Bargaining round extends voluntary early retirement scheme

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On 6 April 1997, the Norwegian Confederation of Trade Unions (LO) and the Confederation of Norwegian Business and Industry (NHO) agreed on a proposal for an agreement which they could recommend to their members in this year's bargaining round. LO won acceptance for its demands on the extension of the voluntary early retirement scheme, while the pay increases agreed centrally may be described as moderate.

On 6 April 1997,Landsorganisasjonen i Norge (LO, Confederation of Trade Unions) and Næringslivets Hovedorganisasjon (NHO, Confederation of Norwegian Business and Industry) agreed on a proposal for agreement made by the State Mediator. The proposal must now be approved by LO's and NHO's representative structures. Talks between LO and NHO had broken down in mid-March and the Mediator had stepped in. Mediation is quite normal in Norwegian collective bargaining, and the failure to reach an agreement was expected.

The majority of Norwegian pay agreements are two-year deals which will expire in 1998. This year's negotiations are therefore mid-term renegotiations and, as is customary, have been taking place centrally at the level of the central trade union and employers' confederations. The negotiations cover manufacturing, building and construction, transport and hotels and restaurants, among other sectors. Mid-term renegotiations mainly deal with remuneration issues, but this year the parties also had to agree on the framework for an agreement-based voluntary early retirement scheme for employees aged 62-63 years, extending the existing scheme for those aged 64-66. The results of bargaining in the LO/NHO area are of great importance for the remaining bargaining areas within both the private sector and public sector.

Pay increases

The negotiating parties agreed that bargaining units where employees have an average yearly income under NOK 185,000should receive a higher centrally-agreed increase than those units with an average yearly income above this limit. Furthermore, the pay increases should be higher in areas where there is no subsequent local bargaining than in those areas with local bargaining. It has been a common practice in settlements during the 1990s that central increases vary according to whether or not subsequent local increases are awarded within the various bargaining units. However, the vast majority of agreements within the LO/NHO area provide for local bargaining and provide an average yearly income over NOK 185,000. The pay increases awarded by the new central agreement are set out in the table below

Hourly central pay increases within the LO/NHO area, 1997
With local bargaining Without local bargaining
Under NOK 185,000 NOK 1.50 NOK 1.80
Over NOK 185,000 NOK 0.80 NOK 1.20

NHO estimates that the settlement will entail wage growth of between 3% and 3.5% for 1997. The predicted rate of inflation for 1997 is approximately 2.5%. LO and NHO intend that the proposal "will set the norm for managers and other groups of employees within the firms which are covered by the agreement and for the remaining labour market in general".

Early retirement

The central issue in this year's negotiations was the question of voluntary early retirement, and this was also the question where the greatest difficulties in reaching an agreement arose. A new voluntary early retirement scheme is due to cover private sector employees in the NHO/LO area aged from 62 to 63 years, coming into effect from October 1997 for those aged 63 and from March 1998 for those aged 62. This new scheme adds to the existing "agreement-based flexible pension" (AFP) introduced by a previous general agreement to reduce the retirement age. The parties had to decide which groups of employees the new scheme should cover, and this was the main source of their disagreement. NHO wanted to limit the scheme to employees with long seniority, while LO proposed that the same preconditions be made applicable to this scheme as are applied in the early retirement scheme for the age-group between 64 and 66 years - ie, a sole requirement of at least 10 years' employment after reaching 50 years of age. If NHO's demand for a longer seniority requirement had prevailed, women in particular would have had difficulty in qualifying for the scheme. LO therefore strongly emphasised the equality aspect.

For a long time it was uncertain whether or not the Government would contribute financially to the new early retirement scheme. The parties sent a joint letter to the Prime Minister, enquiring whether the state would be willing to contribute to an extended scheme. When the Prime Minister promised that the Government would contribute to a solution, the State Mediator was able to present a proposal which both parties could recommend. LO won acceptance for its demand that the extended voluntary early retirement scheme should be made applicable to all employees with at least 10 years' employment after reaching 50.

The voluntary early retirement scheme for the 62-63 age-group is financed partly by a fund to which all NHO member firms contribute collectively, and partly by direct contributions from those firms whose employees make use of the scheme. In addition, the state will contribute by reducing the tax burden on those who make use of the scheme and ensuring that they continue accruing pension rights within the national insurance scheme which covers all citizens from the age of 67 years. In contrast to the scheme which applies to the 64-66 age-group, the state will not cover any of the direct costs in this new extended scheme. Employers will have to contribute 20% of the costs directly for the 62-63 age-group, whereas they only cover 10% of the costs for the 64-66 age-group. However, this will increase to 20% from 1 January 1999.


So far, this years settlement seems to be more or less within the "Solidarity Alternative" guidelines which were drawn up between the labour market parties and the Government for the period 1992-7. The guidelines stipulated a yearly wage growth of approximately 3%. However, this presupposes that increases resulting from the forthcoming local bargaining rounds are kept within relatively tight margins. Another precondition is that pay for management and senior staff is kept within the framework which the LO/NHO settlement stipulates. Good financial results within many firms, coupled with a tight labour market within certain occupations, may, however, make it difficult for LO and NHO to control local wage growth.

In the protocol agreed in this year's negotiations, LO and NHO emphasise that the settlement is to be the norm for other groups, and this precondition is reiterated in a joint letter to the Prime Minister. In order to remain within 3%-3.5% framework, this year's increases in the public sector will have to be very moderate. Several public sector social partner organisations disapprove of what they believe to be interference in bargaining from parties outside their area. This applies particularly to Akademikernes Fellesorganisasjon (AF, Federation of Norwegian Professional Associations) which in the current bargaining round is again demanding substantial increases for its members in the public sector.

The extension of the voluntary early retirement scheme may be an expression of LO's willingness to prioritise social benefits over high nominal pay increases. However, NHO is concerned that these schemes will, over time, be costly for firms. It points to the fact that during the next few years a greater number of employees will be eligible for the scheme, and this may entail a displacement from publicly financed schemes (disability pension, unemployment benefit) to schemes which are partly financed by employers. The state covers much less of the costs for the 62-63 age-group than for the 64-66 age-group. Prior to this year's settlement, it was clear that there were different points of view among NHO's member firms as to how the extension of the scheme was to be financed. While small firms with many older employees are reluctant to increase the size of the firm's direct contribution, firms in sectors of the economy which expect to make little use of the scheme are reluctant to increase the size of the payments to the NHO fund to which all firms must contribute. (Kristine Nergaard, FAFO Institute for Applied Social Science)

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