Labour Institute for Economic Research Labore
Finland
Finland and Sweden are both countries with a long tradition in collective agreements. Both countries are small open economies where the role of exports for economic growth is significant. Sweden is also one of Finland's most significant competitor countries. In public discourse, Sweden is often used as a model country for Finland for local bargaining, where local agreements are common, and there is no legally mandated general applicability of collective agreements. However, in Sweden, collective agreements cover nearly 90 percent of wage earners, and wage disparity is among the lowest in Europe.
The aim of this brief article is to focus on differences in the role of local wage formation in public sector agreements in Finland and Sweden. Before going to this topic, it is useful to present some other comparison information of the collective bargaining systems in both countries from more general perspective. Characteristic features of collective bargaining system in both countries are the high level of organization rates on both sides, high coverage of collective agreements, central role of the collective agreements in the labour market, and the labour peace obligation resulting from agreements, a two-tiered agreement system with a sectoral level and a local level, with the sectoral level being central of the two levels.
In both countries the trend in the collective bargaining system has been towards decentralization, i.e., move towards a bigger role played by local level bargaining. At the same time a characteristic feature of the model in both countries is the important role given to the export industries as setting the norm for the pay rise which other industries cannot exceed. In Sweden there is more consensus of this type of pattern bargaining, but in In Finland not all employee side social partners have accepted this model.
A significant feature is that in both countries the collective agreements define the minimum level for the terms and conditions of employment applicable in a particular sector. The significance of national-level agreements in local wage negotiations in Sweden varies significantly depending on the type of local collective agreement. Medlingsinstitutet classifies collective agreement types into seven different categories based on how much flexibility they allow for local bargaining: (i) Local wage formation without restrictions, (ii) Local wage formation with a fallback provision defined in collective agreement on the size of pay increases if local parties cannot agree on the pay increase, (iii) Local wage formation with a fallback provision and some form of individual guarantee if local parties cannot agree on the size of a pay increase. (iv) Pay pot with individual guarantee or alternatively a minimum increase defined in collective bargaining, (v) Pay pot without individual guarantee – the collective agreement defines the pay increase but leaves the distribution to local negotiating parties, (vi) General increase and pay pot – the collective labor agreement defines a general increase for everyone, and a locally divided wage pot, and (vii) General increase – the collective labor agreement specifies the level of a general increase for everyone. Similar type of classification for pay rise types has been used by Tulo- ja kustannuskehityksen toimikunta previously in Finland.
Using these kind of classifications makes it possible to compare differences in the role of local level wage formation in the public sector agreements between Finland and Sweden. According to Medlingsinstitutes statistics more decentralized wage formation types dominate in the public sector in Sweden (unlike in the private sector). In the public sector in 2020, 52 percent of wage earners were within the scope local wage formation without restrictions (type i), and 12 percent were in the scope of local wage formation with a fallback provision (type ii). Nearly all white-collar workers in the public sector were covered by these two types (i-ii). For blue collar workers in the public sector the most common type was type v where collective agreement defines the pay increase but leaves the distribution to local negotiators.
In Finland the latest comparison statistical information is from 2018. It interestingly shows that in Finland the role of local bargaining on wages is not all as significant in the public sector collective agreements than in Sweden. Both in municipalities and in state sector, for all or nearly all employees pay rise was a combination of a general wage increase and a locally divided wage pot. Even today the generally agreed part dominates.
In both countries public sector employment is female dominated and includes a lot of workers in occupations such as nurses and teachers. For these groups it has been difficult to improve their relative wages when wage rises have been restricted by wage norm set by export-oriented industries. In Sweden the transition of public sector employees in these occupations towards local wage formation without restrictions reflects these difficulties.