EurWORK European Observatory of Working Life

Finland: Tripartite Competitiveness Pact signed

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The ‘Competitiveness Pact’, a tripartite labour market agreement, was signed in June 2016 after over a year of difficult negotiations. The Pact involves a nationally and internationally exceptional deterioration of workers’ terms and conditions. The negotiation process had disruptive repercussions on social partner organisations and seemingly brought the traditionally centralised collective bargaining system to an end.

Background

The Finnish economy has been mostly stagnating since 2008, resulting in a rapid increase in both unemployment and government debt. The parliamentary elections of April 2015 thus revolved primarily around improving the economy. The elections were won by the Centre Party, chaired by Juha Sipilä (now Prime Minister), whose proposed solution to the situation was €4 billion worth of austerity measures combined with a major tripartite labour market agreement. This so-called ‘social contract’ sought to achieve a 5% increase in the country’s competitiveness by lowering unit labour costs. According to the government programme submitted to Parliament in May 2015, further budgetary cuts and tax levies of up to €1.5 billion would be necessary if no agreement were reached.

A difficult negotiation process

The Prime Minister’s initial intention was to reach an agreement soon after the elections, but the first two attempts failed in May and June 2015 respectively. After a third try came to a dead end in mid-August 2015, the government threatened to resort to legislative measures including:

  • cutting extra allowances for overtime and unsocial hours;
  • making two bank holidays as well as any first day of sick leave unpaid;
  • reducing sickness benefits.

In response to the threat, the trade union confederations organised a countrywide mass demonstration – essentially a political strike – on 18 September 2015. Significantly, the protest was not only against the austerity measures but also against the proposals to discard the historical tripartite system, bypassing collective agreements and thereby curtailing the power of trade unions. Estimates of demonstrator numbers countrywide varied from claims of 100,000 from employer organisations to claims of 300,000 from the Central Organisation of Finnish Trade Unions (SAK). The apparent gravity of the situation was underlined by, what was for today, a highly unusual televised speech in which the Prime Minister appealed to the trade unions to find a negotiated solution. The impasse continued, however, and another round of negotiations failed in December 2015.

Negotiations opened for a fifth time in January 2016. The government’s announcement – that it would halt preparation of the controversial new laws until the outcome of the negotiations was known – lowered the tension between the social partners slightly. A preliminary agreement – now renamed the ‘Competitiveness Pact’ – between the peak-level partners was finally achieved in February–March 2016. According to the Pact’s terms and conditions, some 300 sectoral-level collective agreements were then negotiated during the spring with only a handful of trade unions opting out. At the time the pact was signed in June, an estimated 86.5% of the country’s employees were covered by collective agreements complying with it.

Social partners on both sides dissatisfied

The Pact’s main contents involve:

  • a wage freeze for 2017;
  • reduced pay for public sector employees;
  • transfer of part of the liability for social security contributions from employers to employees;
  • an extension in annual working time of 24 hours without additional compensation.

Essentially, this means that employees will work more for less compensation and thus the consequences of the Pact are carried mainly by employees. The trade unions’ trust in government is low, as the latter were throughout the negotiations regarded as driving the employers’ agenda. Although presidents of the peak-level unions declared that the Pact was better than its alternatives, they also argued that employees had done their share and that there should be no further demands on them while the employers must do their part through investment and the creation of new jobs. The government has also promised tax reductions worth €415 million and expects 40,000 new jobs to be created.

Meanwhile, employer organisations and the centre-right government partner, the National Coalition Party, are dissatisfied with local bargaining being included in collective agreements instead of being regulated by law. The National Coalition Party has declared it will continue to promote legislation on local bargaining and against universally binding collective agreements, while the peak-level Confederation of Finnish Industries (EK) seeks to promote local bargaining through an internal change of rules prohibiting the organisation from itself participating in central-level bargaining from May 2016 onwards.

Changes in industrial relations landscape 

The difficult negotiations on the Competitiveness Pact proved disruptive not only between, but also within, the social partner organisations. Among peak-level trade unions, the merger project of SAK and the Finnish Confederation of Professionals (STTK), initiated in November 2014, was abandoned in early June 2016. After the merger investigations were finalised in March, several STTK member unions and later some SAK member unions announced their withdrawals in April–May. Many STTK members are reported to have found SAK too openly leftist and were worried that SAK – the bigger union of the two – would have ended up dominating the new organisation. These problems were accentuated during the Pact negotiations.

On the employer side, the Finnish Forest Industries Federation (Metsäteollisuus) will quit EK in January 2017 on the grounds that it wants more efficient and better targeted interest promotion. While the decision appears to have little to do with the Pact, analysts have claimed that the negotiations reaffirmed EK’s internal conflicts; the industrial sector sought only lower wages to promote exports, while the service sector was concerned about the purchasing power of domestic consumers. The Forest Industries Federation was also disappointed about compromises made in the negotiations, such as the inclusion of local bargaining in the Pact and EK entering sectoral negotiations despite the Transport Workers’ Union (AKT) – a key partner for export industry – refusing to join. The Forest Industries Federation has an important symbolic significance and the generally solid and unitary image of EK has suffered from the separation. This could result in a lessening of EK’s influence, particularly in combination with its withdrawal from collective bargaining. EK thus seems to be moving away from its social partner status towards purer interest promotion.

Support for government plunges

A combination of the consequences of the Pact, the austerity measures, Finnish acceptance of the Greek bailout programme of 2015 and the asylum situation resulted in a fall in support for the government from 57% at the general election to 47% in an opinion poll in June 2016, mainly due to reduced support for the populist government partner, the Finns Party. The Prime Minister, a businessman with relatively little political experience, has attracted some criticism from analysts and opposition for his perceived tendency of attempting to rule the country as if it were a company. However, support for both the Centre Party and the National Coalition Party has remained relatively stable at around 21% and 18% respectively.

Commentary

The Competitiveness Pact is exceptional in both national and international comparisons, as it is thought there has never before been a negotiated solution that weakens employee working conditions to this extent.

Alongside the Pact, though not part of it, is a preliminary agreement between the social partners to give up central-level collective bargaining for the benefit of a Finnish wage model (based on the Swedish wage model), where export industries and other sectors sensitive to international competition would set limits on future wage rises. The historical significance of the Pact would thus increase because it would mark the last peak-level tripartite national income policy agreement (tulopoliittinen kokonaisratkaisu), which has dominated the labour market system in Finland since the 1960s.

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