Economic crisis weighs on 2011 wage bargaining round

As social partners begin a new bargaining round in 2011, the repercussions of the economic crisis still hamper collective bargaining in Denmark, as does a formula for public sector pay agreed in 2008 which encouraged wage rises to outstrip those in the private sector. New strategies to resolve these problems are being explored but there is little economic room for manoeuvre and for the first time in decades it may be difficult to safeguard public employees’ real wages.

Unions and employers in the public sector met at the bargaining table at the beginning of 2011 to renew collective agreements made in 2008. The repercussions of the economic crisis makes this a unique bargaining situation, and in reality there are only two strategic possibilities for a compromise settlement in the public sector at state, regional and municipality level.

Two possible bargaining strategies

One possibility is a minimal strategy aimed at only a few improvements, leaving space for a better result in the next bargaining round. This would require a short agreement period.

The other is to choose a welfare strategy in which elements such as pensions, sick pay, education and training (the so-called ‘soft’ bargaining areas) are built into the agreement now. These would not be initially costly, but could be developed over time and would offer a long-term welfare perspective for public employees. This strategy would probably require a three-year agreement period.

Difficulties surrounding 2011 negotiations

The main difficulty in this year’s negotiations is that the public employees ‘owe money’ because of the so-called ‘pay adjustment scheme’.

The basis of the pay adjustment scheme is an acceptance that wages are higher in the private sector. However, to ensure there is parallel growth in public sector wages, they are adjusted each year to track rises in the private sector.

The scheme ensures that public sector wages are adjusted by an average of 80% of the difference between wage increases in the two sectors. If, for example, wages in the private sector have increased by an average of 4% in any one year, while wages in the public sector have increased by only 3%, then public employees will receive a further 80% of the 1% shortfall.

However, in the first months of 2008 the situation changed. The public sector concluded collective agreements that allowed for relatively high wage increases of 12.8% over a period of three years (DK0803019I). Wage increases in the private sector had been influenced by an upswing in the Danish economy just before the global economic crisis of autumn 2008 and it was then expected that there would be further growth. Wage increases in the public sector were set to increase most in the first year following the agreement.

Radical changes to bargaining perspectives

However, the global financial crisis hit Denmark shortly after the end of collective bargaining in 2008 and slowed wage increases in the private sector significantly. As a result, the agreed wage increase in the public sector exceeded increases in the private sector and the wage relation was suddenly turned upside down.

There has since been much discussion about public employees ‘owing’ money. This means the first priority for the new agreement is to make good the shortfall in public finances.

To honour the pay adjustment scheme would leave a debt of -1.2% (difference in pay increases) in the municipal and regional sector and -1.5% at state level. To avoid cutting the wages of public employees to balance these pay differentials, the possibility of a round of ‘zero’increases (that is, a pay freeze) has been suggested by many negotiators, including trade unionists.

For instance, the Chief Negotiator of the Association of Local Government Employee Organisations (KTO), Anders Bondo Rasmussen, has contemplated the possibility of a one-year agreement without any pay increases for public employees to repay the pay lead. The negotiators could resume normal collective bargaining procedures again next year.

However, such a quick solution might have several negative consequences:

  • it seems that the state sector will not be able to repay the debt created by the pay adjustment scheme in just one year;
  • the economic crisis will continue to affect the Danish economy until 2012;
  • a one-year agreement period would mean negotiations in the public sector would coincide with negotiations in the private sector in 2012. Social partners in the private sector settled in 2010 for a two-year agreement in the hope that the crisis would be over by 2012 (DK1003011I).

The possibility of the public and private sectors negotiating simultaneously for the first time since 1995 is a nightmare scenario for the social partners in the public sector. The independence of their negotiations in the shadow of the ‘big brother’ private sector could be seriously questioned and the very idea seems to be a hindrance to any one-year agreement.

More negotiators are now suggesting a two-year agreement period in the hope that the crisis will be over by the time it expires and that public collective bargaining can resume in normal conditions in 2013.

However, while a three-year agreement seems too long, it is likely that a two-year agreement also will raise welfare issues. Since the breakthrough achieved in 1989, when welfare issues were first made part of collective bargaining, they have gained much more weight in both private and public collective agreements. It is often these welfare improvements that give concluded agreements a sufficiently positive touch to persuade union members to vote in favour of them.

Most difficult hurdles

The prelude to the 2011 negotiations has been marked by significant employer announcements, not least from the bargaining agency in the Ministry of Finance, the State Employer’s Authority (Personalestyrelsen), and the municipal sector employer organisation, the National Association of Local Authorities (KL).

The state agency and the Minister of Finance, Claus Hjort Frederiksen, who will personally take part in the negotiations, will demand a rise in the retirement age of certain groups of civil servants, in particular police officers and prison guards, and an increase in working hours for teachers at upper secondary school level. Both demands were presented in 2008 but were postponed for the sake of the compromise settlement.

In the current bargaining round, even the representatives of the Danish Union of Upper Secondary School Teachers (GL) have reluctantly agreed to negotiate the working time issue.

The State Employer’s Authority and KL will also demand that a greater part of pay negotiations takes place between employees and their employer. This will be difficult since public sector unions traditionally support a group wage determination system.

The public sector unions are represented at state level by the joint trade union bargaining body, the Danish Central Federation of State Employees’ Organisations (CFU), at regional and municipality level by KTO and in the health sector by the health cartel Sundhedskartellet. Their main aim is to secure wages through the introduction of a special ‘low-wage safeguard’, and to prevent a pay cut in real terms for the lowest paid employees.

The unions’ other key demand will be the implementation of a ‘security package’ that will improve the position of public employees where the public economy is under such pressure that mass redundancies cannot be avoided. Such redundancies have already begun.

To this end, KTO is demanding the following:

  • extended terms of notice for redundancies;
  • improved severance pay, as introduced in the 2010 agreement in the private sector between the Danish Confederation of Trade Unions (LO), and the Confederation of Danish Employers (DA);
  • better possibilities of redeployment;
  • competence development;
  • help with job seeking;
  • improved information about restructuring and redundancies.

There are promising possibilities for compromise, but the demand for longer notification periods for redundancies probably does not stand a chance. Employers will point to the fact that public employees are already guaranteed much longer notification periods through the Consolidation Act on the Legal Relationship between Employers and Salaried Employees (62Kb PDF) than large groups in the private sector.

Commentary

In 2008, nurses, child and youth educators and home carers went on strike for as long as eight weeks because of dissatisfaction with the proposed settlement. It was a long conflict and very costly for the unions, and was followed shortly after by the economic crisis (DK0804029I).

Politicians and employers fear further industrial conflict if the result of the 2011 negotiations is not favourable to employees. This fear is, however, probably exaggerated. The economic crisis still has a firm grip on Danish society and the continuing recession, combined with the experience of 2008, makes further industrial conflict very unlikely.

Negotiators hope that public employers are so aware of the crisis that they will accept a compromise in the 2011 bargaining round. Long-term welfare issues will probably have to wait until the next bargaining process.

Carsten Jørgensen, FAOS, University of Copenhagen

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