Committee to look into wage formation process

In December 2012, the Norwegian Government appointed a public committee to review wage formation in Norway. Representatives from the major employee and employer groups came together on the committee, which was set up to look at number of complex issues. It has a mandate to investigate, among other things, how the model of wage formation may support initiatives that lead to low unemployment and high employment at a time when Norway is facing declining petroleum revenues.

Background

In December 2012, the Norwegian Government set up a public committee to review wage formation in Norwegian working life. The tripartite committee was chaired by Professor of Economics at the University of Oslo, Steinar Holden. All the major employer and employee organisations were represented on the committee by their economics experts. The committee said in a press release (in Norwegian) it planned to have its recommendations ready by December 15, 2013, well in advance of the wage settlements of spring 2014.

The committee will review the challenges facing the Norwegian economy and Norwegian wage formation in the long term. Norway is a small and open economy, and, as such, is highly dependent on Norwegian companies being able to measure up to international competition. The significant revenues from the export of oil and gas will eventually subside, and other export industries will have to take over in order to balance the decline in revenues from the petroleum sector.

Framework for wage-setting

The mandate given to the committee assumes that the so-called trend-setting industries mechanism will be maintained. This mechanism, or model, takes as its point of departure that the industries most exposed to international competition carry out negotiations first. The bargaining results in these industries provide the framework for wage-setting in the rest of the economy. In this way the mechanism looks to stop workers moving from sectors exposed to international competition into the more shielded domestic sectors, by preventing higher wage growth in sectors where costs can be transferred to domestic customers and consumers.

The committee will review practices and knowledge acquired through the wage formation process over the past few years, while at the same time considering and discussing more contemporary challenges and inherent tensions within the present bargaining system.

It includes, among other things, how Norwegian wage formation is affected by the following macroeconomic challenges:

  • the average wage growth rate has, over several years, been far higher in Norway than among the country’s main trading partners, making Norwegian companies vulnerable to foreign competition;
  • the petroleum industry is able to pay well and this has contributed to increased wages within the sector as well as elsewhere in the economy;
  • the European Union (EU) enlargement in 2004 has given Norway significantly greater access to labour from abroad;
  • productivity growth has fallen in recent years, affecting the scope for growth in real wages.

Commentary

This is not the first time joint social partner committees of this type have been set up to consider the Norwegian model of wage formation (NO9903120F, NO0007198F, NO0104129F). The goal is often to re-establish consensus on key principles of wage formation, while at the same time to point to the direction of possible adjustments to the bargaining model.

However, the present committee is expected to address some internal tensions that exist within the existing bargaining system – in particular between the private and public sectors. The 2012 wage settlement resulted in large-scale strike action being taken in the public sector. It was largely triggered by disagreement over the economic framework established in the trend-setting trades, for instance in the metal industry (NO1301059I).

The trend-setting result from the metal industry is given only as an estimate, since large parts of the wage growth awarded in the private sector comes from local negotiations for blue-collar workers and individual wage increases for white-collar workers. If the estimate for this wage slide is too low it means that workers in the public sector will lose out in terms of pay compared with private sector workers.

At the same time private sector employers are worried that bargaining in the public sector – based on the strategy of not lagging behind other sectors – will trigger wage rises and cost spirals that hit competitiveness.

Another issue that will be discussed by the new committee is how the bargaining system is to incorporate the two contrasting sides of the metal industry in the agreement. In practice the metal industry is used to establish the lower floor as well as the upper ceiling for pay levels in other parts of the economy.

These days the agreement encompasses both oil-related industries that are flourishing and where there is a labour shortage, and industries that are struggling because of low international demand. If the oil-related industries are allowed to have a strong direct and indirect influence on Norwegian wage setting, the more traditional parts of the manufacturing sector will struggle to cope with international competition.

Kristine Nergaard, Fafo

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