new incomes policy platform, a further challenge will be to balance the interests of the "traditional" social partners – and the guarantors of the cooperative venture on incomes policy – LO and NHO, and the demand for a greater say by the other social partners. (Kristine Nergaard, FAFO Institute for Applied Social Science)