The complexities of stability – how and why Nordic employers stay put

Paper for NWLC, June 2014, stream 1
The complexities of stability – how and why Nordic employers stay put
Søren Kaj Andersen, Christian Lyhne Ibsen, Jon Erik Dølvik1
DRAFT PAPER – PLEASE DO NOT QUOTE WITHOUT THE PERMISSION OF THE AUTHORS
Introduction
This paper analyzes how and why the high level of multi-employer bargaining (MEB) and the overall
collective bargaining coverage has remained intact in the Nordic countries, in contrast to for instance
neighboring countries like the UK and Germany where MEB decreased in the 1980s and 1990s respectively.
We try to solve this puzzle by investigating variations of and causes for stability in the Nordic models of
multi-employer collective bargaining by studying the behavior of the main employer associations in
Sweden, Denmark, Norway and Finland since 1990. Conventional accounts have highlighted the significance
of strong and encompassing unions for the emergence and persistence of the Nordic bargaining models
(e.g. Korpi 2006). Conversely, other scholars have stressed how employers drove greater coordination in
the search for greater internal control over labor and product markets (e.g. Due et al. 1994; Swenson
1991).
This paper complements and qualifies these accounts by tracing employer behavior since 1990 and
highlights important conjunctures in which employers in the Nordic countries, mostly unsuccessfully,
attempted to pursue strategies of decentralization akin to employers’ strategies in other countries, e.g.
Great Britain where multi-employer bargaining has vanished in private sector, and Germany, where its
coverage has fallen substantially. While the relative stability of Nordic collective bargaining is often
interpreted as a result of path dependency, detailed process-tracing of reforms reveals a more complex
picture. In line with Thelen (2014) we show that employer demands for bargaining decentralization have
been partially fulfilled in some instances, not in others, at the same time as MEB coordination has remained
stable or increased in all cases. Hereby, we show that the apparent stability in recent decades hides
variegated changes in the forms and levels of coordination in the Nordic countries, and that these diverse
developments are shaped by complex processes of coalition-building and power struggle between and
within the associations of employers, unions and changing governments. The aims have been similar, i.e. to
restore competitiveness while maintaining solidaristic elements, but the paths of adjustment have varied.
Søren Kaj Andersen ([email protected]) og Christian Lyhne Ibsen ([email protected]), FAOS, University of Copenhagen, Jon
Erik Dølvik ([email protected]), Fafo, Institute for Labour and Social Research, Oslo.
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One key factor has been the cross-class coalition in manufacturing and we show how the reinvigoration of
this coalition at critical junctures – often in cooperation with governments – has been a precondition for
renewal of the forms of MEB coordination in Nordic wage setting, albeit in different ways. The analysis thus
underlines the distinctiveness of the structures of organization and coalition-building in each Nordic
country and their institutional trajectories. In Sweden and Denmark, employers have largely been
successful in combining restoration of coordinated wage restraint with marked decentralization of
negotiations through new forms of pattern-bargaining headed by manufacturing. Conversely, in Finland
and Norway the peak associations were pivotal in restoring moderation through various tripartite pacts,
which in Norway eventually led to a strengthening of the manufacturing agreement as pace-setter in
industry-based pattern-bargaining. All four countries differ in the extent to which there is scope for
company bargaining on wages and working time, and the extent to which pensions, education, leave
arrangements and alike are included in the negotiations. By employing the most-similar comparative design
we are thus able to draw lesson of theoretical relevance.
In the concluding section (not written), we aim to discuss whether the Nordic employers are likely to
continue being committed to further developing the MEB systems, if they would prefer to reduce the
significance of the collective agreements, or if they simply want to abandon the MEB systems altogether?
The background for raising this question is the development observed in recent decades in Germany and
other European countries, where the bargaining systems have eroded and agreements been hollowed out
in large segments of the labor market. During the crisis, the European Central Bank and the EU Commission
have also argued for limiting the significance of the bargaining systems. In the countries receiving debt
support, structural reforms in bargaining systems have been a precondition for support, including measures
such as increased decentralization, the right to opt out of central agreements and reduced use of extension
mechanisms (European Commission 2013; Schulten & Müller 2013). In parallel, the increase in labor
migration, posting and low wage competition spurred by the eastward enlargement, combined with the ECJ
Laval Quartet, have put MEB systems under strain by opening new channels and strong incentives for hiring
labor outside the jurisdictions of collective agreements, favoring employers who are unorganized or
unbound by agreements. For the employer associations this poses new collective action dilemmas. These
appear most visible in industries with low coverage and unionization, typically private services, but the
potential and incentives for employer exit from MEB can be at least as strong in core branches in
construction and manufacturing.
The article is based on empirical studies carried out in 2013 and 2014 in a project commission by SAMAK, a
joint committee of the Nordic Social Democratic labor movements.2
Background
The Nordic labour market regimes are distinguished by the crucial role of collective bargaining in the
regulation of wages and working conditions. The bargaining systems have been based on strong union
movements, who historically pressured employers to organize and entering into bargaining relations with
their counterparts. As the Nordic economies were faced with deep crises, increasing globalization and
deepening European market integration in the 1980-1990s, many predicted that the days of the
The study ”Nordic models of labour market regulation in open markets – challenges and reflections’ (Andersen,
Dølvik & Ibsen, 2014) formed part of the so-called NordMod2030-project organized by Fafo (www.nordmod.org).
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encompassing Nordic bargaining systems were numbered. Evidently, the Nordic bargaining systems needed
adjustment. Moving towards reform of the Nordic bargaining systems was not a straight forward process.
There were, to varying degrees, processes in all four countries that led employers as well as trade unions to
‘re-draw their cognitive maps of the economy’ (Culpepper 2008). This paved the way for evolution of
shared understandings of the need for bargaining reforms; a development that first and foremost
emanated from the manufacturing sectors. Recognition of the need to adapt wage settlements to changing
economic realities was not unique for the Nordic countries; as European integration and the opening of
global markets affected all European economies (Soskice/Iversen 2001), more or less similar – but less
successful – developments took place in other Western European countries. A common denominator was
that wage setting was realigned with the new context of low inflation, fiercer international competition,
and free capital flows in order to ensure jobs, productivity and competitiveness. Looking back at the
subsequent years the Nordic countries were, as far as economic development, inequality and jobs are
concerned, consistently at the top of global rankings in the 2000s (Dølvik, Goul Andersen & Vartiainen 2014
forthcoming).
The financial crisis and subsequent euro-crisis hit the Nordic economies differently. Prior economic
overheating leading to a real estate bubble and banking crisis resulted in a prolonged recession and
contracting employment in Denmark during the period of depth deleveraging. Finland also suffered,
although the problems there were different, as the main industrial clusters – the paper and pulp, and the
Nokia-driven ICT branch – ran into structural crisis, at the same time as the euro-zone GSP constraints
kicked in. Sweden recovered fast and has been one of the strongest economic performers in Europe since
2007, but unemployment has risen especially among youth. The oil-based Norwegian economy escaped the
crisis relatively unscathed. The financial crisis and its repercussions have not had salient effects on the
institutions of collective bargaining or raised basic questions regarding their future, except in Finland where
employers in vain have called for decentralization. To the contrary, one might argue that the bargaining
systems have demonstrated their robustness; moderate collective agreements have been agreed , the local
actors have in many instances struck agreements enabling flexible adjustment at the company levels,3 and
in Sweden the pioneer 2009 “crisis-agreement” paved way for establishment of a state subsidized scheme
for Short-Term Work during crisis (Ibsen 2013; Svalund et al. 2013).
Yet, the crisis has drawn attention to the increasing external and internal pressures that the Nordic
collective bargaining systems have been faced with over the past decade. The EU enlargement and the
financial crisis have triggered shifts in the course of European integration that have affected national
economic policies and labour market regulation in new ways. Influenced by domestic policy changes, trade
unions have lost members and in many instances also bargaining clout in relation to their employer
counterparts. Fiercer cross-border competition has not only challenged employers in the export-oriented
industries but also in traditionally home market-oriented sectors, as rising labour migration and posting of
workers have opened new avenues for hiring cheap labour and engaging in “regime-shopping” at the site
by locating production outside the collective agreements. For organized labour and capital, and not least
for the employer associations the extension of the markets for labour and services has raised collective
action dilemmas that in many ways resemble those they faced hundred years ago when nation-wide
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See for instance, Svalund et al. 2013; Ibsen 2013.
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collective agreements emerged as a tool to regulate labour cost competition in the product markets -but
this time in a much wider and more diverse cross-border context.
Theoretical considerations …
Throughout the post-war era multi-employer bargaining (MEB) has been the predominant mechanism
regulating wage setting in Western Europe, and still is except in the UK. The literature has highlighted a
number of functions of MEB that employers might have an interest in, including amongst others: 1) taking
wages out of competition, 2) removing conflict from the shop-floor, ensuring cheap and easy conflict
resolution, 3) cartelizing labor costs and therefore production costs, 4) providing conditions for long-term
investment in company - and branch specific skills 5) wage moderation when labor is scarce, 6) provision of
collective goods such as training funds, 7) reducing transaction costs in labor contract-issues, and 8)
enhancing participative cooperation and trust within firms (Andersen et al. 2014; Zagelmeyer 2005;
Schmitter & Streeck 1999). While such interests might be beneficial on a general level, collectivism
between employers is subject to free-rider problems e.g. when employers enjoy public goods such as wage
moderation or training funds, without contributing to the production thereof (Olson 1965). MEB thus
presents a collective action problem that requires explanation beyond functional reasoning.
Explanations for MEB can be divided into two (Parson 2007). Market-based explanations argue that
employers have a rational interest in cooperating with each other based on positions in the market
structure, that is, in regulating the terms for resource allocation and relationships (competition) between
employers (Parson 2007). Using this logic, Schmitter and Streeck (1999) posit that if the resources in a
market are controlled by one market leader, this company might want to go-it-alone. Conversely, a few
dominant actors cannot go-it-alone but they can take on the cost of cooperation and sanction so that
smaller actors do not free-ride. Collectivism can, however, be hampered by employer heterogeneity. So, if
companies’ production is based on different mixes of capital, labor and raw materials, this might give them
different preferences for collectivism on labor matters (Thelen & Weijnberger 2003). Intensified
international competition might erode the preference for national associational regulation as employers no
longer direct their business towards national markets (Katz 1993). In this vein Rodrik (1997) argues that
employer collectivism in labor markets will eventually wither away as employers increasingly operate in
international product and service markets.
Institutionalist explanations, conversely, stress that social rules, norms and procedures mediate market
structures by providing specific logics for behavior (Hall & Taylor 1996). This explanation suggests that
institutions either promote or demote collectivism by providing different incentives for collectivism. And as
institutions are hard to change they tend to produce path dependency despite market internationalization.
Korpi (2006) argues that employers develop a preference for cooperation when forced to by strong unions
that control labor supply. Institutions that promote unions are therefore conducive to employer
collectivism (Traxler 1996). The varieties of capitalism-literature (Hall and Soskice, 2001) argues that
employers in certain countries have a first-best preference for cooperation in labor markets due to the
competitive advantage they derive from institutionalized public goods, such as training funds, long tenure,
and wage moderation in collective bargaining.
Franz Traxler has argued that open international markets impose ambivalent pressures on national
industrial relations actors, and that this is most evident in the case of collective bargaining. Intensified
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market competition has accentuated companies’ need for flexibility with regard to wages, hiring, working
time etc. This creates a primarily employer driven strive for decentralisation of collective bargaining to the
company level. However, at the same time intensified market competition “has caused growing mutual
externalities and interdependencies among all economic actors. Due to economic internationalisation, this
mutual interdependence has grown not only within but also across countries. For instance, Europe’s single
market and, in particular EMU, have increased the mutual externalities of the national systems of wage
bargaining.” (Traxler 2003:194). Further, Traxler identifies two basic employer responses to these
ambivalent pressures. That is either a form of deregulation through decentralisation creating incentives for
flight from MEB, , or the establishment of some form of ‘organised decentralisation’ (Traxler 1995), possibly
supplemented by union attempts to foster cross-border bargaining coordination (Traxler 2009;…).
Recently, comparative political economists have argued that bargaining systems are the result of power
struggles between cross-class coalitions, that is, between sector-based groupings of capital and labor. The
so called cross-class alliance literature (Swenson 1991; 2002) posits that employers in manufacturing have
pursued MEB strategies, firstly, to regulate their internal competition and, second, to control the costs of
labour and other inputs in their supplier industries. As manufacturing companies are exposed to
international competition, they have an interest in controlling labor costs of their suppliers in homemarkets, such as construction and transportation. Given unions’ preference for MEB, this would suggest
that employer coalitions and struggles between them are key drivers in developing MEB. Mapping the
constellations of employer coalescing and tracing the processes of specific power struggles – or critical
junctures – should thus be analytical focal points in accounting for changes in bargaining systems (Mahoney
& Thelen 2010).
Empirical review: Divergent patterns of change and consolidation of Nordic MEB
In this section, we review the main adjustments undertaken in the multi-tiered, Nordic MEB systems since
the 1980s, drawing attention to the divergent patterns of employer coalition-building and strategies
applied to obtain roughly similar objectives. Aimed to restore wage restraint, Danish and Swedish
manufacturing employers settled on a course towards stronger coordination at the sector level,
complemented by delegation of actual wage setting to company levels. In Finland and Norway,
manufacturing employers went along with union-state initiatives to restore wage restraint through
strengthened peak level concertation, which in Norway paved the way for return to manufacturing based
pattern bargaining supplemented by company negotiations. In Finland, by contrast, where company
bargaining has remained weakly developed, employers have recently tried to escape tripartism by calling
for decentralization, causing tension with unions and politicians.
Denmark: Organized decentralization driven by strengthened employer side ……
In Denmark the 1970s was a particularly contentious decade, with four government interventions into
collective bargaining by a Social Democrat-led government. In the 1980s, this led to a shift whereby the
employers and trade unions– responding to pressure from the state – sought out new solutions to the
balance problems in the bargaining system (Due et al. 1993). In particular the employers in the
manufacturing sector wanted to do away with the negotiations at the confederate level, as they saw this as
an element pumping up expenses when the negotiations at the branch and workplace levels led to
significant wage drift (Ibsen & Stamhus 1993). In the wake of the Conservative government’s intervention
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into collective bargaining in 1985, the confederations of labour and employers – LO and DA (Dansk
Arbejdsgiverforening) – got together with the government to find a solution. Since coming to power in
1982, the Conservative government had signalled that fighting inflation was a primary objective and a
condition for being able to bring down high levels of unemployment – and now the partners had to prepare
themselves for this course. This resulted in a tripartite declaration of intent, the Joint Declaration
(Fælleserklæringen) from 1987, where the unions obliged themselves to wage moderation in return for
employer promises regarding increased investments and jobs. Part of this statement also dealt with
increased private savings by developing occupational labour market pensions. The motto was ‘job feast
instead of wage feast’ , where wage developments were to be brought in line with the developments in
neighbouring countries, especially Germany, in order to ensure Danish jobs.
In 1991, all major employers’ associations in the Danish manufacturing sector were amalgamated in The
Confederation of Danish Industry (DI). Key-arguments among the employers for taking this step were the
need to simplify the bargaining system (primarily by reducing the number of collective agreements), and
further, the wish to decentralise bargaining to the company level to meet companies increasing demand for
flexibility. The main aim was to ensure the competitiveness of Danish industries. Still, sector agreements
now more in the form of frame-work agreements were kept in place. DI immediately became the new
strong player among employers’ associations, covering more than half of the total wage-sum paid by
private sector employers organised in The Danish Employers’ Confederation (DA). On the employee side
The Central Organisation of Danish Metal Workers, CO-Industri, were formed in order to match the DI in
the bargaining process. The CO-Industry is a bargaining cartel - an umbrella-organisation – today
representing 8 LO affiliated blue-collar trade unions in the manufacturing sector. This bargaining cartel is
employing a fairly small secretariat headed by the president of the metal-workers federation (see also
Madsen et al. 2009).
The decisive processes facilitating the strengthened coordination since the 1980s were the forceful
centralization of the employers’ associations over the last three decades, making DI by far the largest
affiliate and principal agent, while reducing the number of associations in DA has been reduced from 150 to
13. The by far largest organization is the Confederation of Danish Industry (DI) c.f. above. Albeit the DA
executive committee must approve the renewal of collective agreements, it is because of DI’s size and
overwhelming weight very difficult to break DI’s pattern with respect to labour cost increases. This spurred
centralization also on the union side, as the LO associations in manufacturing developed CO-industry. In
response also unions in other branches have developed negotiation cartels, improving conditions for
coordination although they are not direct parties to agreements. Moreover, LO – in contrast to DA – does
not have the capacity to ratify the collective agreements of its affiliates, which on the employer side
ensures DI a virtual veto against break-out deals.
These changes marked a break in former trends. Ever since the establishment of the Danish collective
bargaining system in the 1890s and until the end of the 1970s, the system had moved towards an ever
more centralised pattern of negotiations. Especially, the trade union confederation (LO) had pushed for
centralized incomes policies during the 1970s. Throughout the 1980s the employers succeeded in
introducing some elements of decentralisation, but it was the bargaining rounds in the early 1990s
following the formation of DI in 1992 that established and confirmed the new bargaining structure (Due et
al. 1993, Due & Madsen 2006).
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Sweden: Employer quest for company bargaining and union driven sector coordination
In Sweden, peak level negotiations between the Swedish Employer’s Association, SAF (Svenska
Arbetsgivareföreningen) and LO (for blue-collar workers), TCO (white collars), SACO (academics) , came
under serious pressure in the 1980s and ultimately broke down in 1990, when SAF withdrew from all forms
of calling for full decentralization of wage setting (Kjellberg 1998). Previously, the employers in
metalworking Verkstadsföreningen managed to convince IF Metall (LO) to join their exit from peak
negotiations in 1982, spurring tension both among the trade unions and the employer organizations. As in
the other Nordic countries, the background was the widespread wage drift at the sector and workplace
levels, which undermined the central coordination (Elvander 2002; Kjellberg 1992). Employer competition
for labour and leap-frogging and wage rivalry between the various trades and professions, both within and
across the union confederations (LO, TCO and SACO), propelled higher wages and salaries as compensation
for drift in other branches – in other words, an ascending wage spiral (Ahlén 1989). The employers in the
metalworking industry, followed by their union counterpart, wanted to break the spiral through exit, thus
undermining the confederations’ negotiations and re-introducing negotiations at the branch level; which in
their opinion could make the parties more accountable while at the same time linking productivity and
wages closer together (Stokke 1998).
The erosion of coordination in the confederal bargaining rounds meant more chaos, and in the wake of the
crisis in the early 1990s, the government stepped in. First, with a failed attempt at income policy, thereafter
with the Rehnberg Commission, which assisted the parties with mediation and coordination in order to reachieve wage restraint across branches and sectors in line with wage growth abroad (Elvander 2002). The
Commission was a success from 1991, but the coordination broke down in 1995, when bargaining was
plagued by conflict and led to higher wage increases than abroad despite high unemployment and
continued economic problems.
The 1995 breakdown led to a new initiative in 1996-7 when eight manufacturing unions, comprising LO,
TCO and SACO unions, formed The Swedish Unions within Industry (Facken inom industrin) and then
eventually succeeded in concluding the so-called Industrial Agreement with 12 employers’ organisations in
manufacturing. Even before that, in 1992, a core group of these unions established a joint bargaining
council, aimed to prevent employers from forcing through a radical decentralisation of bargaining. There
are several reasons why the manufacturing employers accepted the agreement in 1997. First, following the
policy of industry-based bargaining, they had in the 1993 and 1995 pay rounds seen how lack of
coordination generated too costly outcomes. Second, the government had pressured the labour market
organisations to come up with new initiatives ensuring that wage growth would not exceed the European
norm (average of pay increases in comparable EU/EEA countries (Edin 1995); and, third, the manufacturing
employers saw a common interest with their union counterparts in reducing state interference in
bargaining as well as keeping inflation low and securing competitiveness. As in German manufacturing
(Thelen 2000), the employers clearly also wanted to prevent the rise in local conflicts and wage drift that
could be expected with full decentralization to the company level in manufacturing where the unions had
the most powerful clubs in Sweden (Wrange 2001; Dølkvik and Vartiainen 2002). Consequently, the
manufacturing employers refrained from following the SAF/confederal quest for full decentralisation of the
bargaining system (Elvander 2002, Kjellberg 2007).
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There is no doubt that the changes in these key-bargaining sectors were significant, even in the longer
historical perspective. The Swedish Industrial Agreement from 1997 has been characterised as the most
important innovation in the Swedish industrial relations system since the Basic Agreement signed at
Saltsjöbaden in 1938 (Elvander 2002). Encompassing all federations on both sides and cutting across the
divisions between LO, TCO and SACO, the agreement introduced a new structure for wage negotiations, but
also established systems for conflict resolution and mediation via ‘impartial chairs’, introduced a number of
partial committees etc. focussing on shared data regarding economic and industrial development, and
furthermore, underlined the status of manufacturing as the key-bargaining sector.
Norway: Wage laws, Solidarity Alternative and return to industry based pattern bargaining
Like the other Nordic countries, Norway was ridden by huge economic fluctuations in the 1980s. High levels
of conflict and wage-price inflation threatened competitiveness and employment. As rivalry between
trades and professions eroded the confederations’ control over wage growth, the employers called for
decentralization of collective bargaining and more flexibility (Dølvik and Stokke 1998). In 1986, the
manufacturing employers’ mass lockout was a complete failure, and the Norwegian Employers’
Confederation (Norges Arbeidsgiverforening) and the Norwegian Industry Confederation (Norges
Industriforbund) were in 1988 hastily merged into NHO (Confederation of Norwegian Enterprise/
Næringslivets Hovedorganisasjon). After a shift in government amid diving oil-prices and the burst of the
Norwegian finance and real estate bubble the Social Democratic government prodded the social partners
to resurrect wage moderation via tripartite cooperation and in 1998 the very modest agreement between
LO and NHO was extended to the entire labour market via legislative intervention (lønnsreguleringsloven)
aimed to break the wage spiral. In order to counteract wage drift in local negotiations, the so-called “four
criteria” included in the metalworking agreement in 1982 – requiring that local wage formation was based
on the company’s competitive situation, productivity development, future prospects, and the national
economic situation – was firmly established in an agreement between NHO and LO when the wage
legislation was repealed in 1990 (Stokke 1998).
The tripartite cooperation was further reinforced in the Solidarity Alternative (Solidaritetsalternativet)
(NOU 1992: 26), whereby the parties were to ensure moderate wage growth via central coordination, the
central bank was to ensure a fixed exchange rate, and the government was to lead an employment-friendly
fiscal policy. The social partners did their duty in this division of labour based on manufacturing setting the
pattern for the rest of the labour market until 1996, when there was a strike in the front runner agreement
(værkstedsoverenskomsten), and wages increased much more than abroad. After the Asian crisis in 1998
sent the Norwegian economy into a new dip, a number of government appointed commissions were
subsequently assigned to figure out how best to restore coordination – eventually leading to inclusion of
wage increases among individually negotiating white-collar employees when determining the ‘framework’
decided by the pattern-setting agreement of the parties in metalworking.4
Reports from e.g. the Arntzen Committee (NOU 1999: xx), the Stabell Committee (NOU 2014: 14) and three Holden
Committees (NOUs 2000, 2003, 2013) illustrate how tri-partite commissions are used to update, consolidate and
anchor the actors’ shared sense of reality and ensure support for adjustments in the Norwegian coordination model.
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The private employers (NHO) have repeatedly expressed their preference for more company based
collective bargaining (NHO 199x, 2001, 2013), and in the tripartite Stabell commission (NOU 2001: 14) they
made very clear that while their first preference was decentralization their second preference was strict
top-level coordination to keep control with wage setting in the domestic and public sector in particular. In
view also of the lower rates of unionization and collective bargaining coverage, tendencies of bargaining
fragmentation in domestic sectors, and the much smaller pattern-setting agreement in manufacturing than
e.g. in Denmark and Sweden, the employers thus went along with adjustments in the Norwegian MEB
system that entailed markedly more centralizing elements than in the neighbour countries. Collective
agreements, typically running over two years, have a number of built-in centralized elements. Firstly, the
export industry’s parties, Fellesforbundet (LO) and Norsk Industri (NHO), negotiate a pattern-setting
agreement (the front runner model), which other branches and sectors are supposed to follow. All affiliate
agreements have to be ratified and signed by NHO and LO, and the same applies to affiliates’ decision to
launch industrial action. Secondly, the collective bargaining rounds in the private sector are occasionally
carried out directly between LO and NHO – so-called coordinated pay rounds – which always occurs in the
so-called mid-term negotiations (mellemopgør) after the first year of the 2-year collective agreement.
Before the annual pay rounds, LO and NHO establish platforms for the negotiations discussed by all their
affiliates, where the export industry is assigned to go first and set the pace. Thirdly, besides a range of
incomes-political bodies gathered before every pay round,5 the Norwegian mediation institution powerfully
contributes to coordination in line with the Danish conciliation institution (Stokke et al. 2013).
Finland: Resurrection of tripartite concertation and renewed tension of decentralization
As of 1968, wage formation in Finland has been the result of centralized income policy, whereby the export
industry has set the standard for the rest of the labour market (Lilja 1992). In spite of the tradition of
incomes policies, the Finnish economy was prone to high inflation, volatile cyclical swings in the dominant
paper and pulp industry, recurring devaluations and conflicts over compensation (Vartiainen 2011b). In the
beginning of the 1990s, Finland was struck by a massive economic crisis. On the background of a financial
bubble, an overheated economy and the loss of trade with the Soviet Union, the bottom fell out of the
economy and unemployment soared to over 17 per cent in the years 1991–94 (Vartiainen 2011). This led to
the right-of-centre Aho government and the STK employers wanting to do away with the national income
policy and follow in the path of Swedish SAF, underpinned by lockout threats amid the slump. The declared
objective of decentralizing wage formation was to stem the recurring problems with inflation and curb the
wage and price spirals. However, it never came to reality, and in 1995 Lipponen’s ‘rainbow’ government
managed to resume income policy by means of a broad Social Pact leading aimed to regain control over
wage inflation, increase employment and ensure that Finland could join the euro in 1999. Without
monetary policy instruments – especially the frequently used devaluation weapon – the actors agreed that
stronger aggregate wage flexibility, underpinned by buffer funds, were needed to enter the EMU (Bolt
199x; Dølvik 2004).
By the turn of the millennium it therefore appeared as though the unique income policy model for
negotiations in Finland, with agreements between the confederations and the government, had been
Among the most important are the Technical Calculation Committee (TBU) – defining the facts regarding economic
prospects, wage growth etc – and the Contact Committee where the actors meet with the Prime Minister before every
pay round (Stokke 1998; Stokke et al 2011).
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reinvigorated. Moreover, the Finnish competitiveness and economy in general were improved
considerably, with strong productivity development and growth in branches with high value creation, as
best exemplified by Nokia, the mobile telephone company (Vartiainen 2011). The income policy was based
on the situation in the exporting industry and meant – strong control over the wage development in the
domestic branches and the public sector. The trade unions also accepted preservation of the inherited
wage structure by limiting higher wage increases to low-wage groups. In the 1990s and 00s, Finland,
together with Sweden, experienced very low increases in unit labour costs in manufacturing, actually
comparable to those of Germany (whereas the unit labour cost increases in the other Nordic countries was
far stronger).
It was therefore somewhat surprising when the confederation for the employers, EK (previously TT and PT),
in contrast to former crisis experiences, withdrew from the income policy cooperation in 2008 on the
background of demands from the export industry employers’ association, Teknologiateollisuus. The export
industry employers had successfully demanded more decentralized negotiations in 2007 (Bergholm &
Bieler 2013). The employers were interested in more flexible wage formation, with wage differentiation for
each sector, company and individual, as in Sweden and Denmark. EK marked this decision by – like SAF in
Sweden – dissolving the negotiating unit in the confederation. Upon this move, there was increased
instability in connection with wage setting, with growing deviations from the standard-setting agreement in
the export industry. Some low-wage areas had drawn higher per cent raises from the negotiations, and
there had been threats of numerous labour disputes (Bergholm & Bieler 2013).
Nevertheless, the sector-specific negotiations still coordinated, while the local wage setting remain poorly
developed. Due to the deepening crisis in the Finnish economy and renewed support for an income policy
settlement in 2011 from the new Kataineen government, the employers were again pressured into signing
an income policy deal in 2011. EK accepted this on the condition that the agreement on wage moderation
was implemented widely in the labour market and that the agreement was regarded as a framework
agreement that left open opportunities for local agreements. Conversely, the SAK, STTK and AKAVA unions
accepted the agreement, because it restored the income policy and improved a number of conditions, such
as education, parental leave and conditions for atypical employment (EIRO 2011).
In 2013, the Finnish government encouraged the social partners to enter another central income policy
agreement to get control over the wage formation and restore competitiveness and the purchasing power
of wage earners – again, in the light of the Finnish economic downturn. This came about towards the end of
October 2013, when STTK, SAK EK signed a new peak level agreement on very moderate wage increases for
two years.
It is still too early to assess the consequences of these developments during the crisis for the Finnish MEB
model and what are the medium-long-term aims of the manufacturing employers. I may seem, however,
that what they aim for is something like the development in Sweden. Some trade unions have welcomed
increased local wage setting – particularly the unions and professional associations for well-educated
groups with strong union representatives. Even the employers have admitted that there is a need for
development of a stronger role for representatives at the local level if more flexible, decentralized wage
formation is to flourish. The confederations for workers (SAK), white-collar workers (STTK) and academics
(AKAVA) have argued against decentralization and announced that they will step up coordination on the
employee-side if the income policy is going to be abandoned once and for all. At the time of writing, it is
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therefore too early to determine whether the turn of events in 2011 and 2013 signals a permanent return
of income policy or merely a brief re-visit imposed by the dire situation in the Finnish economy.
Why Nordic employers stay put … some preliminary reflections…
In accounting for manufacturing employers’ role in maintaining the relative stability of the Nordic MEB
systems and their diverse trajectories of adjustment, a critical factor is, first, the prior extent of articulated,
multi-tiered bargaining which seems essential to understand the variations in the actor strategies to curb
inflation and restore competitiveness. Two-tier bargaining has been weakly developed in Finland and
somewhat less widespread in sectors outside manufacturing in Norway than in Denmark and Sweden.
Second, the encompassingness and relative strength of the manufacturing cross-class actor coalition in the
prior configuration of peak-level coordination, and its capacity to shape the overall trend in wage setting
(and resist fragmentation), evidently had a strong impact on the strategies chosen by thee manufacturing
employer associations. As Swedish manufacturing employers had opted out of the prior bargaining
coordination in SAF, they had supposedly limited influence on the strategic choice of SAF (supported by big
MNCs) to call for full decentralization, contrasted to the Danish DI that virtually ‘took over’ DA and
controlled the strategy of the entire private employer side in Denmark. These differences points to the
importance of employers’ organizational structures, which were more fragmented in Sweden, and of
power-relations and cohesion in the former pattern of confederal coordination. In Norway, the severely
wounded manufacturing employers, due to their disastrous lockout, had no other option than relying on
their confederation and its state and union counterparts in restoring traditional peak level coordination, at
the same time as a higher degree of fragmentation in other bargaining domains than e.g. in Sweden and
Denmark made industry bargaining a risky option. In Finland, the combination of weakly developed local
bargaining, no established routines for autonomous pattern bargaining, and the manufacturing actors’
powerful roles in their respective confederations made state-sponsored recentralization the safest bet.
Third, in all cases critical junctures created by severe economic and political crises –were decisive in
prompting manufacturing to reconsider their strategies, though with very different options. Their choice of
approach was, fourth, evidently strongly conditioned by differences in institutional legacies as to the extent
and form of incomes policy concertation and government intervention in wage setting. While Finland and
Norway had a long tradition for tripartite incomes policies, and even wage legislation in Norway, the thrust
in such solutions had dissipated after a decade of failed incomes policies in Denmark, and were anathema
in the Swedish context where the autonomy of collective bargaining has been sacrosanct.
These points will be further elaborated, amongst others looking closer on how the strategies of the
manufacturing employers and their union counterparts were conditioned by the prior broader pattern of
confederal vs industry-based coordination, bargaining coverage, organizational structures, the role of the
state, and the manufacturing actors’ power resources and options in these contexts.
Recent developments and challenges
While the different courses of adjustment of MEB systems in Denmark, Sweden, and Norway were followed
by a long period of stability, low conflict, strong performance and signs of convergence, the Finnish
manufacturing employers seem in many respects to have shifted onto a path that resembles that of their
Swedish ’ counterpart 30 years ago. Thus far, state and union pressure have brought them back into the
fold, but it remains to be seen whether this is only a postponement of further change imposed by the
current economic crisis. Clear, however, is that the external conditions for adjustment of MEB have become
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more demanding, particularly in Finland where ceding of the devaluation weapon and other monetary
policy tools in EMU, together with the mounting constraints of the EU regime of economic governance,
implies that adjustments aimed to improve competitiveness to a larger extent fall on the social partners
than in the 1990s crisis. This applies partly also to Denmark, which maintains its Euro-peg.
Common to all four countries, however, is that the interaction of external and internal change have posed
new collective action dilemmas for the bargaining actors and reinforced old ones:

Union decline, especially in vulnerable sectors, mirrors membership exit in the top and the bottom
of the labour market; density is still high on employer side, but growing shares of members without
CA may contribute to shrinking MEB coverage. Altogether this may point to scenarios where MEB
mainly persist in the shrinking middle of the labour market.

Europeanization of labour and services markets, spurring low wage competition, accentuates such
tendencies and has prompted more individual employers to partial or full “exit” from MEB by
locating production outside MEB. The rising gap between the scope of the agreements and the
labour market – favouring firms unbound by agreements – accentuates classic collective action
problems on the employer side, reflected in diverging Nordic employer views on how to cope.

In Sweden, SN supported Laval, while Teknikföretagen has called for a statutory minimum wage
(formerly taboo in Sweden), while in Norway the main employer associations have reluctantly
accepted extension of MEB agreements, reflecting division between home and export sectors,
causing tension with unions in the latter. By contrast, employers in Denmark (DA/DI) swiftly
entered tripartite settlements with the union and state counterparts, and in Finland application of
extension of MEB agreements in line with tradition has caused little visible conflict.
Nordic manufacturing employers thus find themselves in divergent contexts, illustrated by their diverse
views on the need for extending wage floors, and the means to do so. A common feature, however, is that
manufacturing employers, exposed to fiercer price competition, tend to be among the most eager to take
advantage of cheap foreign labour and therefore among the most reluctant to extend collectively
bargained wages to foreign labour and service providers. Thus, they tend, ironically, to move into positions
where their former roles as guardians of strong MEB coordination are replaced by stances that seem to
legitimate trends towards the opposite, that is, further erosion and hollowing out of MEB. Apparently this is
of minor concern as long as it allows replacement of expensive domestic labour and suppliers with cheaper
international ones, compounding the hypothesis that control with own labour, supplier, and production
costs is the key interest shaping manufacturing employer federations’ bargaining strategies.
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