Finland: Wage formation

  • Observatory: EurWORK
  • Topic:
  • Published on: 30 March 2009

Pertti Jokivuori

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During the past four decades, the main system of wage formation has been collective bargaining between trade union confederations and employers’ confederations. Collective bargaining at branch level between trade unions and employers’ associations is the main determinant. The wage bargaining rounds at sectoral level provide a framework for company level negotiations. There has been a significant shift towards company-level agreements and the reform of pay systems in the 2007 bargaining round. Current sectoral agreements contain many possibilities of so-called local pay which means that the locally negotiated pay increase pool has to be increased substantially.

1. Systems of wage formation

a) Please briefly describe the main systems of wage formation in your country (when relevant please distinguish between private-public sector). For example:

  • is the system underpinned by legislation or collective bargaining, a mixture of both, or other factors, such as the labour market?
  • who are the main actors?
  • do state bodies play a role in wage setting?

b) If collective bargaining is the main determinant, what is the main level at which this takes place (national, sectoral, and/or company level)? Where relevant, please refer to other European Foundation studies that you have written in this context. Where collective bargaining fails, what is the role of labour market institutions (i.e. labour court, labour commission)? Provide an example if relevant.

c) Monitoring. What monitoring of collective bargaining is carried out (if any)? Who carries this out? (Joint /Tripartite body at national/sectoral level)? How does it do this? Are there any studies or surveys?

The Labour Court (Työtuomioistuin) is monitoring the implementations of collective bargaining. Under the existing law the Labour Court decides on legal disputes arising out of collective agreements, out of collective civil servants' agreements or out of the Collective Agreements Act or the Act on Collective Civil-Servant Agreements. A condition for a matter to fall within the competence of the Labour Court is that the specific question involves the competence, validity, content or extent of a collective agreement or the correct interpretation of a clause in such an agreement. In addition, cases in which it is questioned whether a course of action is in accordance with the collective agreements or the acts mentioned above fall within the competence of the Labour Court. The Labour Court also imposes sanctions for a breach of these agreements and acts. The possible sanctions imposed by the Labour Court are a compensatory fine. In cases where the parties to the collective agreement have agreed on sanctions for a breach of the agreement the Labour Court can issue a judgment ordering such sanctions. The Labour Court is not empowered to impose a disciplinary sanction or a criminal sentence.

The main features of the procedure in the Labour Court resemble the procedure in the regular courts of justice in Finland. The hearing of a case is divided into a preparatory stage and a main hearing. At first the preparation is conducted in writing, but normally there is also an oral hearing. The purpose of the preparation is to clarify the case so that it can be tried during the main hearing in one session without any postponements. In the preparation the plaintiff's demands and the defendant's response are brought forward, the specific issues in dispute are identified, and the material that the parties intend to present is gathered. After the preparation the main hearing, if needed, will take place. The main hearing consists primarily of the opening and final discussions of the parties and the hearing of witnesses.

The amount of actions initiated in the Labour Court has varied greatly over the years. The highest amount of cases was reached in 1983, when 266 new actions were filed. In 2003 there were 147 actions, 128 of which were matters concerning collective agreements. Most of the matters concerning collective agreements involved the interpretation of the agreement or the breach of such an agreement. Every third case involved the breach of the duty to maintain industrial peace. In 2003 there were 14 cases concerning collective agreements of civil servants. Appeals concerning the confirmation of the general applicability of collective agreements reached the number of 12. In the same year, other courts of law applied to the Labour Court for 7 opinions.

2. Wage developments

a) Please briefly describe any major overall wage development trends over the past five years (refer to previous EIRO updates where appropriate)

In the past, Finland’s national income policy agreements have offered relatively little latitude for the pay increase structure, with the great majority of pay increases being general pay rises.

Based on the centralised national income policy agreement for the period 2005–2007, the sectoral or branch-level collective bargaining rounds provided for relatively high pay increases for all employees. Pressure to increase pay resulted in some industrial action or the threat of action, although such efforts did not involve any notable damage to the social partners. By mid December 2007, 100% of the employee groups that were involved in the 2005−2007 national agreement were covered by new collective agreements. In branches representing 10% of employees, the existing agreements are valid up until the spring of 2008.

The year 2007 saw a breakdown in the national income policy agreements, and the negotiation rounds at sectoral level. The new collective agreements offered relatively high pay increases to all employees, and the pay increases in the public sector were even higher than in the private sector. EK considers the branch-level bargaining round as being worthwhile, despite its costliness, since the new collective agreements have delegated much of the decision-making power of settlement to the company level.

b) What developments have there been regarding equal pay between men and women in your country? Is this an issue for debate?

The Confederation of Unions for Academic Professionals (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA) has welcomed the agreed pay increases of the sectoral bargaining round in the autumn of 2007. These pay increases will particularly benefit highly-educated women (FI0712049I). The President of AKAVA, Matti Viljanen, referred to the collective agreements in the municipal sector as a successful example in this regard (FI0710029I).

Mr Viljanen emphasized that, in the public sector at local and central government level, the equality allowance included in the agreed pay rise increases to about 2% for qualified employees in female-dominated occupations. Therefore, the agreements provide for wage increases which are about 10 times higher for highly-qualified women than those of previous equality pay increments. The latter only had a minor impact on AKAVA’s highly-educated female members. Exceptionally high pay rises in the municipal sector generally favour highly-educated women, since about three quarters of the workforce in local government bodies – that is, municipalities – are women, and the public sector has traditionally employed a large number of educated women.

c) Please briefly describe the main recent sectoral agreements and outcomes in terms of pay

Based on the centralised national income policy agreement for the period 2005–2007, the sectoral collective bargaining round has provided for relatively high pay increases for all employees.

The new branch-level collective agreements for the chemicals and metalworking sectors – which were the first to be reached in the 2007 negotiation round – were expected to serve as a benchmark for wage increases in other sectors (FI0707019I). These agreements offered a pay increase of between 8% and 9% over the agreement period, in addition to a €350 lump-sum payment in 2007. While this level of pay increase has served as a benchmark in industry sectors, the pay increases were even higher in the public sector, reaching about 11% over the 28-month agreement period (FI0712049I).

The new collective agreement on terms of employment in the public sector at local government level was concluded in mid September 2007. The new settlement envisages nationally binding collective agreements for employees at local government level and covers the period from 1 October 2007 to 31 January 2010.

The agreement will offer pay increases of about 11% for most workers over the 28-month period. These pay rises include an equality allowance of 2% earmarked for qualified employees in female-dominated occupations, such as in care, social welfare and nursery schools. Of this 2% increase, 1.5% has been allocated to low-paid employee groups according to a national allocation agreement, while the remaining 0.5% has been allotted to employees at local government level. The equality allowance varies according to the proportion of female employees and level of education among workers in these occupations. All local government employees were also due to receive a lump sum bonus of €270 in December 2007 in addition to the employees’ regular pay. Public servants or employees received the bonus, provided that their employment period lasted without interruption for at least four months leading up to 1 December 2007 and that the employment was still tenable when the lump sum was due to be paid.

In October 2007, a new collective agreement was also concluded in the public sector at central government level between the State Employer’s Office (Valtion työmarkkinalaitos, VTML), JHL, JUKO and the Federation of Salaried Employees Pardia (Palkansaajajärjestö Pardia) covering 124,000 state employees. The agreement will also cover the period from 1 October 2007 to 31 January 2010, like the agreement at local government level, providing for a pay increase of about 11.7% over the period of the agreement. The pay rise is divided into a general pay increase of 8% and a salary scheme and development increment (FI0710029I).

In November 2007, following a period of lengthy negotiation and threats of industrial action and mass resignations by the Union of Health and Social Care Professionals (Tehy), the Commission for Local Authority Employers finally concluded a new collective agreement on nurses’ pay with the trade union. The new agreement will only apply to nurses represented by Tehy.

The deal offers wage increases of 22%–28% over the four-year period of the agreement. This will amount to a monthly amount of between €350 and €650 over the next four years. Moreover, nurses represented by Tehy will also be entitled to a so-called Christmas bonus of €270, as is the case for other employees in the municipal sector. An extraordinary and unusual character of the agreement is the fact that the wage increase will apply only to members of Tehy and is separate from the municipal collective agreement concluded in September 2007 (FI0710029I). The separate agreement concluded by Tehy means that the trade union will have its own shop stewards and negotiation practices at local level (FI0712029I).

d) Are there any noteworthy trends at company level, such as an increasing individualisation of pay setting?

One of the most important objectives of the Confederation of Finnish Industries (Elinkeinoelämän keskusliitto, EK) has been to increase the proportion of locally bargained pay rises. Employers want the locally bargained pay share to constitute about half of the total pay rise.

EK’s Senior Advisor, Seppo Saukkonen, considers the change in the pay increase structure as a remarkable development. According to Mr Saukkonen, the proportion of locally bargained increments has normally been between 4% and 7% of the overall pay increase; however, in 2008, it is set to cover a quarter of workers in the private sector.

In 2009, the locally negotiated pay increase pool will be increased more substantially in the different sectors. In the financial services sector and technology industry, the company-specific pay increase could even amount to half of the total pay rise. In the collective agreements negotiated by the Finnish Metalworkers’ Union (Metallityöväenliitto), the company-specific proportion reached 23% in the autumn of 2007 and is set to reach 39% in 2008 and approximately 40% in 2009. Among employees belonging to trade unions affiliated to the Confederation of Unions for Academic Professionals (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA) in the metalworking sector, the share of company-specific pay increases could be half of the overall increase in both 2008 and 2009.

The central social partners in the Finnish state sector agreed in December 2004 that a pay structure they have been developing since 1993 should be extended to cover all state agencies. By the new system, a third of pay depends on employees’ individual competence (FI0508203F).

e) Recent main actions/strikes /protests on wages

The most significant dispute in 2007 was that more than 12,000 nurses belonging to the Union of Health and Social Care Professionals (Terveyden- ja sosiaalihuoltoalan ammattijärjestö, Tehy) were threatening to take a mass resignation on 19 November if there is no negotiation result before that day. Tehy demanded a wage increase of 24 per cent for nurses working in the municipal sector. The Commission of Local Authority Employers (Kunnallinen työmarkkinalaitos, KT) had offered a 12.7 % pay increase (FI0710039I).

f) What are the main social partners’ views on wage developments in your country?

The Confederation of Finnish Industries (EK) has long been demanding more wage flexibility. Wage flexibility should be extended to apply to individual places of business within a company.

The Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) has been defending the current system. In July 2004, SAK published a review of the wage determination process in Finland in which it seeks especially to highlight the economic benefits of the centralised system.

The main social partners’ view on wage developments in Finland can be encapsulated so that the solidarity pay policy and centralised bargaining system have been advocated by two trade union confederations, SAK and STTK, whereas the employer organisations, EK and also the Confederation of Unions for Academic Professionals (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA), have supported a pay increase model that would have widened the wage gap by applying only percentage wage increases and by rejecting for instance equality increments (FI0604019I).

3. Minimum wages

a) Does your country have a national minimum wage?

*If yes: b) How is it defined? How is it set and uprated? Do you have any data as to its level and coverage rates?

*Il no: c) Are there minimum wages (sectoral, regional) covering a major part of the workforce?

In Finland, there is no national minimum wage, but collective agreements define the minimum wages. Since the beginning of 1970s there has been a minimum wage system that is based on collective agreements. Members of the employers’ confederations are obliged to follow the collective agreement signed by their respective confederations. Employers can also make independent agreements with the respective trade unions. Normally, the terms of employment are concluded at sectoral level and collective agreements have erga omnes applicability. Non-organised employers have to observe the collective agreement which sets minimum terms and conditions of employment within the area of employment it covers. Employers are not allowed to pay lower wages than stipulated in the collective agreement.

d) What are the views of the social partners and the government on the minimum wage(s)?

Generally, minimum wages are well under control. However, social partners are concerned that some firms and subcontractors are paying less than sectoral minimum wage to foreign workers. In February 2008, a Finnish construction company has called a halt to work carried out by a Polish subcontractor at the building site of the Helsinki Music Centre, after articles in the press stated that Polish construction workers had been paid less than €2 an hour at the site. The representative trade union in the construction sector had already protested against the Polish building company Ekomel operating as a subcontractor at Finnish building sites. (FI0801039I).

e) Is the minimum wage a subject for debate in your country?

There hasn’t been any notable debate on minimum wage in Finland recently. It appears that neither social partners nor the government feel any urgent needs to introduce fundamental changes in the current collectively agreed minimum wage system in Finland. It is regarded functional and adequate.

f) Do you have any data on the minimum wage in relation to average wages, how it interacts with the tax system and any effects it is having on employment?

The current minimum wage in the cleaning branch is €7.30 per hour. The average hourly wage amongst industrial worker is about €14 per hour.

According to the Statistics Finland, minimum wages in the selected industries have been about half of the average earnings of all full time employees. However, the progressive taxation system reduces the differences in gross earnings. At the level of the minimum wage, the taxation rate is about 12 % while it is about 18% at the level of average earnings.

If there is a collective agreement in the sector, but it does not have erga omnes applicability, it is possible to regard wages that are stipulated in this agreement as normal and reasonable in that particular sector. If there is no collective agreement in a sector, normal and reasonable wages can be based on social partners’ recommendations. If there are no such recommendations, it is recommended that a full-time employee should be paid at least the wage that would give the employee the right to unemployment insurance.

This means that the wage should be at least 40 times the basic daily unemployment assistance. Since 1 January 2007 this has meant that the paid wages should be at least €956.10 per month, €44.47 per day or €5.55 per hour. Compliance to this is monitored by the industrial safety district.

4. Wage formation within the IT sector

Please describe in detail the wage formation process in the IT sector in your country.

The IT sector has similar wage formation processes as other sectors of the economy.

I] Please give the main features of the sector

a) Importance of the sector in the economy

The IT sector is a very important industrial sector in Finland with about third of total Finnish exports.

(In Finland, the definition of IT sector is not very clear cut including two main branches: telecommunications and technology industries).

b) % of the workforce in the sector

The IT sector employs directly about 120,000 persons which is about 9 % of the total Finnish workforce.

c) Main pay-related characteristics, such as: low pay, differences in pay between men and women and/or older and young workers, wage drift;

II] Describe the main characteristics of the sector pay decision process

a) Is the wage formation process in this sector shaped by institutions? If there is a collective bargaining process, how does it work? Eg:

at sector level only;

at sector level, which then provides a framework for company level;

at company level only

Who are the main actors?

The last wage bargaining round took place at sectoral level and provided a framework for company level agreements. There has been a significant shift towards company-level agreements and a reform of pay systems in the 2007 bargaining round. The current sectoral agreement contains many possibilities of so-called local pay which means that the locally negotiated pay increase pool has been increased substantially (FI0803019I).

The main union actors in IT sector are the Federation of Professional and Managerial Staff (Ylempien Toimihenkilöiden Neuvottelujärjestö, YTN), the Union of Salaried Employees (Toimihenkilöunioni, TU), the Federation of Special Service and Clerical Employees (Erityisalojen Toimihenkilöliitto, ERTO), The Electrical Workers' Union (Sähköalan ammattiliitto) and the Metalworkers' Union (Metalliliitto).

The most important employers’ organisation in the sector is the Finnish Techology Industries (Teknologiateollisuus) whose member companies employs directly 250,000 persons (including metalworking too) and another 600,000 persons if indirect employment is taken into account. This amounts to a quarter of the total Finnish work force. The EK-affiliated Employers` Association TIKLI is an interest group for companies and enterprises operating in the fields of 1) postal delivery, 2) logistics, 3) transport services, 4) installation, 5) maintenance, 6) technical contracting and 7) telecommunication and information technology (ICT) and related fields. TIKLI is a member of the Confederation of Finnish Industries (Elinkeinoelämän keskusliitto, EK).

b) Specific issues : upward pressures on pay such as wage competition between firms, the effects of a tight labour market, and using pay as an attraction and retention tool, the effects of migration on pay, the effects of the presence of multi-national firms within a sector and whether comparisons have been made between the pay offered by multinationals and local companies

III] Analysis on trends and views of the actors

Finnish companies, particularly in the IT sector, have a considerable share of employees working abroad. The so-called China-phenomenon has been common in Finland. In other words, the companies have moved their production to countries with lower labour costs. The wages of ordinary workers in the IT sector do not differ from the average level, but wage level of management is often very high and different kinds of bonuses and share-based systems are widely used. Pay has been used as an attraction instrument, particularly for key positions in R&D.

a) Are there any major differences between this sector and the rest of the economy in terms of wage formation?

There are no major differences in terms of wage formation at general level. The wage formation in the IT sector contains many result- and profit-based bonuses and wages are often higher than defined in collective agreements. A general trend is the individualisation of pay settings. Bonus-systems based on shares are common in the IT sector.

b) Are there any noteworthy trends at company level, such as an increasing individualisation of pay setting?

Individualisation of pay setting is a general trend in Finland, but it is more pronounced in the IT sector. For instance, amongst the best paid persons in Finland, the management of Nokia and other IT companies have a good representation.

c) What are the main views of the social partners in this sector on wage formation?

Employers’ organisations (TIKLI and the Finnish Techno Industries) favour the model of company-level agreements. Trade unions have been satisfied with the sector’s wage formation.

d) Are there any positions of the authorities on the sector’s wage policy?


5 Views of the national centre

Wage formation in Finland is currently in transformation. The long-lasting era of centralized wage policy agreements (tulopoliittinen kokonaisratkaisu, often called tupo) that began with the so-called “Liinamaa I Agreement” in 1968 seems to be ending. National wage policy agreements have been a policy document covering a wide range of economic and political issues, such as salaries, pay rises and wage formation, taxation, pensions, unemployment benefits and housing costs.

The Confederation of Finnish Industries (Elinkeinoelämän keskusliitto, EK) announced by the end of May 2008 that branch-level and establishment-level agreements as well as individual-level bargaining will be the future wage formation model.

Pertti Jokivuori, Statistics Finland

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