Pay increase not expected to boost purchasing power

Social partners in Finland have agreed to increase wages initially by a flat rate of €20 per month. A second increase a year later will bring the total increase to 0.4%. About 93% of the Finnish workforce will be covered by the agreement. The social partners have broadly welcomed the agreement, saying it will create jobs and make Finnish business competitive. However, even though income will also be boosted by a tax relief scheme, purchasing power is not expected to increase.

Moderate pay increases agreed

In August 2013, the social partners concluded a long-term national centralised labour market settlement. The Pact for Employment and Growth (23.8KB PDF) envisages that pay increases will be made in two instalments over the next two years. The first increase of €20 per month (or a corresponding increase in hourly rates according to industry custom and practice) will be paid in the first year of the agreement. The second increase, a year later, will bring the total increase to 0.4% across the board. The social partners will reconvene in the summer of 2015 to decide whether the agreement should be continued for a third year.

The dates of the pay increases set out in the pact will depend on the expiry dates of various collective agreements. The agreement contains a condition that the central agreement, reached between the national-level organisations, would only be valid only if trade unions and employers’ organisations reached agreement at sectoral level in their own collective bargaining no later than 25 October 2013. On this date, the central labour market organisations would be able to establish the level of coverage for the agreement. If a sufficient number of branches at sectoral level were in agreement, the pact would enter into force and the government’s support measures would be implemented.

Although the pay rises are very moderate, employees’ purchasing power will also be boosted by new tax relief measures promised by the government. Despite this, however, net incomes are not expected to rise in line with inflation, meaning there will be an overall deterioration of purchasing power.

The Pact for Employment and Growth also contains targets for improvements in general working conditions and some provisions about social insurance contributions in 2014–2016.

Extensive approval at sectoral level

Sectoral negotiations continued up to the deadline of the evening of 25 October. Earlier, the biggest question mark concerned negotiations in the forest and paper industry sector, with the EK-affiliated Forest Industries Federation (Metsäteollisuus) stating that it would judge whether the right conditions existed for the conclusion of a new collective agreement on the basis of the pact.

Finally, Metsäteollisuus and the Finnish Paper Workers’ Union Paperiliitto reached a deal that did not include significant changes to the earlier agreement. While the union said it was satisfied with the arrangement, employers complained that the agreement would not improve the industry’s level of international competitiveness sufficiently.

Late in the evening of Friday 25 October, following lengthy sectoral negotiations, unions and employers’ organisations finally agreed that sufficient coverage had been reached, covering about 93% of employees.

Agreement welcomed

A new round of negotiations had begun after some key politicians stated that Finland needed a comprehensive centralised agreement on moderate wage increases (FI1308011I).

After the agreement was concluded, the government announced that it would make a 1.5% inflation adjustment to income tax rates in 2014. It also cancelled the planned decrease in employees’ travel allowance.

Prime Minister Jyrki Katainen welcomed the agreement, stating that it would create jobs and boost Finland’s competitiveness. He noted that Finland’s wages would be lower than in competitor countries such as Sweden and Germany, making the country more attractive to business. He added that, although the agreement alone would not solve all of Finland’s problems, it was a remarkable step forward. It would increase trust between employers and employees and increase confidence in Finnish society.

The Confederation of Finnish Industries (EK) also welcomed the agreement, stating that it would help to restore economic growth by increasing employment, equitably boosting the purchasing power and earnings of all employees, and enhancing the prospects of businesses in global competition.

The President of the Central Organisation of Finnish Trade Unions (SAK), Lauri Lyly, expressed his thanks to the trade unions for their work. He said:

It was vital to approve this agreement under current conditions, where the primary goal is to create more jobs in Finland. A comprehensive agreement will help to improve the situation of jobseekers and enable new government measures, such as a tax reform, to boost individual purchasing power. The incomes policy settlement also establishes a firm foundation for pension negotiations.

The President of the Finnish Confederation of Professionals (STTK), Mikko Mäenpää, said he considered the three-year national agreement essential for maintaining industrial peace, and that it reflected the authority of the Finnish trade union movement. It is estimated that the moderate pay increases will help to create between 40,000 and 50,000 new jobs in the first two years of the pact, and that Finland’s purchasing power will increase by 1.1%.

Commentary

The initial goal set by the social partners was that the centralised agreement should cover at least 90% of the Finnish workforce, and this was achieved.

Reactions from individual trade unions and employer organisations have been mainly positive, which means that the agreement could have wide support at the sectoral level.

Although the agreement appeared to be concluded relatively easily within one day, in reality trade union and employer representatives had been meeting regularly over several months, and several working groups had been preparing approval of the centralised agreement at sectoral level. Even so, the pact demonstrates that the era of centralised agreements is not over.

In reality, the pay increase is very moderate, employees’ purchasing power will weaken and the development of real pay is poor. The pay increase of €20 a month next year will be cancelled out by municipal tax hikes, increases in pension contributions and inflation.

However, there will be an increase in new jobs and the agreement will surely boost trust and cooperation between trade unions and employer organisations, and help further negotiations between social partners on some controversial issues such as raising the retirement age.

Pertti Jokivuori, University of Jyväskylä

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Lisa kommentaar