Difficult collective bargaining in light of economic crisis

The battle lines were sharply drawn when the social partners in the private sector in Denmark started a new collective bargaining round in January 2010, against the background of the economic crisis. The employers aim to secure the country’s competitiveness in the global market, while the employees seek an increase in real wages and social improvements. One possible outcome is a breakdown in negotiations followed by a general conflict across economic sectors.

Economic crisis context

The global economic crisis began to affect Denmark slightly earlier than other European countries, gathering pace in the summer of 2008. Since then, there have been job losses among unskilled labour, especially in the export business, closures of production sites and/or delocalisation to low-wage countries. Many companies had started restructuring before the financial crisis broke out in September 2008 and were left with core skilled workers who were not expendable when the economic ‘tsunami’ arrived in Denmark. A wave of work-sharing schemes became the alternative to layoffs or off-shoring (DK0903021I).

Unemployment increased rapidly, albeit from a historical low level of about 3%. According to Eurostat data, the unemployment rate in Denmark stood at 7.2% in November 2009 and continued to rise, compared with 3.8% in November 2008. The EU27 rate amounted to 9.5% in November 2009, against 7.4% in November 2008. Although Denmark’s unemployment rate was below the EU27 average, it was increasing more rapidly than the EU27 average.

Against this background, the first collective bargaining round got underway. The negotiations in the dominant private sector bargaining area began on 6 January 2010 for the renewal of the collective agreements in force, with the participation of the Danish Confederation of Trade Unions (Landsorganisationen i Danmark, LO) and the Confederation of Danish Employers (Dansk Arbejdsgiverforening, DA).

In line with the country’s bargaining tradition, the social partners in industry, the Central Organisation of Industrial Employees in Denmark (Centralorganisationen af industriansatte i Danmark, CO-industri) and the Confederation of Danish Industry (DI – Organisation for erhvervslivet, DI), opened the negotiations. The collective agreement signed between CO-industri and DI normally sets the pace for the subsequent private sector agreements under the umbrella of LO and DA, which cover about 600,000 workers. CO-industri and DI negotiate the Industry Agreement and the Industry Agreement for Salaried Employees, which together cover 240,000 employees.

Competitiveness a key issue

The last bargaining round in the private sector in 2007 took place at a time when the Danish economy was booming and promising positive results in terms of pay and other social improvements for employees (DK0703019I, DK0703029I). This year, the economic crisis determines the bargaining agenda and the likelihood of a so-called ‘maintenance agreement’ as the final result of the negotiations, securing real wages and a number of social improvements. One of the main hurdles in the negotiations is taking into account companies’ productivity rate, an important aspect in the present economic crisis.

Compared with other countries, productivity in value-added industries followed a significant negative trend in Denmark, especially in recent years; it only amounted to 0.8% on average over the period 1995–2008. One of the reasons for this trend is that wage development in Denmark has been higher than in other countries for several years. The continuous demand of employers for wage restraint in order to safeguard the competitiveness of the country’s industries has never been as pertinent. According to European Commission estimates, the expected wage increase in Europe in 2010 will be 1.5%, which the employers might use as a guideline in their bargaining negotiations. Inflation in Denmark currently stands at 1.5%.

Negotiators for employees are aware that, in the current crisis context, there is no scope for wage increases, which was also the case in the 2007 collective bargaining round. The employee representatives argue, however, that other options exist to strengthen the country’s productivity than merely focusing on labour costs. They claim that targeted investments in education, research and technology will bring Denmark to the fore when investments and new jobs in green technologies will emerge on a large scale worldwide.

Concentration of power on employers’ side

The trade unions’ situation has been further complicated by a recent concentration of power among DA member associations, combined with a steady decline in membership among LO-affiliated trade unions.

The already powerful DI merged with the Confederation of Danish Commercial Transportation and Service Industries (Handel, Transport og Service, HTS) in 2008, whereby transport became part of DI’s domain (DK0802029I). As a result of the steadily growing domain of DI, by including first the services industry and then transport in addition to manufacturing, DI changed the name of its organisation to ‘DI – Organisation for business and trade’.

For workers, the merger had another dire consequence in relation to wage bargaining. The former DI domain was mainly based on the principle of a minimum wage system: a system where wage increases are finally settled at company level once a year in the period covered by the collective agreement, notably the Industry Agreement. The latter is therefore a minimum wage agreement. Bargaining in the transport sector, however, which then belonged to the domain of HTS, is based on a normal wage system, in which actual wage rates are settled at sectoral level for the whole period of the agreement’s validity. This situation was positive for the trade unions in that they could separate wage bargaining in industry and transport: two employer organisations, so two wage systems.

After the latest merger negotiations in both industry and transport have taken place at DI, in 2010 the trade unions are facing an all-dominating DI in terms of bargaining in both wage systems. Thus, some coordination between the industry and transport trade unions will be required.

Trade union demands

Since the beginning of the 1990s, welfare issues have been on the trade unions’ collective bargaining agenda and 2010 is no exception in this regard. There will be a focus on family-related matters in an equal rights perspective, including demands such as more days at home with sick children, improved maternity leave and extended paternity leave with the aim of encouraging fathers to make use of this option.

Extending competency development funds

Extension of the competency development funds will also have priority. The scheme was implemented in the 2007 Industry Agreement and has only been in force since 1 January 2009. But, some of the lessons already learnt will probably lead to adjustments of the regulatory framework to render the system more flexible. Allocating more resources to the funds may be an option, since this move would be in line with the common desire to improve productivity.

Greater employment security

A particular issue during the 2010 collective bargaining round will be employment security. As widely known, the so-called Danish flexicurity model combines flexible ‘hire-and-fire’ rules with a high level of social security for workers when they are dismissed. The effects of the economic crisis have resulted in a steep increase in the number of unemployed people due to extensive company restructuring across the country. In view of low wage increases over the next years, a large number of employees demand greater employment security in the current situation. The dismissal notification period is currently short in the LO–DA bargaining area: a maximum of four months according to the agreement in force. A response to workers’ risk of being dismissed could be to demand considerable longer notification periods. In the public sector and for salaried employees, the time limit for a dismissal notification is six months. However, this is not a demand that finds support among the top negotiators who prefer to maintain a flexible labour market model.

Measures to combat social dumping

Trade unions in the construction and transport sectors have put forward a special demand. The largest trade union in Denmark, the United Federation of Danish Workers (Fagligt Fælles Forbund, 3F), dominates both sectors. Over the past three to four years, an increasing number of Polish workers have come to Denmark, of whom a considerable number are working for much lower wages than Danish workers in similar occupations. Since the abolition of the transition scheme for eastern European workers, it has been highly problematic for the trade unions to control if these workers are working under the provisions of the collective agreement in force. The rules on posting of workers have repeatedly been challenged by employers – Polish or Danish – in Denmark. The trade unions now demand that the social partners together take steps against these more frequent examples of ‘social dumping’. The actual wage development during the agreement period should to a higher degree be mirrored in the regulation of the minimum wage rate. It should be added that no statutory national minimum wage exists in Denmark; the minimum wage rate depends on different sectoral collective agreements. By securing a higher minimum wage rate, posted workers would be guaranteed a decent minimum wage and the pressure on Danish workers to freeze their wages or leave work to migrant workers would be reduced.

To the same end, the trade unions demand a ‘solidary responsibility’ between the main contractor and the subcontractors in ensuring that employees are working under the terms and conditions of the collective agreement in force. The main contractor must be responsible for the subcontractors respecting the same wage and working conditions. Another requirement coming from CO-industri that could counteract social dumping is to eliminate the seniority requirement for the payment of pensions. This measure would mean that posted workers are not significantly cheaper to employ than Danish workers at the beginning of employment.

Disputed 50% rule

The 50% rule has its roots in the first Danish collective agreement, the September Settlement of 1899, which held that supervisors and trusted employees could not be in the same organisations as workers. For decades, employers insisted that salaried employees (white-collar workers) as a whole be considered as trusted employees. When the Union of Commercial and Clerical Employees in Denmark (Handels- og Kontorfunktionærernes Forbund, HK) finally succeeded in signing the first collective agreement in the 1930s, the employers introduced a ‘50% rule’. This rule stipulated that the prerequisite for the salaried employees and clerical workers in a company to be covered by the agreement is that HK can prove that at least 50% of the potential members are members of HK.

HK and the other LO-affiliated trade unions see this rule as an expression of an old-fashioned employer ideology. Today, when both employer and employee organisations agree that regulation of labour market issues through collective agreement coverage are beneficial for both parties, it seems inappropriate that the coverage of a group of employees is restricted. In practice, however, it has no major effect, since salaried employees in companies that are not covered by collective agreement are treated, as a minimum, under the provisions of the ‘Act on the legal relationship between employers and salaried employees’. On the employer side, however, the rule continues to have a significant symbolic meaning. The negotiators consider it as an almost impossible task to get the members to accept an abolishment of the 50% rule. The rule takes effect during general conflicts in relation to the renewal of collective agreements, since the employees not covered by the agreement cannot take part in an industrial dispute. HK/Private (HK/Privat), a union section of HK, stated that if the 50% rule is not abolished as a result of the negotiations, its members will not vote ‘yes’ to the final settlement proposal. Another HK section, HK/Retail (HK/Handel), does not give the 50% rule first priority, and the employees’ top negotiators in CO-industri have replied that they will not bring ultimatums to the bargaining table. This will be an issue for others if tradition prevails.

Conflict or maintenance agreement

The list of topics for negotiation is long, and it is clear that there are some potential tough obstacles to overcome. The employees seem to lack a unifying theme that can generate the required enthusiasm to ensure a majority accepting a settlement proposal in the final ballot. It can be equally difficult to find a unifying theme for taking industrial action. Therefore a ‘yes’ vote for a final proposal of an agreement is most likely. This is also due to the fact that, over the past months leading to this year’s bargaining round, DI and CO-industri have already made great efforts to promote a settlement. Yet, the final ballot may result in a ‘no’ vote, even though nobody really wishes for such an outcome.

Looking at the usual pattern of voting, 3F will have a majority of ‘no’ votes with regard to a final settlement proposal, while the Danish Metalworkers’ Union (Dansk Metal) will cast a narrow majority of ‘yes’ votes. One of the unknown factors in this scenario is the 50% rule. Under normal circumstances, in HK, the second largest trade union in Denmark, there would be a marked yes-majority, which in previous bargaining rounds has often contributed significantly to the overall approval of the final settlement proposal. Nonetheless, the intensified scramble over the 50% rule may change the view of HK members, particularly since only small concessions are expected from the employer side. In light of the apparent disagreement between HK/Private and HK/Retail about priorities, the odds are 60%–40% in favour of a maintenance agreement.

Carsten Jørgensen, FAOS

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