WAGE FORMATION AND EMPLOYMENT POLICY IN NORWAY

Transcription

1 WAGE FORMATION AND EMPLOYMENT POLICY IN NORWAY 1. Labour market and collective bargaining in the 1990-ies 2. Institutions in the wage formation. Collective bargaining and union density 4. Strong coordinating mechanism 5. Government involvement through permanent institutions 10th workshop on alternative economic policy in Europe Stein Reegård, Chief Economist Norwegian Confederation of Trade Unions 25 th of September 2004

2 2 * * * During the 1980-ies many countries experienced problems with combining low inflation with acceptable levels of unemployment. Low inflation was by many governments regarded as an neccesary restriction on the macro economic development, given the low inflation regime among trading partners. For some governments low inflation was handled as a goal for its own sake. This paper gives a brief presentation of an approach taken by the Norwegian Labour Government in cooperation with the social partners to restore low unemployment without speeding up inflation in the 1990-ies. Incomes policy to influence the wage formation was an important part of this approach, outlined in the following pages. After having Center-right governments after year 2000 important elements of the model has still been working in spite of strong tensions between unions and the minority government. 2

3 1. LABOUR MARKET AND COLLECTIVE BARGAINING IN THE 1990-IES In the late 1980s and early 1990s, the Norwegian economy, as many others, was characterised by sluggish economic growth, deteriorating competitiveness, with companies losing market shares, and a strong increase in the unemployment rate.there was a need for a policy approach designed to be an alternative way to tackle the challenges which few countries managed: to combine employment growth with a balanced development in other areas. In order to make such a development stable and sustainable, one should, inter alias, have a low and controlled inflation. In other words, this exercise aims to push the Philips-curve into a better position to combine low unemployment and low inflation. Labour market and Philips-curve Inflation With income policy Without income policy Unemployment In order to tackle this situation, a government-appointed tripartite Employment Commission came forth with recommendations in the summer of 1992 the socalled Solidarity Alternative Framework, which can be summed up in the following three policy areas: - Incomes policy: a platform for co-operation between the Government and the social partners on co-ordinated wage formulation in order to curtain inflation with the help of the strong position of labour market organizations and through tripartite co-operation.. - Active macroeconomic policy: fiscal policy used actively to stabilise activity in the economy; monetary policy geared towards a stable exchange rate. - Active labour market policy: aiming at facilitating structural adjustments, reducing adjustment costs and maintaining the unemployed persons contact with the labour

4 4 market. This requires a well-developed information system to match vacancies and the unemployed, and comprehensive programmes to give them possibilities for employment, targeted education, training and temporary jobs. 4

5 2. INSTITUTIONS IN THE WAGE FORMATION 5 Both legislation (Act of Labour Disputes, Act of Public Service Disputes) and collective agreements between the main parties on the labour market make out the national framework. The Basic Agreement between the Norwegian Confederation of Trade Unions «LO» and the Confederation of Norwegian Business and Industry «NHO» (or other employers), which is often called as the constitution of the Norwegian working life, defines rules of conduct regarding procedure, shop stewards, strikes and so on. The first Basic Agreement between LO and the employers was signed in 195. Basic Agreements are subject to revision every fourth year. An important characteristic of the Norwegian collective bargaining system is the high degree of co-ordination, see chapter 4. Another important point is the relatively active part which the Governments (mainly out of the Norwegian Labour Party or the centre/left side parties) play in influencing labour market outcomes. Incomes policy has played an important role in economic policy-making. To facilitate the implementation of such policies, a number of institutions and ad hoc committees have been established, serving to strengthen the co-ordination of wage determination. During the contract period (when an agreement between the parties is in force), there is a peace obligation, which means that the parties have to refrain from work stoppages. Disputes on a collective agreement with regard to its validity or interpretation (the so-called dispute of right), can only be solved by negotiations or by the Labour Court with members also from the parties on the labour market. A dispute concerning the conclusion or amendment of a collective agreement is a dispute of interest. Mediation of disputes of interest is however compulsory, and there is an office of the State Mediator. Government does not interfere in the collective bargaining as such, unless it is invited in the tripartite settlements where the parties ask for contributions for example on social reforms. If mediation is terminated without result, or a proposal for a new agreement is rejected, a strike or lockout may take place. However, strikes threatening life and health or important functions of society might be stopped by a special Bill of the Parliament, and the conflict is to be resolved at the National Wages Board, a committee for compulsory arbitration with members also from employers and employees organisations. 5

6 . COLLECTIVE BARGAINING AND UNION DENSITY 6 An important aspect of the wage formation mechanisms is the coverage of collective bargaining. Trade union density measures share of union member among all wage and salary earners. Collective bargaining coverage measures on the other hand share of wage and salary earners who are covered by the collective bargaining/collective agreements. Those two abovementioned measurements may not be the same. Most of the OECD-countries have higher collective bargaining coverage than trade union density, due to universalising collective agreements by legislation or agreement. The union density in Norway has been relatively stable over the last two decades, around 55 per cent. This is higher than most other countries, yet lower than our Nordic neighbours, partly reflecting the fact that unemployment insurance in Norway is organised by the state and not by the unions. The union density varies remarkably between different sectors of the economy. The public sector has the highest proportion of employees organised in unions (over 80 per cent), followed by the financial sector, manufacturing and transport. Other private service sectors, such as wholesale and retail trade, hotels and restaurants, have comparatively low union density (20-25 per cent). The most representative and the largest workers organisation is the Norwegian Confederation of Trade Unions (LO), with 25 affiliated national unions often vertically organised in all industries and the public sector. LO has members, who make up half part of the organised labour force. Almost 45 per cent 6

7 of LO's members are women. In some national unions, women make up /4 of the membership. 7 In the early 1970s, LO was the only major trade union confederation. But in the course of the 1970s other coalitions emerged: the Confederation of Vocational Unions «YS» and the Federation of Norwegian Professional Association «AF» (dissolved in 2001). During the recent years, there have been some split-ups and mergers among the workers organisations outside the LO. The landscape today can be illustrated by the following figure: The Norwegian Confederation of Trade Unions (LO) 50% of the union members in total + The Confederation of Vocational Unions (YS) 15% of the union members in total The Federation of Education Groups (UHO) 18% of the union members in total The Federation of Professional Associations (Akademikerne) 7% of the union members in total + A number of independent trade unions 10% of the union members in total On the employers' side, the Confederation of Norwegian Business and Industry (NHO) is the largest and dominating employers organisation in the business sector, with about one fifth of the total work force in its member enterprises. NHO organises employers in manufacturing, oil and mining activity, construction and some services. Employment trends have increased the importance of the public sector as an employer. There are two bargaining units in the public sector: the state government represented by the Ministry of Labour and Government Administration (AAD) and the local government sector by the Association of Local Authorities (KS). Together they cover more employees than the NHO. In addition, a new employers organisation (NAVO) for independent state enterprises and units was founded in 199 and covers more and more employees as results of the reforms in the public sector. By tradition, LO/NHO settlements (mainly covering industrial production) play the role as pacesetter in the bargaining rounds. Once the LO/NHO settlement has been struck, bargaining starts in the public sector, with outcomes strongly influenced by LO/NHO agreements. The timing of bargaining in other sectors is less regular. Settlements reached with LO are also extended to non-union workers in all establishments covered. Moreover, The LO-agreements are frequently taken over by non-member firms where the workers may or may not be unionised. The traditional pacesetting role of LO/NHO agreements has for a long time contributed to make the competition-exposed sector the wage leader in the economy. 7

8 4. STRONG COORDINATING MECHANISM 8 The Norwegian bargaining system could be described as multi-tiered. Bargaining might be carried out: - Nation-wide - Industry/branch-wide - By enterprise - Individual between employee and employer Whether negotiations are to be carried out centrally by LO/NHO or by the national branch organisations in the business sector, is decided by LO s General Council. Industry-wide bargaining is however not totally uncoordinated since the LO is usually acting towards some co-ordination. Despite the centralised wage bargaining system, part of wage increases may still be determined outside bargaining between unions and employers organisations. The national agreements do not permit use of strikes and lockouts in local bargaining. Wage drift the difference between actual wage increases and increases negotiated at the central level varies from industry to industry. Wage drift in manufacturing in the 1990s on average accounted for just little over ½of the total annual wage increases, while wage drift is much smaller in the public sector, around 10 pct. of the average wage increase. Duration and scope of wage contracts strengthening coordination The contract period of central wage settlements has always been two years, with provision mainly to adjust wages for inflation in the second contract year (the socalled intermediate bargaining round). Intermediate bargaining round is always centrally co-ordinated within LO. Majority of the wage agreements, both in the private and the public sector, expires in the spring (April May). This is also a special Norwegian feature. When most of the wage agreements expire at nearly the same time and they must be negotiated on/revised within a relatively short period, it self becomes a co-ordinating factor. Minimum pay There is no statutory minimum wage in Norway, but wage agreements may contain pay minima. Since 1980 in the business sector, there has been a system of guaranteed wage increases for low pay (so-called Low Pay Guarantee). The mechanisms of the system differ from branch to branch. The basic idea is to give (automatically) adjustments if the average wage in a branch or enterprise falls below a certain percentage (usually 85 pct.) of the average wage in manufacturing. Traditionally this 8

9 system has meant a lot to keep up the wage level in private services as well as low paid industries as textile and clothing. 9 Another way in often use to adjust low pay is to give additional wage increase in nominal terms to those whose wage income is at a defined low level (for instance below a certain percentage of the average wage of a manufacturing worker). Equal pay between women and men is also an important concern in bargaining. In the public sector it has been centrally decided that increments locally negotiated should be distributed to women to a higher degree than their number indicate. More than wages Not only wage terms are determined in the wage agreements, but also a lot of other terms regarding the working conditions and social arrangements are subject to determination in the wage agreements. Those are for instance: - Working time (placement, length, day/night/weekend work, shift work, breaks, vacation/vacation allowance and spare time, sick leave/sick leave pay, etc.) - Pension (agreement-based pension) - Training and lifelong learning - Prohibition against discrimination in employment (e.g. discrimination on gender, union membership, religion, political opinion, sexual inclination, race/ethnic background) Coverage Although about 55 pct. of Norwegian employees are trade union members, the coverage of collective bargaining is indeed much higher. Over 70 pct. of employees are covered by the collective agreements, see otherwise Chapter 2. Comparing to other OECD-countries, Norway has a relatively high union density and coverage, but also very high degree of centralisation and co-ordination of wage bargaining. A number of international theoretical and empirical studies have been carried out in order to analyse the relationship between wage-setting characteristics on the one hand, and economic and labour market performance measures on the other hand. In spite of some variations in the results, a fairly robust relationship between the organisation of collective bargaining and labour market outcomes has been confirmed among others by the OECD Employment Outlook 2004, namely that high union density and bargaining coverage, and the centralisation/coordination of wage bargaining tend to go hand-in-hand with lower overall wage inequality. There is also evidence showing that union density, bargaining coverage and the centralisation/co-ordination of wage bargaining are positively associated with the relative wages of youths, older workers and women. 9

10 Table: Wage-setting institutions in some OECD countries, indicators 2000 Centralisation Co-ordination Bargaining governability Finland Norway Portugal 4 4 Ireland Belgium Germany 4 4 Netherlands 4 Austria 4 4 Sweden 4 Spain Denmark Italy France Japan 1 4 USA 1 1 UK Centralisation: 1. Company and plant level predominant. 2. Combination of industry and company/plant level, with an important share of employees covered by company bargains.. Industry-level predominant. 4. Predominantly industrial bargaining, but also recurrent central-level agreements. 5.Central-level agreements of overriding importance. Co-ordination: 1. Fragmented company/plant bargaining, little or no co-ordination by upper-level associations Industry-level bargaining with irregular pattern-setting and moderate co-ordination among major bargaining actors 2. Fragmented industry and company-level bargaining, with little or no pattern-setting.. Industry-level bargaining with irregular pattern-setting and moderate co-ordination among major bargaining actors 4. a) informal co-ordination of industry and firm-level bargaining by (multiple) peak associations; b) co-ordinated bargaining by peak confederations, including government-sponsored negotiations (tripartite agreements, social pacts), or government imposition of wage schedules; c) regular pattern-setting coupled with high union concentration and/or bargaining co-ordination by large firms; d) Government wage arbitration. 5. a) informal co-ordination of industry-level bargaining by an encompassing union confederation; b) co-ordinated bargaining by peak confederations or government imposition of a wage schedule/freeze, with a peace obligation. Bargaining governability: 4. when collective agreements are legally enforceable and there is an automatic peace obligation during validity of the agreement.. when collective agreements are legally enforceable and there are widespread (but optional) peace obligation clauses in agreements. 2. where there is legal enforceability, but no effective tradition or practice of peace obligation clauses. 1. where neither of the above conditions are effectively present. Source: OECD Employment Outlook

11 5. GOVERNMENT INVOLVEMENT THROUGH PERMANENT INSTITUTIONS 11 The functioning of the labour market in terms of wage and income formation can be influenced through a cooperative political process, often called consensus policy. This process is supported by more formal institutions, influencing the climate and culture for collective bargaining and industrial relations. The Norwegian governments have traditionally been involved in bargaining outcomes at the central level. This have been the case in particular when the social partners have asked for changes in legislation, social security or other important issues related to the labour market, but also to promote reasonable developments in nominal wage and prices. At times they have also intervened in the bargaining process through various legal means. On three occasions in the 1970s and 1980s, the Government introduced legislation to limit the extent of wage increases, once the negotiations between LO and NHO had been concluded. The laws governing industrial disputes call for compulsory mediation for a prolonged period before any nation-wide strike or lockout can take place. This has undoubtedly contributed to the low strike frequency compared with other countries. The State Mediator, who is usually engaged in every bargaining round, facilitates the reaching of agreements between the social partners adds to the degree of coordinated wage outcomes. Parliament has several times passed special bills to prevent or stop strikes, referring the disputes to the National Wages Board for arbitration. Since the early 1960s the Contact Committee has played a central role in incomes policy. It is headed by the Prime Minister and consists of senior Cabinet members, representatives of farmers and fishermen, and the leaders of the main employers and employees' federations. The purpose of the Committee is to exchange information, prior to bilateral negotiations, about income objectives and the economic outlook. Since the mid-1960s the economic situation and prospects for the bargaining period have been evaluated in detail by the Technical Reporting Committee on Income Settlement (TRC). This Committee consists of economists from both the LO and NHO as well as economists from ministries and the National Bureau of Statistics. Its task is to give statistical background information, to arrive at a common view about economic developments and to discuss the implications of different bargaining outcomes on the economy. For this purpose the Committee uses the same macroeconomic models as the Government does in preparing its economic policy. Both the Contact Committee and the TRC have served the purpose of increasing information available to both sides of industry, and of narrowing down 11

12 disagreements stemming from different perceptions about the future

13 Annex 1 The following charts illustrate some of the outcomes Employment Growth,0 2,2 0,4 0,4 0,0-0,9-0, Mainland GDP Growth 4,9,5 2,8 2,7 2,1 1,1 0, Employment/population ratio Unemployment rate 6,0 5,2 4,9 4,5 4,0,6, Real wage growth 2,4 1,9 1,5 1 1,1 1,0 0, Inflation: consumer prices 4,1,0 2, 2,4 2,6 2, 2,5 Public finance: budget balance as % of GDP Current balance as % of GDP ,7 7,8 9,0 6,1 2,6,4-1, ,5 1 6,4 5, 2,5 2,9,6 1

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