New agreement concluded in local public sector

A new three-year collective agreement for Denmark's municipal/county sector was reached in February 2005. Major demands on both the employer and trade union sides were satisfied: employees will receive a general increase of 5.6% over three years; while the 'New wage' decentralised pay system will be continued, but in a revised form. The unions did not obtain job security guarantees in connection with a coming local government reform, but they did obtain a wage guarantee for the workers affected.

On 19 February 2005, a new three-year collective agreement for approximately 560,000 employees in municipalities and counties was signed by the joint trade union negotiating body, the Association of Local Government Employees’ Organisations (Kommunale Tjenestemænd og Overenskomstansatte, KTO), and the two employers' organisations, the National Association of Local Authorities in Denmark (Kommunernes Landsforening, KL) and the Danish Confederation of County Councils (Amtsrådsforeningen, ARF). KTO's demand for a general wage increase was met and over the next three years pay will rise in step with the inflation. For their part, the employers are satisfied that the decentralised wage-setting system known as 'New wage' (Ny Løn) (DK0409104F), will be continued. The municipal/county bargaining process took place in parallel with collective bargaining in the central state sector, but a result was obtained first in the municipal/county sector.

A particular factor in the municipal/county bargaining was a forthcoming local government reform, which will cut the number of administrative regions and municipalities. This reform creates major uncertainties as regards the division of tasks and responsibilities, and thus jobs (DK0412103F).

Main points of the agreement

The final rounds of municipal/county negotiations centred on three key issues:

  • the general wage increase;
  • the 'regulation mechanism' that links wage in the public sector to trends in the private sector; and
  • demands in connection with the local government reform.

Prior to the negotiations, the general opinion was that it would be possible to reach a compromise on the first two, closely interconnected issues. It was a crucial demand for KTO to obtain a general wage increase over the coming three-year period that would, in itself, be great enough to ensure that real wages would be maintained, ie an increase of the order of 5.6%. It was successful in this. Early in bargaining, KTO and the employers agreed that all employees would obtain a higher position on the wage scale. In return, general wage increases would not be awarded during the first year of the new agreement. For most of those involved, the higher position on the scale corresponds to a pay increase of 1.52%, which will take effect from 1 April 2005. There will then be a further general wage increase amounting to a total of 4.8% over the following two years. On top of this, there are the results of local wage bargaining, the wage regulation mechanism (see below) and other improvements in employment conditions, so that the total cost-increase framework of the agreement is about 9.7% over the three years.

Revised 'New wage'

Prior to the negotiations, the decentralised 'New wage' system was seen as one of the major hurdles in the bargaining process, with employers seeking a revised system that, to a higher degree than before, rewards individual employees on the basis of performance. In the final agreement, 'New wage' has - at the demand of the employers - been maintained, but in a new and more flexible version.

'New wage' has not been a success among all occupational groups and the new collective agreement decreases the role of these wage arrangements for a number of groups. Previously, 1.77% of the 'wage framework' was earmarked for local wage bargaining. Now there are two options: either 1.25% or 2.55%, with individual occupational groups deciding on how much of the overall increase framework should be negotiated at central and local levels. The rather 'New wage'-sceptical Danish Teachers’ Union (Dansk Lærerforening, DLF) has thus chosen to earmark only 1.25% for local wage negotiations. It is, however, not a matter of each union having its own wage model, but much more a matter of models agreed with larger groups of unions. This is, for instance, the case as regards the most decentralised model, which covers the administrative and technical fields. Here HK/Kommunal, the municipal section of the Union of Commercial and Clerical Employees (Handels- og Kontorfunktionærernes Forbund, HK), has managed to create a coalition of unions that covers about a quarter of the total municipal/county sector.

Wage regulation scheme

The parties agreed to change the 'wage regulation scheme', which ensures that employees in the municipal/county sector do not fall behind compared with employees in the private sector. This scheme has previously led to major problems in the budgets of the municipalities and counties due to unforeseen wage expenses. It was important to the employers to ensure that the regulation scheme would not harm municipal and county budgets, as happened in 2003 and 2004. The solution was to move the implementation date from 1 April to 1 October each year, so that any unforeseen increases will only have to be added to the budgets for a single quarter instead of three quarters as now - this gives a much higher degree of budget stability.

Local government reform

The issue of employees' rights in connection with the local government reform seemed in advance to be a knotty problem. It was quite clear that the public employers would not include agreements providing full job guarantees. Such guarantees cannot form part of collective agreements. The result of the negotiations was instead that the employees have obtained a wage guarantee in connection with the structural reform, so that they will not experience a fall in their wage if they are transferred to new work functions as a result of the implementation of the reform.

Other issues

The agreement includes a number of other improvements, mainly in the social field. These include a new maternity scheme that will ensure women full pension contributions during the entire maternity leave period and will equalise maternity expenses between female- and male-dominated parts of the sector. Furthermore, it was agreed to focus on addressing work-related stress.

Implications of the agreement

The new municipal/county sector collective agreement may turn out to have wide-reaching implications in three main areas:

  • decentralisation. With the new provisions on local wage formation, the decentralisation of the bargaining system has been maintained. The 'New wage' system has not been abolished for any group, in the sense that part of the wage is still negotiated at the local level, but there will be a bigger variation on the basis of the wishes of the individual unions. In this sense, there will be greater differentiation, with larger variations in local wage formation and major differences in the amounts earmarked for local bargaining for different groups;
  • equality. The fact that that agreement has been reached on full pension payments during the entire maternity leave period may have an important positive effect on gender equality on the labour market. In addition, the counties and municipalities have introduced a maternity pay equalisation scheme; and
  • cooperation. A number of provisions have been agreed that should ensure that the local government reform will be implemented in close cooperation between the management side and the public employees and their representatives. This applies to the involvement of cooperation bodies and committees, both prior to and after the reform comes into operation. In addition to the wage guarantee in relation to the reform, it also applies to an agreement on better protection for employee representatives.


It is worth noting in connection with the municipal/county bargaining process that the parties have reached a result although this was the first bargaining round since KTO decided to conduct negotiations in 'reverse order' compared with earlier practice, so that a number of themes (eg 'New wage') are first negotiated between the individual trade unions and the employer side. It is only afterwards that the general negotiations start between KTO and the employers' organisations. The reverse-order bargaining has actually functioned extremely effectively. The process has undoubtedly benefited from the large and very competent administrative resources that have been built up on both sides over the past decade.

By way of conclusion, it can be said that generally the new agreement: ensures stability in connection with the local government reform; maintains the decentralisation of the bargaining system; and ensures a continued development of real wages. The apparently gloomy prospects before the start of the negotiations made all the parties concentrate their efforts on overcoming the obstacles and finding common solutions. However, it is also a fact that the bargaining round did not throw new light on the problem that the workers in the municipalities are facing - they have no idea what will happen to their jobs when the structural reform is implemented. (Carsten Jørgensen, FAOS)

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