New rules for pay determination claimed to lead to better agreements

The legal and contractual framework for pay negotiations is currently under debate in Sweden, and the industrial relations climate has changed in a way that seemed unthinkable less than a year ago. During the past year, the employers and trade unions have worked out ideas that should lead to "better" collective agreements, and these ideas have been put to an official committee. This article analyses and comments on the proposals from the various parties, and discusses the law on collective bargaining and industrial action.

On 15 April 1997 the Minister for Equal Opportunities Affairs, Labour Law and Working Hours, Ms Ulrica Messing, declared that she intends to set up an official committee to propose measures to improve the functioning of the pay determination process. She hoped that some of these measures could come into force before the start of next year's bargaining round.

Pay determination is often used synonymously with the setting of pay through collective agreements, but in the current context it represents more than this. It embraces all factors that have an impact on pay. In May 1996, the Government asked the central confederations of employers' organisations and trade unions if they were ready to initiate talks in order to find new forms for a "sound and stable" pay determination process. It also asked if they were willing to allow the so called Edin group, consisting of the labour market organisations' own economists, evaluate the outcome of the 1995 bargaining round. They all agreed, and a dead-line was set for 31 March 1997.

The Edin group introduced a new benchmark, "the European norm". It means that the average hourly cost of labour for all Swedish employees, including wage-drift and indirect labour costs, in the medium term may increase at the same rate as the labour costs in the rest of western Europe. This would lead to a "virtuous circle" in the Swedish economy: lowered rates of interest, appreciation of the Swedish crown, lower rates of inflation, smaller increases in nominal pay but at the same time increases in real pay levels. However, the group's evaluation showed that the increase in wage costs for 1995 and 1996 exceeded the European norm. The conclusion was that, with a strong restriction on inflation, it would be impossible to fulfil the ambition to halve the rate of unemployment, unless wages were kept at a "European" level. That could hardly be done unless the whole process of pay determination were changed in some way or another. The group did not, though, take any position on what actual changes were necessary.

However, the Edin group's report Out of step with employment formed a basis for the talks within and between the employers' organisations and trade unions, and at the end of March 1997 they reported their results to the Minister. All central confederations have submitted their own proposals to Ms Messing. Some of them have also reported on the progress of their negotiations with their counterparts. Trade unions and employers in industry have even managed to reach a collective agreement on cooperation and bargaining procedure.

All the organisations point out that several factors influence the outcome of a bargaining round, many of which are out of control of the labour market organisations - for example, the Government's policy on labour market issues, taxes, economy and so on. Consequently they expect the Government and the Bank of Sweden to play their part in the process. The one factor that employers and unions themselves can control is the bargaining procedure. The central idea of most of the proposals is to promote effective and peaceful negotiations by giving the mediators (or an impartial chair) a more important role than at present.

The rules on mediation have been considered by three official committees since the beginning of the 1980s, without any result. Now even the trade unions appear ready to contemplate solutions which they previously rejected as being inoperative at best, and counterproductive at worse. The awareness that the Government is firmly resolved to keep inflation down has obviously paved the way for changes.

The present system

Before outlining the different solutions discussed, it is important briefly to describe the present rules on bargaining, mediation and industrial action.

In Sweden wages are exclusively a contractual matter. There is not, unlike in many other European countries, any legislation on a minimum wage, and there are no legal mechanisms for extending the binding force of a collective agreement to employers which do not belong to the contracting organisation or adopt the agreement voluntarily.

There are also few legal restrictions on the bargaining parties. It is true that they negotiate under a peace obligation until the old collective agreement has expired, but apart from that the only requirement is that they give seven days' notice if they wish to take industrial action. The trade unions and employers' organisations for the private sector are entirely responsible for the scale and the means of industrial action. The rules for employees in the public sector are very similar. Thus there is no legislation about strikes in essential services, and even Government officials have the right to strike for better pay.

Mediation is voluntary, and the official conciliators have little power to intervene. They may ask the parties to postpone industrial action, but the bargaining parties can refuse. Neither can the conciliators impose any compulsory arbitration award upon them. Successive governments have also refrained from ad hoc interventions in labour market conflict, apart from one exception in 1971, when a collective agreement for teachers in upper secondary schools was prolonged.

These are the legal rules. In addition, trade unions and employers' organisations may define their own limits in procedural agreements, and in fact have done so, particularly in the public sector.

Restrictions on the right to strike?

In its letter to Minister Messing, the Swedish Employers' Association (Svenska Arbetsgivareföreningen, SAF), now claims that one of the major obstacles to an acceptable outcome of pay negotiations are the basic rules on industrial action. SAF claims that companies are now too vulnerable to industrial action by the unions and that the strike weapon is too powerful. The unions can cause far-reaching damage at a very low cost to themselves. The employer's only counter-measure would be to lock out the workers, but that would harm the company more than the trade union, SAF argues. SAF therefore requests that the right to strike should be restricted in two ways: actions which are out of proportion to their aim and the damage they cause should be banned by law; and the same should apply to sympathy strikes.

The employers in the public sector advocate a more moderate policy for avoiding strikes. They confine themselves to proposing that the role of the official conciliators should be strengthened. The Swedish Association of Local Authorities (Kommunförbundet) and the Federation of County Councils (Landstingsförbundet) suggest that the negotiating parties should be obliged to enter into mediation talks. The term of notice required before any industrial action could commence should be extended to 14 days, and the conciliator should have the authority to postpone such industrial action.

Pay policy: trade union views

The trade unions are also ready to accept a more important role for the conciliators. The biggest confederation, Landsorganisationen (LO), with 2.3 million members, has put forward a detailed proposal for future pay determination, presented in a report called A way of solidarity.

For many years, LO has advocated a return to the centrally coordinated negotiations of the 1960s and 1970s between LO and SAF. These resulted in agreements on pay for the whole private sector. Through negotiations at sectoral level, these settlements were then translated into more detailed national agreements for each sector. In most sectors a third bargaining round took place at company level. But in the middle of the 1980s, SAF withdrew from the coordinated negotiations, and since then the unions and employers' organisations for each sector have bargained separately.

Now LO has formally stated that the prerequisites for centrally coordinated negotiations are no longer possible. Future bargaining on pay should take place at sectoral level. Nevertheless, pay determination that will neither increase inflation nor put employment at risk requires some form of national coordination, concludes LO.

To that end, LO suggests that a new official mediation institute is set up, with the resources and competence to follow and analyse wage costs, agreements and bargaining practices in the European labour market. Before the commencement of a bargaining round, a committee linked to the institute should draw up a report on economic conditions, especially the scope for increases in wage costs. Another task would be to evaluate the cost of certain agreements.

In order to attain the necessary coordination and comparability, all new national agreements on wages and general terms of employment must expire on the same date. LO also believes that there is a need to produce detailed national statistics on pay levels.

The methods that LO suggests for reconciling the conflicting interests of the parties are inspired by the system which applies in Denmark, although they are not a direct copy of it. In good time before a bargaining round, the conciliator should draw up a time schedule for the negotiations. He or she should monitor the negotiations and confer with the parties on any need for mediation. The bargaining parties would still have the right to refuse, but if they did not reach a new agreement to operate when the old one was about to expire, the conciliator would have two alternatives. If the prospects for a settlement were reasonable the conciliator could set a deadline by which time the negotiations should be concluded. In this case the negotiations could proceed and the parties would be free to resort to industrial action. The other alternative would be for the conciliator to decide to "link" the sector involved to another and produce a proposal for a settlement to the bargaining parties concerned. "Linking" means that the unions (or employers' organisations) from two or more sectors must decide jointly whether they should accept or reject the conciliator's proposals. By linking small trade unions which are unwilling to compromise to bigger ones that are more willing to settle, the conciliator could achieve the result he or she wanted.

One of the advantages with this system is, from LO's point of view, that it would apply to salaried employees as well as to blue-collar workers. LO emphasised that a prerequisite for a stable policy of pay determination is that increases for high-salary earners should keep pace with the general trend. Therefore the trend in pay for high-salary earners should be reported separately in the statistics. LO also suggests that the Government should consider means whereby pay for highly-paid employees should be kept in line with that of other workers, possibly by some form of taxation.

The two confederations for salaried employees, Tjänstemännens Centralorganisation (TCO) and Sveriges Akademikers Centralorganisation (SACO), which together represent 1.7 million employees, disagree with the LO's proposals in almost every detail. They are generally supportive of taking part in further discussions regarding the national economic basis for pay determination, but emphasise that any proposal should be quite separate from the government. With obvious reference to LO's project, they condemn "imposed forms of cooperation" and state that the adoption of a Danish-style system as unacceptable. In other words they are against pay norms and national coordination of bargaining. They admit that there may be a need for revising the mediation procedures, but are strongly opposed to any legal restriction on the right to strike and allowing conciliators any powers of compulsion. Any limitation to the parties' freedom of action should be voluntary.

Sectoral coordination

On the face of it, the agreement on bargaining procedure recently concluded by 12 employers' organisations and eight trade unions in different industrial sectors in many ways resembles the solutions that LO have proposed (SE9703110N). They have agreed on a time schedule for the bargaining round in order to have new agreements ready when the old ones run out, they have invited an outside person to chair the negotiations, and they have established a committee of independent economists to advise them. Another committee consisting of representatives of the 20 contracting organisations will supervise wage negotiations and the observance of the procedural agreement, which admittedly implies some coordination of the agreements for the different industrial sectors, however limited this may be.

However, one of the important differences is that the agreement does not refer to a fixed wage norm. Another difference is that the parties expect to settle their affairs without interference by any state representative, while the chair will be paid by the bargaining parties concerned. Furthermore, of course, the agreement could only guarantee some coordination between the contracting organisations, and is by no means a national form of coordination.

Commentary

The climate in Swedish industrial relations has indeed changed in less than a year. In June 1996, Minister Messing noted that the talks between the labour market organisations about changes in labour law had finally broken down. That was the end of years of fruitless effort to reach some consensus. At that time nobody would have thought that an agreement such as the procedural agreement for industry could be a reality less than a year later, or that the chair of the Commercial Employee's Union would sit side by side with the employers, inviting all to join them in a three-year "stabilisation pact" (SE9703109N). Another sign of the changed climate is the fact that the LO unions have put forward proposals whereby the official conciliators would be given certain powers that they do not have today.

So what will happen now?

LO claims to have found a global solution, which would solve the problem at a national level. But its weak point is that, seen as a whole, it contains elements that are highly controversial - even to some of LO's own members - and hard to realise from a political point of view: for example, the possibility of linking of agreements for different sectors and groups of employees, and the demand for a "penalty tax" for high-salary earners.

The appeal by the leaders in commerce for a three-year stabilisation pact was not meant as a solution to long-term problems of pay determination, and, anyway, it seems to have fallen on deaf ears.

Instead it may well happen that the procedural agreement for the industry turns out to be trendsetting, and the solution that the Government has looked for. Minister Messing has already declared that she will do nothing that could disturb the working of the agreement. It is also likely that she will not suggest any legal restrictions on the right to strike. In addition, the Government generally favours contractual solutions of industrial relations matters. Experience shows that the parties take on a greater responsibility for rules that they themselves have agreed on. (Kerstin Ahlberg, Arbetslivsinsitutet)

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