The Federation of Finnish Enterprises (SY), which represents small and medium-sized enterprises, recently published a discussion paper on improving labour market competitiveness in Finland. Suggestions include reform of the labour market, including a proposal to give up the principle of general applicability of collective agreements – a core part of the Finnish collective bargaining system.
The Federation of Finnish Enterprises (SY) is not a negotiating party in collective bargaining. However, as the business federation with the largest number of member companies in Finland, it is a significant representative association promoting entrepreneurs’ interests through public awareness raising and lobbying. The federation represents 116,000 enterprises of all sizes and in all fields of business.
In a discussion paper, Työmarkkinat toimiviksi, työnteko kannattavaksi, työllistäminen helpoksi [Making the labour market more functional: pay and employment made easy], SY points at weak Finnish competitiveness, compares the Finnish labour market regulation and collective bargaining system with other European countries and suggests possible ways of development.
Rigid labour market regulations holding back competitiveness?
SY argues that the country’s weak competitiveness is largely a result of rigid labour market legislation and equally rigid collective agreements. The Finnish system is characterised by a principle of general applicability, which has been in force since the 1970s. Employers that are not involved in collective bargaining or signatories to a collective agreement must instead comply with the national collective agreement considered representative in their sector. The aim is to guarantee minimum conditions.
In 2001, the so-called confirmation procedure for universally binding collective agreements came into force. A special commission under the Ministry of Social Affairs and Health confirms the general applicability of the agreements. A sector-level agreement is generally applicable if it can be considered representative of the field in question. The criterion of being representative is evaluated and based on statistics that measure the degree of applicability of the collective agreements, the established bargaining practices and the organising rate of employees and employers in the industry in question.
According to the website workerparticipation-eu, Finland has the highest union density and collective bargaining coverage in Europe. Around 74% of Finnish employees belong to a trade union. Among private sector employees, 73% are employed by organised companies and hence subject directly to a collective agreement. Because of the principle of general applicability, the collective agreement coverage rate in the private sector is 85%. With the inclusion of the public sector, where all employees are covered by collective agreements, the total coverage rate is around 90%.
General applicability principle under fire
The Federation of Finnish Enterprises argues in its discussion paper that the principle of general applicability is ‘downright detrimental to job creation and employment’. One of the paper’s proposals is that the principle of general applicability should be abolished. Unorganised employers would then be bound only by the minimum requirements for terms of employment laid down in legislation. SY proposes a statutory minimum wage to secure reasonable wages.
Eurostat 2013 statistics show that the majority of EU countries, 21 out of 28 Member States, have national legislation setting a minimum wage. Finland is with Austria, Cyprus, Denmark, Germany, Italy and Sweden in lacking minimum wage legislation. Instead, minimum wages are set in collective agreements.
According to the Employment Contracts Act (55/2001) any term of an employment contract that is in conflict with an equivalent term in the generally applicable collective agreement is null and void, and the equivalent provision in the generally applicable collective agreement shall be observed instead. According to SY, enterprises would be able to hire more employees if employment terms were more flexible.
Alternatively, SY suggests limiting the applicability of collective agreements. The principle of general applicability could be non-mandatory, the Federation suggests, so that employers could opt out of the terms of the agreement when necessary. For organised employers covered by the normal applicability of a collective agreement, SY would like it to be possible for them to deviate from all provisions in the collective agreement through local agreements. In other words, again employers would only be bound by legislation.
SY believes that these changes would improve employment levels and better secure the funding of Finnish welfare services in the future. The report also suggests that there is a need to minimise employment protection conditions, increase the amount of work in total and develop workplace health services to be more efficient and reduce unnecessary costs for employers.
Dismissive response from trade unions
Although presented in the form of a discussion paper, the controversial proposals from SY have not triggered a wider debate, let alone any support among the social partners.
The Central Organisation of Finnish Trade Unions (SAK) and the Finnish Confederation of Professionals (STTK) were highly dismissive of SY’s willingness to get rid of the universality principle, which, they argue, protects the interests of both employers and employees.
As a response to the discussion paper, STTK said that the removal of the universality principle would increase labour market confrontations and instability (in Finnish). This would have a negative impact on investments. Neither does STTK see a need for a statutory minimum wage. In fact, the confederation argues that the generally applicable collective agreements are more flexible in how they take into consideration industry-specific needs and differences.
SAK echoes these opinions in an online statement and suggests that SY’s comments about the harmfulness of the universality principle to competitiveness might be a barrier to SY’s participation in labour market development (in Finnish). The unions agree on the need to increase flexibility, but argue that the changes need to be carefully considered and made in a controlled and balanced way, beneficial for both employees and employers.
The Confederation of Finnish Industries (EK), which acts as the employer representative at the bargaining table, has not publicly commented on SY’s proposal. Although EK strongly advocates developments in the collective bargaining system to improve flexibility, and has expressed a desire for increased local bargaining, not least when it comes to wage setting, it has not come close to suggesting the abolition of the principle of general applicability.
In response to the credit rating agency Standard & Poor's decision to lower the Finnish credit rating, the Minister of Employment Lauri Ihalainen defended the Finnish labour market system and the principle of general applicability.
According to the Finnish news channel YLE uutiset, the minister said that diminishing foundations for export had led to poor growth and unemployment, not an inflexible labour market.
Commentary
Discussion over reforms in the collective bargaining system have been taking place on and off for the past decade. SY has consistently criticised the principle of general applicability, but as SY does not have a seat at the bargaining table, the proposals will not have any direct impact on the social dialogue.
However, the economic challenges in Finland and in Europe generally, and the rapid pace of industrial and structural change have increased the sense of urgency in making changes to existing policies.
A bipartite working group was established in connection with the 2013 central agreement ‘Pact for Employment and Growth’ and it is expected to present its proposals during winter 2014–2015. There is a fairly broad consensus that small and medium-sized enterprises (SMEs) play a key role in job creation. Although no drastic changes like those proposed by SY are to be expected, increased flexibility through local bargaining is likely to be seen.