Employers propose pay freeze for 2009

The Confederation of Finnish Industries has proposed a revaluation of the agreed pay increases in 2009 due to the rapidly changing economic situation. As part of the proposal, the employer organisation has suggested that labour market organisations should consider the possibility of postponing or freezing previously agreed pay increases in 2009 to avoid layoffs and dismissals. However, the trade unions and Prime Minister Matti Vanhanen have rejected the proposal.

Employers propose revaluation of agreed pay increases

The Confederation of Finnish Industries (Elinkeinoelämän keskusliitto, EK) has proposed a revaluation of the agreed pay increases for 2009 due to the rapidly changing economic situation in Finland. The Director of Industrial Relations at EK, Eeva-Liisa Inkeroinen, has suggested that labour market organisations should consider the possibility of postponing or freezing previously agreed pay increases in 2009 to avoid layoffs and dismissal s. The sectoral collective bargaining round in 2007 provided for relatively high pay increases for all employees (FI0712049I). However, these decisions were made in a more favourable economic climate compared with the current economic outlook. In particular, the chemical, technology and metalworking, and forestry sectors have recently seen quite a radical fall in demand.

The Chemical Industry Federation of Finland (Kemianteollisuus) has announced that it will start negotiations with trade unions in accordance with the crisis clause in the collective agreement. The planned pay increase in the chemical sector agreed in 2007 and due to take effect in May 2009 is 2.5%. The Federation of Finnish Technology Industries (Teknologiateollisuus) has also expressed a willingness to negotiate openly on wage solutions planned for next spring due to the rapidly changing economic situation of its member companies.

Trade unions and Prime Minister reject proposal

The Union of Salaried Employees (Toimihenkilöunioni, TU), affiliated to the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK), warned the Chemical Industry Federation of Finland and the Federation of Finnish Technology Industries that their proposal to cancel pay increases agreed for next spring risked jeopardising domestic demand. According to the trade union, this could have a negative effect on employees’ consumer demand, and thereby have a negative impact on the economy.

The Chair of TU, Antti Rinne, stated that the situation in the chemical and technology sectors is not any different from that facing other sectors of the economy; he argued that the slightly pompous posturing by some employer groups is akin to playing with fire in the face of the grim economic situation. Mr Rinne added that for a company to pay dividends and lay off workers at the same time constituted a ‘completely unjust and immoral’ practice.

The Director of the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), Lauri Lyly, stated that wage earners are currently facing a threefold threat: ‘first, there is talk of a pay cut, and then there is the threat of layoffs and dismissals, and finally a committee is planning cuts in unemployment benefits.’ Mr Lyly also considers that proposals to abandon pay increases has a knock-on psychological effect on employees in terms of consumption levels, which is turn adds to reduced confidence in the economy.

Prime Minister Matti Vanhanen managed to generate calm in the debate over freezing agreed pay increases. According to Mr Vanhanen, more attention should be directed at the forthcoming bargaining round instead. The Prime Minister added that he is not willing to support a zero increase in future pay increases, because these kinds of agreements have a negative psychological impact on domestic consumer demand.

Economists divided over freezing pay increases

Economists have expressed their views on and understanding of the proposal to freeze pay increases. According to the Managing Director of the Pellervo Economic Research Institute (Pellervon taloudellinen tutkimuslaitos, PTT), Pasi Holm, the flexibility of freezing pay increases can help to avoid layoffs and dismissals, and thereby can have a positive effect on the economy, particularly with regard to export companies. Mr Holm argues that Finland has adopted a tough outlook, whereby there is a preference to ‘sacrifice’ some employees to unemployment rather than choose an alternative scenario where everyone has to accept a reduction in their work or pay.

However, the Head of Forecasting at the Labour Institute for Economic Research (Palkansaajien tutkimuslaitos, PT), Eero Lehto, considers that the freezing of pay increases constitutes a bad move for the entire economy. According to Mr Lehto, a country could strengthen its exports this way, but the spill-over effects of this phenomenon would increase the strain on the global export market as purchasing power would decrease everywhere.

Pertti Jokivuori, Statistics Finland