Social partners and experts examine wage model

Norway’s wage formation model has been examined in depth by a specialist tripartite committee, taking into account issues such as a future fall in oil revenues, the international competitiveness of Norwegian companies, and increasing labour migration from the rest of Europe. The committee presented its report in December 2013, unanimously concluding that although the wage formation model was sustainable, some change was needed to keep wages in check and prevent social dumping.

Background

In December 2012, the Norwegian government set up a public committee to analyse Norway’s wage formation system. It was composed of representatives from all the major trade unions and employers’ organisations and a number of independent economic experts. The tripartite committee was chaired by the University of Oslo’s Professor of Economics, Steinar Holden, who has chaired two previous committees looking into similar issues in 2000 and 2003 (NO0007198F).

The 2012 committee was formed in response to high labour migration to Norway in recent years, the prospect of declining revenue from oil and gas exports in the coming decades, and concerns about Norway’s small and open economy in which the ability of Norwegian companies to measure up to international competition is critical (NO1301039I).

In December 2013, the committee delivered its final report to the Norwegian Ministry of Finance. The report, Wage formation and challenges for the Norwegian economy (in Norwegian, 2.5 MB PDF), discusses a wide range of issues related to wage formation, collective bargaining and future challenges for a Norwegian economy that will be generating a smaller income from the petroleum industry.

The focal point of the report is Norway’s so-called ‘trend-setting industries model’. Collective bargaining for wage increases traditionally begins with the country’s internationally exposed industries, and their agreements set the normative framework for bargaining rounds in other industries and sectors. Currently, the Industry Agreement 2012–2014 (1.1 MB PDF) is considered the definitive industrial agreement, and this will therefore be the first agreement to be bargained.

Conclusions of report

Developments over the past 10–12 years have been characterised by strict regulations over the use of oil revenue, a monetary policy to maintain low and stable inflation rates, and increased labour migration. Taking these prominent issues into consideration, the primary conclusion of the report is that the current wage formation model is sustainable. Wage growth in the internationally exposed sector is proportional to price increases and productivity growth.

The committee focused on Norway’s continued status as a high-cost country. This reflects the high productivity and high profits derived from the terms of trade between import and export prices. However, it has also created a challenge for internationally exposed firms which must attempt to remain profitable abroad despite high costs at home. The report stresses that those with different interests in the labour market must collaborate if stable economic development is to continue.

One aim of such collaboration would be to make sure the export industry is protected from fluctuating revenues in the oil industry. The committee argued that income policy collaboration between the partners has been positive.

The report also emphasises the need for high levels of coordination in collective bargaining by all labour market parties. As a rule, wage increases for both blue-collar and white-collar workers in the industrial sector should together provide the normative framework for the rest of the economy. In recent years, growing uncertainty about changes in the economic framework has increased tension in collective bargaining, especially in the public sector.

Annual wage growth agreed

To facilitate and maintain coordination, the committee argued that the Confederation of Norwegian Enterprise (NHO) and the Norwegian Confederation of Trade Unions (LO) must set a credible framework for cumulative annual wage growth.

In the private sector, company-level bargaining will take place after the central-level bargaining rounds. The implication is that the central-level parties must provide a credible framework for cumulative annual wage growth in the local bargaining rounds and among white-collar employees with mainly individual wage levels.

The wage formation model is reliant on high membership rates for both trade unions and employers’ organisations. The committee emphasised the need for strong central employers’ and workers’ organisations, but union density rates in organisations with centralised bargaining have diminished.

Oil dependency

The country’s growing dependency on oil is another concern. The expansion of the petroleum sector and the influence of revenues from this sector on the state budget has also increased the comparative cost levels of Norway’s businesses. The committee is worried that this might weaken Norwegian firms in the international market. The report argues that moderating wage growth to bring it in line with that of the country’s key international trading partners will be essential to support the competitiveness of firms that trade internationally.

Other concerns raised by the committee include the effect of labour immigration on wage formation. While a healthy supply of labour has had a positive impact on Norway’s economy, the challenge is that migrant workers might not find productive employment that meets the general labour and wage standards of the Norwegian labour market. The committee argues that measures need to be put in place to combat ‘social dumping’ and low-wage competition.

Magnus Mühlbradt, Fafo

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