New incomes policy agreement signed

A new central incomes policy agreement was signed by the Finnish social partners in December 2004. The deal lasts two and a half years (the longest duration yet for such agreements) and increases wages by 2.5% in 2005 and by 2.1% in 2006. The structure of pay policy has been somewhat altered to allow for more income differentiation, as demanded by employers. Meanwhile, trade unions achieved their central goal of increasing redundancy protection for workers. Some major sectors remain outside the agreement, whose coverage stood at about 90% of employees by January 2005.

Following difficult negotiations (FI0411201N and FI0412201N), a new national incomes policy agreement was concluded by the Finnish central social partner organisations at the end of November 2004. The deal was then to be implemented through sector-level bargaining, and by mid-December new collective agreements had been reached in the overwhelming majority of cases; the coverage of the incomes policy agreement stood at just under 90% of employees. The successful sectoral negotiations allowed the central social partners to finalise the process by signing the national agreement on 16 December, although the central employers' organisation, Finnish Industries (Elinkeinoelämän keskusliitto, EK), had at first refused to do so because it deemed the coverage of the agreement inadequate.

Further collective agreements have been reached in some sectors after the signing of the central incomes policy agreement but coverage continued to be about 90% in mid-January 2005. At that time, the following major collective agreements, which expire in February 2005, had still not been concluded (the number of workers affected in brackets):

  • waged construction workers (various agreements) (83,000);
  • higher-level salaried employees in metalworking and electrical industries (one agreement) (57,000);
  • salaried employees in information technology, road transportation, forwarding and temporary work agencies (four agreements) (35,000); and
  • paper industry workers (two agreements: salaried and waged) (30,500).

The incomes policy agreement will be valid for a record-length two years and seven months (16 February 2005 to 30 September 2007). At the end of its term, Finland will have had seven uninterrupted years of national incomes policy agreements, which is longer than ever before.

The wage deal

The wage increases included in the incomes policy agreement for 2005-7 are outlined in the table below. The pay rises, 2.5% in 2005 and 2.1% in 2006, are somewhat lower than in the 2003-4 agreement (FI0211102F) but substantially higher than the target of the EK central employers’ organisation, which was under 1%. The structure of pay increases is a compromise between the aims of the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) and the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK) on the one hand and EK and the Confederation of Unions for Academic Professionals in Finland (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA) on the other. In both 2005 and 2006 there are elements of the traditionally implemented 'solidaristic' pay policy (FI0408202F), which was firmly advocated by SAK and STTK, although these elements are not as strongly present as in the 2003-4 deal. Pay policy continues to be 'solidaristic' in that: first, a general pay rise will constitute a major part of wage increases; second, in 2005 the general pay increase will be higher (as a percentage share) for low-wage earners than for others; and third, in 2006 there will be an 'equality increment' of 0.3% whose distribution is calculated so that both low-wage and female-dominated sectors gain advantage. The position of EK and AKAVA was that income differentiation should be increased by scrapping equality increments and by granting only percentage wage increases. They accomplished the former for 2005 and the latter for 2006.

Wage provisions of the 2005-7 central incomes policy agreement
. 1 March 2005 1 June 2006
General increase: . 1.4%
- hourly (EUR) 0.18 -
- monthly (EUR) 30.06 -
- minimum (%) 1.9 -
Union increment (%) 0.6 0.4
Equality increment (%) - 0.3
Overall cost impact (%) 2.5 2.1

The wage deal also includes a 'union increment' whose use is to be determined through sectoral bargaining. In doing so, the social partners may decide that its distribution is to be determined at the workplace level. The central social partners did not, however, delegate any authority over wage determination directly to the workplace level, as was hoped by EK. The incomes policy agreement does, nevertheless, include a mandate for the sectoral social partners to develop ways in which workplace-level bargaining can be increased. The issues that are to be negotiated sectorally include wage determination, working time arrangements and rules over the use of subcontracting.

Government promises tax cuts

The government had been active in advocating a long-term central agreement and had offered to reduce income taxes if a settlement with moderate wage rises was reached (FI0410201N). As part of the incomes policy agreement, the government has decided that tax cuts worth EUR 1.7 billion will be implemented in 2005-7. EUR 1.3 billion of these will be in the form of income tax reductions. The government has also committed itself to increasing its investments on transportation projects, education and innovation activity, and to improving the financial situation of local governments.

Qualitative measures

SAK and STTK had defined in cooperation their three central 'qualitative' goals for this round of incomes policy negotiations. The first of these was to increase the protection of workers made redundant on economic or productive grounds (FI0209102F). Their objectives in this regard were largely achieved. Workers' rights to individual 'employability programmes' drawn up by state employment offices will be extended. While taking part in these programmes, five to 20 days of paid leave can be used for finding new work. After having been made redundant, increased financial aid is to be granted in the form of a 'training support' for a maximum of 185 days. This will be financed collectively by employers by raising their unemployment insurance contributions, not individually by the employer making the redundancies, as was hoped by SAK and STTK. For a worker who earned EUR 2,000 a month, the increase in financial support will amount to EUR 300. This together with unemployment benefits will add up to a monthly payment of EUR 1,400. To qualify for the above benefits, a three-year work history is required. Part-time workers also qualify if they have worked for the same employer for three years.

The second main objective of SAK and STTK was to improve the position of workplace trade union representatives. This was partially achieved. The relationship between the two types of workplace-level union positions in Finland - safety representatives and chief union representatives - will, within sectors, be made equal in terms of training opportunities, financial compensation and their use of time. As a result, the position of safety representatives will improve considerably. Furthermore, all union representatives in the country are to receive financial compensation for their efforts, which has not been the case so far especially in smaller firms. Union representatives’ rights of information and training opportunities will also be extended.

The third common goal of SAK and STTK in the negotiations was to increase 'contractor responsibility'. This was to entail making the purchaser of subcontracting services accountable for compliance with collective agreements and legislation. No binding agreements were reached in this regard but it was agreed that a tripartite working group should develop ways to address the issue. SAK and STTK had also argued that in order to achieve 'contractor responsibility' unions should be granted the right to bring court cases independently of their members. This was not accomplished.

The incomes policy agreement also includes measures to increase gender equality. It was agreed, for example, that equal pay programmes and job evaluation schemes are to be used more extensively. Educational issues were also addressed and the social partners have made various recommendations for the government in this regard. These include the promotion of adult education, vocational training and the wider use of apprenticeship contracts.

All parties largely satisfied with the result

The central social partner organisations all agreed that the record-length central agreement will bring with it much needed stability. EK, nevertheless, expressed its fears that there could be instability in some of the sectors that remain outside the deal. Contrary to the three trade union confederations, EK was also not satisfied with the agreed level of pay increases. According to its estimates, labour costs will rise by 3.5% in Finland in 2005 while in competitor nations the rise will on average be 1 percentage point less. In 2006, it estimates that Finnish labour costs will rise by less than 2.5%. The wage deal was, however, also commended by EK because of the largely percentage nature of the wage increases. AKAVA also shared this view and expressed its hope that the agreement will be a turning point away from overt solidarity in Finnish incomes policy and in society at large. SAK and STTK, on the contrary, were of the view that they had successfully defended the solidaristic elements of pay policy.

None of the four central organisations expressed any misgivings over the agreed qualitative measures. SAK was especially satisfied with the advances made in terms of redundancy protection while EK was pleased that this was done without punishing employers individually. AKAVA and EK welcomed the mandate given to sector-level social partners to develop workplace - bargaining.


Finnish industrial relations have undergone a demanding test in this round of incomes policy negotiations. The employers’ new central organisation, EK (FI0403201N), had adopted a particularly uncompromising position and strongly challenged trade unions on various sensitive issues in the course of 2004. When it announced in October that incomes policy negotiations could not even be started because unions were not ready for sufficient changes, many commentators not only abandoned the possibility of a new centralised agreement but also pronounced that the era of consensual industrial relations in Finland had come to an end. In these circumstances, it was remarkable how easily the new central agreement was finally reached. EK was ready, after all, for strong compromises, probably because of the positive economic effect on companies of a long-term labour market peace obligation. In the first months of 2005 it will be seen if EK has achieved this; the incomes policy agreement did not end up being particularly wide in coverage and it is possible that industrial action in uncovered sectors will paralyse parts of the economy.

The difficult process leading up to the negotiations considerably strained the relations between EK and the union confederations. Moreover, AKAVA’s alignment with EK on various issues in the negotiations, especially on the structure of pay increases, has created tensions between the central union organisations. It remains to be seen how tarnished mutual trust between the social partners has become and how much willingness there still exists to continue working in cooperation. (Aleksi Kuusisto, Labour Institute for Economic Research)

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment