New industrial agreement to strengthen norm-setting role

Since 1997, industrial agreements have served as a framework for wage setting in Swedish industry, with the manufacturing industry given a norm-setting role. However, due to the increasing weakening of this role, the Association of Swedish Engineering Industries decided to leave the agreement in 2010. Industry partners have now reached a new agreement, with stricter negotiation rules and stronger incentives to maintain the manufacturing industry’s norm-setting role.

Background

Sweden experienced high unemployment and rising inflation during the early and mid-1990s. In 1995, collective bargaining rounds resulted in open conflict, and large pay increases over and above those set in collective agreements were seriously threatening the country’s economic stability. To ensure that wage negotiations in general were kept within reason, the government argued that industries exposed to international competition should be given the role of norm-setting. Social partners in the manufacturing industry were therefore advised to propose a new framework for wage setting and negotiations.

In March 1997, the Cooperation Agreement on Industrial Development and Wage Formation (Industrial Agreement) was signed (SE1005019I) by 12 employer organisations and six unions.

Among other things, the agreement contains formalised rules of procedure in the manufacturing sector’s bargaining rounds. On the employee side, the most prominent signatory partners were:

The unions involved formed the Swedish Unions within Industry partnership (Facken inom Industrin).

Cracks in old agreement

The industrial agreement has in general been a success and since then Sweden has experienced modest wage increases in line with the rest of Europe.

However, the largest employers’ organisation, the Association of Swedish Engineering Industries, decided to leave the agreement in 2010. It claims that the manufacturing sector’s role as a norm-setting partner has been weakened in recent years by domestic industries which have instead used the industrial agreement as a base level from which to demand higher wage increases.

The association also accused unions in the engineering industry of acting on behalf of other groups, particularly those unions belonging to the Swedish Trade Union Confederation (LO) in sheltered sectors of the Swedish economy.

The decision by the Association of Swedish Engineering Industries to leave was criticised by other social partners, who claimed the move could create instability in future wage negotiations. As a result, there have been increasing worries for the bargaining round of 2011 (SE1101019I).

Social partners reach new agreement

On 10 May 2011 the social partners in the manufacturing industry presented a new revised version of the industrial agreement. The new agreement, which will come into force prior to the bargaining rounds of 2011, contains several new features.

It says mediators in industrial sectors will get additional powers to make sure the agreements concluded are effectively coordinated. If two parties fail to reach an agreement in time, they can be summoned to a joint meeting where the other social partners in the sector will discuss appropriate solutions to the dispute.

The new agreement also contains strong calls for all parties involved to promote the industrial agreement’s norm-setting role. However, there are no formal obstacles for parties to demand wages that deviate from the sectoral norm.

Commentary

The industrial agreement is an important feature of the Swedish wage-setting model of bipartite self-regulation, and the Association of Swedish Engineering Industries’ announcement in 2010 raised well-founded concerns. The new industrial agreement should therefore be seen as good news for the economy.

The manufacturing industry’s norm-setting role in wage negotiations is based on an informal consensus. However, there are also risks associated with informal understandings as illustrated by the turmoil of 2010. The old industrial agreement served its purpose well for 13 years; it remains to be seen how long the new one will serve.

Mats Kullander and David Björnberg, Oxford Research

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