Finland: Increase in local bargaining shifts focus away from central-level bargaining

Employer organisations in Finland, supported by the centre-right government, are increasingly shifting central-level collective bargaining – a key element in Finnish industrial relations – to sectoral and local level. The Confederation of Finnish Industries has changed its internal rules to ban participation in central-level bargaining and recently ended most of its peak-level agreements with the unions.

Background

Local bargaining, both at company-level and workplace-level, has been perhaps the hottest topic of industrial relations and labour market policy in Finland in the past year. Essentially, employer organisations wish to move collective bargaining from the central and sectoral levels to local level. The ultimate intention of the employers – spearheaded by the Confederation of Finnish Industries (EK)  is reportedly to abolish two basic characteristics of the Finnish labour market system – central-level collective bargaining and the general applicability of collective agreements. Trade unions strongly oppose such objectives.

Central-level bargaining between peak-level social partners has, since 1968, defined wages, income distribution, social security and pensions in Finland, and sectoral collective agreements have been negotiated within centralised frameworks. The general applicability of collective agreements, in force since the early 1970s, implies that when at least half of the workforce in a sector are employed by organised employers, the collective agreement will apply to all employers and employees in the sector, organised or not. More than 90% of the workforce in Finland is covered by collective agreements directly, or through general applicability.

Social partner positions

On the surface, the employers’ aim is based on economic reasons. Employer organisations, led by EK, argue that centralised agreements have led to rigid and outdated provisions on working conditions, with little room for adjusting such provisions to the needs of individual companies (even though sectoral agreements may, and often do, allow leeway for adjustments at workplace level). The rigidity of the collective agreements is said to hinder the flexibility necessary for companies acting in a global market, hampering economic growth and threatening jobs. The economic crisis has highlighted the effects of global competition and underpinned EK’s claims.

However, local bargaining also fundamentally concerns power relations between labour policy players in the country. In an economic situation that has only recently started improving after years of recession, and with technological development seemingly increasingly threatening jobs in various sectors, employers have found themselves in a strong negotiating position. Increased local bargaining could help maintain this strong position in relation to the trade unions.

The trade unions are not entirely against local bargaining measures, as they generally understand the economic argument of some company-level flexibility being necessary to preserve jobs. However, the unions insist on local bargaining taking place under collective agreements and, furthermore, demand more equal negotiating positions for employers and employees as a precondition for local bargaining. In practice, this has been understood to imply stronger rights for the employee/trade union representative.

Above all, trade unions do not want working conditions and minimum wages to be regulated by politicians, as this would remove the incentive for employers to organise as social partners, instead encouraging them to focus on lobbying. General applicability would then effectively be abolished and the power of the trade unions severely curtailed.

Recent developments

Centralised agreements and general applicability have been contested before, but the discussion was reinvigorated when the centre-right government of Prime Minister Juha Sipilä took office in May 2015.

Promoting local bargaining was marked as an objective in the new government’s programme. In the 2015–2016 negotiations for the tripartite labour market agreement (later named the Competitiveness Pact), the government and employer organisations pushed for local bargaining, alongside reforms such as extended working hours and a freeze on salaries.

The employer side sought to secure the right to local bargaining through legislation but, in the end, it was agreed to include local bargaining in collective agreements instead. The outcome was a disappointment for employer organisations, and was apparently one factor behind the secession of the Finnish Forest Industries Federation (Metsäteollisuus) from EK in January 2017.

Subsequently, the employer side, supported by the centre-right government partner the National Coalition Party, has focused its efforts on promoting local bargaining. These efforts have underpinned many recent labour market events and developments.

In November 2015, EK changed its internal rules to prohibit itself from participating in central-level bargaining, instead turning it into a lobbying organisation with only a supporting and coordinating role in the sectoral-level bargaining. EK thus sought to force the negotiations to the sectoral level, as peak-level trade unions would no longer have a counterpart with which to negotiate. In February 2017, EK completed the transformation by announcing the termination of most of its peak-level agreements with trade unions, which the outraged trade unions claimed seemed to be aimed at scrapping the national bargaining culture.

On the trade union side, the recently sealed merger of the three industrial unions, the Finnish Metalworkers’ Union (Metalli), the Industrial Union TEAM and the Woodworkers’ Union (Puuliitto), to form the Finnish Industrial Union is motivated by the aim of a larger, stronger union counterbalancing the employers in an industrial relations system shifting increasingly towards sectoral and local bargaining.

Commentary

EK’s changing character and other recent events are already shifting collective bargaining and social dialogue processes to lower levels. The sectoral collective bargaining round of autumn 2017, which has not been preceded by a central-level agreement, will soon indicate the direction of the development. There is distrust between the social partners, and trade unions are particularly angry with, and suspicious of, the employer side after the recent actions and tough rhetoric. Hardliners on both sides have gained ground, and the negotiations are likely to be difficult.

A research review from 2016 found no strong evidence regarding the supposed positive effects of local bargaining on company productivity (PDF). It is assumed, however, that local bargaining might improve the adaptability of the labour market to economic circumstances, thus mitigating any future unemployment. In any case, local bargaining could come to redefine the entire structure of the labour market and related policies – and who decides wages, working conditions, social security and pensions.

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