Second incomes policy agreement for employment is signed

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In December 1997, the Finnish social partners signed an incomes policy agreement for the period from January 1998 to January 2000. The agreement - which is probably one of the most comprehensive in Finnish history, covering over 98% of wage-earners - provides for pay increases which will raise average labour costs by about 2.6% in 1998 and 1.7% in 1999.

A new incomes policy agreement for the period from 1 January 1998 to 15 January 2000 was signed by the central trade union and employer confederations on 12 December in Helsinki, following a so-called "union round", in which each of the confederations' member organisations had a chance to decide whether to join the deal or not. Nearly all the organisations approved the outcome of the confederations' negotiations. It has been estimated that over 98% of Finland's wage-earners are covered by the new agreement, and on these grounds it can be said that the agreement is probably the most comprehensive in Finnish history. In the same way as the previous agreement, which ran from 1995 to 1997, the new settlement is being called the "second incomes policy agreement for employment", due to its emphasis on creating new jobs.

Almost all the unions in the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) signed the agreement, with only the representatives of a few hundred employees of private security firms not doing so. The Confederation of Finnish Salaried Employees (Toimihenkilökeskusjärjestö, STTK) comes entirely within the agreement, except for part of the Ships Officers' Union (Suomen Laivanpäällystöliitto, SLPL) and the Firefighters' Union (Suomen Palomiesliitto, SPAL). A few member unions of the Confederation of Unions for Academic Professionals in Finland (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA) did not sign the agreement - the Finnish Medical Association (Suomen Lääkäriliitto, SLL) (FI9712144N), the Finnish Dental Association (Suomen Hammaslääkäriliitto, SHL) and the Finnish Veterinary Association (Suomen Eläinlääkäriliitto, SELL). Furthermore, 900 state lawyers belonging to the Association of Finnish Lawyers (Suomen Lakimiesliitto, SLML) are trying to get a better agreement at union level.

It was suspected that the union round would be problematic, but in retrospect it can be said that it went quite smoothly. The biggest concern beforehand was the paper sector: throughout the whole negotiating process, the Paperworkers' Union (Paperiliitto) had threatened to overturn the agreement owing to its sectoral problems ( fi9707124n fi9708126n). However, after a local agreement concerning its earlier dispute at the Nokia papermill (FI9709132F), the union was ready to approve the central negotiating result and the new agreement could be declared ratified (FI9712143N).

Quality issues will be studied further in working groups

The main focus of the new incomes policy agreement is on wages, although the employee organisations stressed "quality issues" at the beginning of the talks (FI9710132F). In the latter respect, the results were very meagre, and the most difficult quality issues (working hours and outsourcing) have been referred to be handled in working groups. The agreement achieved is, for the most part similar to the present one, and pay increases will be a mixture of percentage and flat-rate adjustments. Those who earn under FIM 8,870 per month will receive an increase of FIM 0.85 per hour or FIM 142 per month from the beginning of 1998, and again in 1999. Those who earn more will receive an increase of 1.6%.

A new scheme combining a part-time pension and part-time work will be tried out from the beginning of July 1998 until the end of 2000. The age threshold for participants will be lowered by two years to 56 years, while from April 1999 unemployed people can also combine part-time work with a part-time pension if they have been in full-time work for a total of 12 months during the 18-month period preceding the start of the part-time work. The current "job alternation" sabbatical leave scheme (FI9709131N) will be continued until the end of 2000, and the compensation for those taking such leave will be raised to 70% of earnings-related unemployment benefit.

The biggest outstanding difficulties regarding the rules for the use of outside labour and on the status of shop stewards will be considered in a programme for the "improvement of working life". During the period of the incomes policy agreement, a research study will be carried out concerning local agreements and the tasks and status of shop stewards, especially in business transfer situations. No cuts in working hours were agreed on, and changes in working hours worldwide and in the EU will be examined and discussed by a working group.

Agreement welcomed

The deadline for a solution at confederation level was postponed repeatedly due to AKAVA's attempts to meet its aims of obtaining pay increases for higher-level staff and averting the threat of lay-offs (especially among teachers) in the municipalities. Professional and managerial staff often have individual contracts and are paid by results, although their basic pay is regulated by the agreement. AKAVA claimed that these employees do not always receive a pay increase - a point which is difficult to prove. On these issues, the Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT) accepted a collectively agreed document which should also provide wage increases for those not covered by the incomes policy agreement. The Employers' Confederation of Service Industries (Palvelutyönantajat, PT) consented only to a recommendation on a pay rise for the employees concerned and the establishment of a statistics group to examine the development of their wages. Furthermore, the Minister of Education, Olli-Pekka Heinonen, has promised that the Ministry and county governments will put under surveillance those municipalities that lay off employees, and will impose sanctions on those where, for instance, educational standards are weakened. The chair of AKAVA, Mikko Viitasalo, has stated that the confederation's goal in terms of net percentage increases in wages for its members was not achieved. Another central goal, to obtain special increments for low-paid women, was not attained.

STTK considers that its demands were achieved. The organisation for salaried employees was also satisfied with several measures to ease the burden of work - the lowering of the age limit for a part-time pension was lowered, and the increase in the level of compensation during job alternation leave to 70% of earnings-related unemployment benefit.

The chair of SAK, Lauri Ihalainen, characterised the result as a "safe alternative compared with other alternatives for the Finnish wage-earners". According to Mr Ihalainen, purchasing power should increase by 1.5% in 1998 and by 2% during 1999. The board of SAK gave the result its unanimous formal acceptance (Helsingin Sanomat newspaper of 28 November 1997).

The managing director of TT, Johannes Koroma is satisfied with the result. Mr Koroma has stated that the agreement is positive as regards stabilisation of the economy. However, according to Mr Koroma, the cuts in income tax are not seen as being directed sufficiently towards those groups that bear key responsibility and should therefore be encouraged through incentives.

The managing director of PT, Jarmo Pellikka, is satisfied with the agreement. In his view, the most important aspect was the fact that restrictions concerning the flexible use of different forms of labour were put aside (quoted in the Palvelutyönantaja periodical, issue 9/97).

Main points of the deal


  • From 1 January 1998, there is a general pay increase of FIM 0.85 per hour, or FIM 142 per month, for those earning under FIM 8,870 per month. Those earning more receive a percentage increase of at least 1.6%. There will be a special increase of 0.5 % to be distributed within sectors to workplaces where the work is especially demanding, and an increase targeted at women and low-paid workers, averaging 0.4% with a maximum of 0.8%.
  • From 1 January 1999, there will again be a general pay increase of FIM 0.85 per hour, or FIM 142 per month, for those earning under FIM 8,870 per month, with an increase of at least 1.6% for those earning more.
  • If the rate of inflation between December 1997 and October 1998 stands at more than 3%, this will be compensated for by a pay increase from the beginning of 1999.
  • In April-May 1999, the social partners will conduct a study on the pay increase.

Working hours

  • The minimum age limit for receipt of a part-time pension will be lowered from 58 years to 56 years from 1 July 1998, as an experiment until the end of 2000. Furthermore, unemployed people - if they have at least 12 months of full- time work during the last 18 months - are entitled to combine a part-time job and a part-time pension.
  • Compensation for job alternation sabbatical leave is increased to 70% of the earnings-related unemployment benefit.
  • A working group will study schemes whereby holiday entitlement can be saved.
  • A working group will monitor developments in the field of working hours throughout the world.

Government's tax and social security offer

As part of the negotiating process, the government offered to make the following tax and social security decisions if the social partners accepted the negotiation result.


  • The employees' health insurance contribution will be lowered from 1.9% of pay to 1.5%, and from 2.35% to 1.95% on annual income over FIM 80,000.
  • The health insurance contribution for retired people will drop from 4.9% to 4.2%, and from 5.35% to 4.65% on annual income over FIM 80,000.
  • An inflation adjustment of 2% will be made to income tax bands.


  • The extra health insurance contribution of 0.45 percentage points on annual income that exceeds FIM 80,000 will be removed for retired people and wage-earners.
  • The general health insurance contribution for retired persons will be lowered from 4.2% to 3.9% (on top of the removal of the additional contribution on annual income over FIM 80,000).
  • Income tax rates will be lowered by 0.5%, except for the highest marginal rate of 38%.
  • An inflation adjustment of 2% will be made to income tax bands.
  • The maximum amount of earned income which is exempt from municipal taxation will be increased from FIM 5,500 to FIM 8,600 per year.
  • The maximum tax-deductible amount (eg for work materials or travel expenses) for purposes of income tax on earned incomes will increase from FIM 1,800 to FIM 2,100.


The new incomes policy agreement can be considered as moderate - purchasing power will increase by between 1.5% and 2.0% - and it guarantees low inflation due to its comprehensive nature. It is significant that the "quality issues" have been ignored; this will definitely be difficult for the employees to accept. At the same time, the employers have had to give up their principled resistance against centralised agreements. It is most likely that unresolved quality issues will continue to create tension in the labour market during the agreement's period of validity. As we have experienced in autumn 1997, the agreement as such does not guarantee industrial peace. As for the Government, it has reached its targets entirely and its involvement in the EU Economic and Monetary Union (EMU) project will proceed as planned. The tension between the social partners can be diminished if the Government's EMU policy turns out to be a success and all parties to the agreement can benefit from the moderate wage increase in the long run. (Juha Hietanen, Ministry of Labour)

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