Finnish Prime Minister Juha Sipila’s attempts to win concessions from labor unions for his economic agenda failed before he even took power.
Now he’s issued an ultimatum. Unions will need to help lower unit labor costs or face higher taxes in a move seen as a direct attack on the deep-rooted Nordic tradition of allowing unions and employers a free-hand in setting wages.
The government plan “poses the harshest threat to labor unions in Finland since the early 1990s,” Tapio Bergholm, a researcher at the Central Organisation of Finnish Trade Unions, said in an interview. “There’s nothing offered to workers. It seems to be a take-it-or-leave-it offer without any softening elements.”
Sipila, a self-made millionaire, was voted into power in April on pledges to drag the northernmost euro member out of a three-year economic slump. The premier, who promised 200,000 new private-sector jobs, warned that it won’t be easy or pleasant as deep spending cuts are also necessary to deal with swelling government debt and deficits.
The government is seeking to tamp down a gap in unit labor costs of almost 20 percent to its main trading partners, which opened up during Nokia Oyj’s glory days. Lacking its own currency and the ability to lower its external value -- situation that Nobel Laureate Paul Krugman has called a euro “straitjacket” -- Finland must now squeeze its costs internally.
“The euro has its benefits and its drawbacks, including removing devaluation from the toolbox of means to restore competitiveness,” Sipila said in an interview. “It requires that we learn to live in the single currency. Finland has devalued its currency regularly in the past, but since that’s not possible anymore, we must find other measures.”
Finland’s history of collective agreements spanning most -- if not all -- industries goes back to 1967. The format allows trade unions and employers to decide on wages, working conditions and social benefits. The agreements also apply to non-union workers, giving labor organizations significant power over issues including the pension system, even as their members weren’t elected by the general public.
“The fact that the government seems to be willing to legislate on topics traditionally left to talks between unions and employers shows that there’s a real drive to try to change the balance of power,” said Antti Kauhanen, researcher at Institute of the Finnish Economy.
The government has set an Aug. 21 deadline for unions to accept a proposal seeking to reduce the cost of Finnish labor by 5 percent over the next four years. If they don’t accept, the government has said it will roll out an additional austerity plan of 1.5 billion euros ($1.7 billion) to keep its target to close a 10 billion-euro gap in public finances by 2030.
Details of the plan haven’t been disclosed, but it could include having Finns work more for the same pay and give more freedom to negotiate working conditions, such as hours worked, on the company level, according to Lauri Kajanoja, adviser to the board of the Bank of Finland.
One option that doesn’t appear to be on the table at present is for the government to reduce obligatory social contributions paid by employers on salaries, Kajanoja said. That would create a gap in social security and pension funding the government would need to find a way to fill, he said.
SAK, the biggest umbrella group for unions, has said that the burden of reducing the cost of labor shouldn’t only fall on workers and that it’s already helped by accepting moderate pay increases in the past few years.
A possible third year of near-zero wage increases, currently being discussed by unions and employers, isn’t enough to catch up with main competitors, Kajanoja said.
“If pay hikes are about 1 percent on average per year for the next six years, Finland would catch up only about third of its lost competitiveness because pay increase in main competitors is also expected to be slow,” Kajanoja said.