Social partners conclude new two-year incomes policy agreement

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In November 2002, the central Finnish social partner organisations concluded a new two-year incomes policy agreement for 2003-4. The cost effect of the agreed wage increases is 2.9% in 2003 and 2.2% in 2004. Some key trade union demands - such as increased redundancy compensation and minimum working hours - were achieved only partially. In order to facilitate the agreement, the government promised an employment package and tax cuts. It is hoped that the deal will stabilise the uncertain economic situation. The central agreement now needs to be approved by individual trade unions and then implemented by sectoral negotiations.

After several weeks of hard negotiations, all the central Finnish social partner organisations agreed a new two-year centralised incomes policy agreement (FI0210101F) in November 2002. The deal is conditional and will come into force only after approval by the signatories' member organisations. The agreement includes wage increases which will support employees' purchasing power, as well as 'qualitative' changes, while the government has promised measures supporting employment accompanied by tax cuts.

Wage deal

The wage increases agreed under the new 2003-4 central incomes policy agreement and the overall cost impact are set out in the table below. The accord contains general increases for all workers, plus a 'union increment' for sectoral distribution, and an 'equality increment' to be used for improving gender wage equality. The deal will increase wage costs by a total of 2.9% from 1 March 2003 and by 2.2% from 1 March 2004

Wage provisions of 2003-4 central incomes policy agreement
. 1 March 2003 1 March 2004
General increase: . .
- hourly (EUR) 0.17 0.16
- monthly (EUR) 28.39 26.72
- minimum (%) 1.8 1.7
Union increment (%) 0.8 0.5
Equality increment (%) 0.3 -
Overall cost impact (%) 2.9 2.2

The agreement also includes a general negotiation clause, a wage development clause and an index clause, meaning that wages must be increased by up to 0.4% if the rise in the consumer prices index from November 2002 to October 2003 exceeds 2.7%.

Qualitative measures

The social partners have agreed on the following 'qualitative' provisions in the 2003-4 central agreement.

  • Improved status for workers' representatives. The social partners agreed to safeguard the career development and professional knowledge of workers’ representatives and labour protection (health and safety) delegates, and to provide them with up-to-date working tools (such as information technology). The minimum compensation for representatives will be increased to EUR 48 a month, and the possibilities for flexible use of time will be improved.
  • Improved supervision of the employment terms of foreign workers. It is proposed that a special unit for supervising the employment terms and work permits of foreign workers be established at the Ministry of the Interior by the end of 2003. Furthermore, the resources and rights of labour protection delegates in this area will be increased. By the end of March 2003, the situation as regards criminalising the use of cheap foreign labour will be clarified (FI0209103N).
  • Minimum working time. A consensus was reached that daily working times of under four hours should not be used if there are no specific grounds for this, or if the employee does not want it. There will be further discussion on the subject in the talks to be conducted in each sector to implement the central agreement. Furthermore, working hours will be controlled more effectively.
  • Improved redundancy protection and increased unemployment benefit. A central goal of the trade unions was to obtain greater financial compensation for employees who are made redundant (FI0209102F). They were not successful, but instead it was agreed that an 'employment programme' for workers threatened by redundancy should in future be prepared in cooperation between employers, employees and public authorities. The aim is to ensure that redundant employees will be able to find a job quickly, either with the same or another employer. In addition, the period of increased income-related unemployment benefit will be extended from 130 to 150 days for employees with 20 years’ employment.
  • Adult training programme. Resources to fund a programme to raise the level of 'know-how' among adult employees (FI0203103F) have been agreed for 2003. Some 10,000 students a year will be involved from the beginning of 2004. The basic amount of adult training benefit will be increased from EUR 440 to EUR 500 per month. Personnel training will be made more effective. Learning at work will be developed on a tripartite basis, and adult training will be covered by extra financing.
  • Partial care leave. The 'partial care' leave scheme - whereby parents of young children may reduce their working hours - will be extended to cover a child's first years at school. A working group will examine ways of making working time arrangements more flexible in order to meet family needs, and make proposals on the issue. The working group will also examine the use of working time accounts.
  • Strengthening of ongoing negotiations. The parties agreed that ongoing negotiations in between central incomes policy rounds should be strengthened. Projects promoting equal pay will be continued and made more effective during the period of the new agreement. In addition, the central social partner organisations recommend that the gender effects of collective agreements should be evaluated in the forthcoming sector-level negotiations.

Unions happy with outcome

The trade unions were satisfied with the agreement reached. The member organisations of the Confederation of Unions for Academic Professionals (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA) accepted the negotiation result almost unanimously (AKAVA failed to endorse the previous 2001-2 central agreement - FI0012170F), with only the Finnish Medical Association (Suomen Lääkäriliitto, SLL) refusing to approve the deal. AKAVA considers that the central goals achieved were the form of the wage increases, and also a larger 'union increment' than in previous agreements, which should help to address sectoral problems. In AKAVA's view, these measures will make it possible in the forthcoming sectoral negotiations to reward training, know-how and responsibility, which was its aim. As to the qualitative improvements, AKAVA sees the possible creation of working time accounts as an achievement, which will make it easier to reconcile work and family life. In addition, the use of fixed-term jobs will be studied and their misuse will be prevented. The chair of the confederation, Risto Piekka, said of the accord: 'The deal is important for Finnish competitiveness, for the improvement of employment, for safeguarding the core services of the Finnish welfare state, and for the positive development of wage earners’ purchasing power. This incomes policy agreement, reformed in its content, is better suited to the EMU era than earlier solutions were.'

The chair of the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK), Mikko Mäenpää, considers the negotiation result as significant for improving employment and purchasing power, especially among educated middle-income workers. In the current uncertain economic circumstances, the incomes policy agreement's wage increases will support not only employment and the purchasing power of wage earners, but also the competitiveness of companies, in his view. STTK considers the equality increment as a significant tool for trying to decrease the unjustifiable wage gaps between women and men. Together with the larger union increment, it will help the development of wage systems in female-dominated sectors. STTK also believes that its goal of better reconciling work and family life (FI0209101F) will be fulfilled by many of the new agreement's measures.

According to the chair of the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), Lauri Ihalainen, the 2003-4 incomes policy agreement fits in well with the present uncertain economic and employment developments. He stressed, however, that the deal is so far only a negotiation result. The final agreement will be resolved only when it is clear how many SAK member unions are in favour of it. At this stage, the Paper Workers’ Union (Paperiliitto) and the Finnish Food Workers’ Union (Suomen Elintarviketyöläisten Liitto, SEL) have announced that they will not join the deal. Mr Ihalainen forecasts that the subsequent sectoral bargaining round will be difficult. He has also admitted that not all of SAK's goals were achieved, notably increased redundancy compensation, but stated nevertheless that this issue would be returned to.

Employers have mixed feelings

The employers have criticised the pay increases in the new incomes policy agreement, but have accepted it because they believe that the deal will safeguard labour market peace for the next two years. The labour market manager of the Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT), Seppo Riski, described at least the first year of the accord as too expensive. His organisation emphasised that the negotiation result must be accepted widely among the trade unions by the deadline of 1 December 2003. According to TT, the cost effects must not be increased in the sector-level negotiations.

The managing director of the Employers’ Confederation of Service Industries (Palvelutyönantajat, PT), Arto Ojala, is satisfied that the agreement has been reached, but finds the solution too expensive. In his view, the fact that the wage structure may be reformed is a positive factor for employment possibilities. He also considers it positive that the pay increases were weighted more in percentage than cash terms. PT also sees as positive the fact that result-based pay schemes will remain a management tool rather than an issue for central agreements (FI0208101F). PT appreciates the experimentation with flexible working hours and the measures endeavouring to promote reconciliation of work and family life. According to Mr Ojala, it is important now that acceptance of the agreement should be extensive, so that the central goal of stability and labour market peace can be reached. He criticises the long lists of demands presented by the unions in the negotiations and believes that incomes policy agreements should, above all, be agreements on pay.

The Commission for Local Authority Employers (Kunnallinen Työmarkkinalaitos, KT) approved the deal, but expects that the tax cuts promised by the government (see below) should be compensated fully to the municipalities. Before the incomes policy agreement, KT approved an agreement on the development of the wage system in the municipal sector for the years 2003-7. The aim of this deal is to safeguard the competitiveness of municipal workplaces and the availability of skilled workers.

Government promises employment package and tax cuts

To support the incomes policy agreement, the government has promised tax cuts and funding for various employment activities, such as dock subsidies and various construction projects. The Prime Minister, Paavo Lipponen, expressed his satisfaction at the deal, because it will support the development of purchasing power and create stability in the economy. However, in order for the government to assist the deal, he requires that it should be sufficiently extensive in terms of acceptance across the economy. The employment and tax cuts package will mean the government taking out a new, additional loan of around EUR 100 million.

Commentary

With the advent of the new incomes policy agreement, the aim is to stabilise the national economy and thus make it possible to get over the current prolonged recession and uncertain economic developments. The final fate of the deal will be decided in the sector-level implementation negotiations. In the event that some significant unions do not sign up to the agreement, the whole negotiation result will be in danger of crumbling. Already, the trade unions for paper workers and food workers have announced that they will reject the deal.

Though wages have been increased, there are some union complaints about the failure to secure higher redundancy payments, which was an important aim for the trade union movement. The demand for higher compensation arose when some multinational companies (such as Fujitsu-Siemens- FI0108196F) recently closed profitable units in Finland. Even Finnish employers stated that this kind of action was somewhat excessive and damaged the reputation of employers. However, the employers did not approve the idea of a separate severance pay scheme, justifying their view on the grounds that social security is good in Finland compared with some other countries. In the Finnish model, 'change security' is included as part of unemployment protection, improvements in which are included in the new incomes policy agreement. The unions' demand for the introduction of minimum daily working hours was not achieved unambiguously either. Overall, the birth of the latest deal shows that the Finnish industrial relations system still functions as before, despite various fine-tuning adjustments made to it (FI0011167F and FI9801145F) (Juha Hietanen, Ministry of Labour)

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