Innovative concession agreement in manufacturing sector

On 22 February 2010, the social partners in industry agreed to a renewal of the collective agreement in the manufacturing sector. The settlement reflects the impact of the current economic crisis but also contains new surprising elements. Although the agreed wage increase is low, innovative welfare aspects were introduced. This accord could be defined as a ‘maintenance agreement’, establishing new elements to be followed up in future collective bargaining rounds.

After a period of intense negotiations, the social partners in industry – the Confederation of Danish Industry (DI – organisation for erhvervslivet, DI) and the Central Organisation of Industrial Employees (Centralorganisationen af Industriansatte, CO-industri) – concluded a renewal of the collective agreement in the trend-setting manufacturing sector on 22 February 2010. DI and CO-industri signed a two-year agreement covering 240,000 employees. The agreement is traditionally the first to be signed during collective bargaining in the private sector by the organisations affiliated to the Confederation of Danish Employers (Dansk Arbejdsgiverforening, DA) and the Danish Confederations of Trade Unions (Landsorganisationen i Danmark, LO). This year was no exception and, soon after, other sectors such as transport, construction and the cleaning industry signed collective agreements that more or less mirrored the agreement in manufacturing.

Main points of agreement

Low pay increases

The agreement includes an increase in the current minimum wage of DKK 103.15 (€13.86) by DKK 1.10 an hour (€0.15) in the first year and by DKK 1.75 (€0.24) in the second year. This corresponds to an increase of 1.07% in 2010 and 1.7% in 2011. The period runs from 1 March each year. The minimum wage will thus be DKK 106.00 (€14.24) on 1 March 2011. In addition, bonuses for unsocial working conditions will increase by 1.5% on 1 March 2010 and 2% on March 2011.

Apprentices and new employees

The wage for apprentices will increase by 2% in 2010 and 2.5% in 2011. A novel aspect of the agreement is that apprentices are now covered by the insurance part of the pension scheme, so that they or their survivors will receive a lump sum in the event of disability, critical illness or death.

Newly employed persons receive pension contributions from the employer after just two months of being employed, instead of after nine months as before. The social partners consider this change as a measure to prevent ‘social dumping’ and short employment contracts aiming to avoid pension payments.

Redundancy entitlements

Another new development is that hourly paid employees with a minimum of three years of seniority are entitled to severance pay – in principle, following the same rules as in the Act on the legal relationship between employers and salaried employees. The severance pay is a supplement to the unemployment benefit and covers 85% of the difference between the unemployment benefit and the wage of the redundant person. After three years of employment, an employee made redundant will receive this benefit for one month. Six years of employment entitles workers to a benefit of two months and eight years of employment corresponds to three months of severance pay.

Night and shift work

Employees performing night shifts receive the right to a medical examination every second year instead of every three years as before. Moreover, a fund is to be allocated for research on the consequences of working night shifts.

It will be possible to exchange up to 40% of the shift work allowance supplement for free time of up to 10 days off a year. This will require a local agreement at the company.

Gender equality

An equal pay tribunal has been set up modelled on the Tribunal of Dismissals, which has a labour court judge as chair. The new board will ensure that all disputes relating to equal pay are treated within the labour law system. The main organisations LO and DA are formally called to nominate board members, so that it will cover all sectors represented by LO and DA and not only manufacturing.

Maternity and paternity leave

In 2011, pay for parental leave will be extended by two weeks: one week extra for mothers and one week for fathers. This gives mothers the right to a total of 22 weeks of paid leave, including four weeks of pregnancy leave before birth. Six weeks are to be earmarked for the fathers, while three weeks can be shared between the parents.

Effects of economic recession

It was expected that this year’s negotiations would be strongly influenced by the current economic crisis, which in Denmark has resulted in mass redundancies, thousands of employees on work-sharing and a historically high number of company closures among small and medium-sized enterprises (SMEs) (DK1001019I, DK0903021I). The central focus of the negotiations was a wage increase or decrease based on the competitiveness of Danish companies. In the last few years, wage increases in the private sector in Denmark have been around two percentage points higher than in other comparable European countries. This has weakened Danish competitiveness and the employers have from the outset of the talks emphasised that there was scope for only very modest wage increases in the new agreement.

For the employees, it was important to secure their real wage, which means an increase that at least follows inflation. The results of the negotiations were small increases of 1% and 1.7% in the first and second year. However, the manufacturing sector employs a large number of workers on the minimum wage; 85% of the LO and DA area falls within this category. A minimum wage increase is settled at national level, while the real wage increases are negotiated at company level every year. Thus, the above small increases at national level allow for a small increment in company negotiations. The result of the negotiations in the companies will probably be that the real wage increase will remain low but a little higher than the expected inflation.

In the context of low pay increases, it is notable that the social partners concluded an agreement with a two-year peace period rather than the three-year period in the previous two bargaining rounds. This gives the social partners an opportunity to evaluate the agreement in the light of a possible economic upswing or a status quo in two years’ time. It was also easier for employees to accept low pay increases in the wage agreement if it only runs for two years. At present, the priority is to save jobs.

The other parts of the agreement can be characterised as being of no or very low monetary cost for employers but they are important steps nonetheless for employees. For example, gender equality was favoured. For new parents in the manufacturing sector, there are two additional weeks of paid parental leave. Moreover, the Equal Pay Act is to be incorporated into the agreements and an equal pay tribunal is being established.

Innovative elements of agreement

An outcome similar to the current results regarding wage increases was expected. However, it was not clear which elements would compensate for the low pay increases, such as various improvements in welfare-oriented issues like pensions and parental leave. As it transpired, the social partners in industry agreed on at least one issue that can be said to have opened new perspectives in the Danish model of labour market regulation – namely, the right to severance pay in case of redundancy.

Severance pay and pension entitlements

It is the first time that severance pay is part of a national agreement in the sectors covered by LO and DA. Although it might seem that one month of 85% of monthly pay after three years of seniority is not much, the agreement sets a precedent for improvements in future bargaining rounds. The social partners have thus showed initiative, through the collective bargaining system, to compensate for the reduced value of the official unemployment benefits in the last decade. The increase in unemployment benefits follows the price index and not wage increases. While these benefits previously covered 85% of the wage of an unskilled worker, the state coverage is now around 50% of this wage. The social partners have thus introduced a new welfare issue to be partly dealt with in the collective bargaining system.

The first time that a similar process was initiated was in 1991, when the social partners and the government introduced labour market pensions on the bargaining agenda. What began as a moderate supplement to the official pensions became a solid success for the Danish labour market. There are reasons to believe that the severance pay could show a similar positive development over the years.

Other compensations of an innovative nature were the abolition of the rule that an employee is only entitled to a pension after nine months of employment. This rule is several decades old and the new two-month rule is designed to prevent wage dumping and speculations in short-term employment contracts.

Variations in minimum wage and normal wage agreements

As mentioned, minimum wages cover 85% of the LO and DA area. The other 15% is covered by normal wages, where the wage is settled at national level only for the whole period of the agreement. This puts other demands on the negotiators. Traditionally, the normal-wage area favours shorter collective agreements, like the two years settled in the manufacturing sector in 2010.

The transport sector is trend-setting for the normal-wage area and subsequently was the first to sign an agreement in this field. Hourly pay increases of DKK 1.60 (€0.21) in the first year and DKK 2.25 (€0.30) in the second year were agreed. Including a small seniority supplement in 2011, the total increment will amount to DKK 4.35 (€0.58). This is a little more than in manufacturing because the wage is settled at national level only. The increase, on the other hand, also reflects the upper limit of what local wage negotiations can expect in the manufacturing sector; at the same time, it anticipates that the forecast inflation will stay under this level or at least at the same level.

Carsten Jørgensen, FAOS

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

Eurofound welcomes feedback and updates on this regulation

Add new comment