Social Pacts in Finland
1990s
Background
Finland has a long tradition of social democracy. Social partners are a highly integrative part of the national economic and social policy making. Together with the government, the central confederations of workers and employers’ organisations negotiate incomes policy agreements, covering not only wages but also employment and labour market policies and other social policy issues such as balanced work and family life, promotion of gender equality, social welfare and pension schemes, as well as taxation policies. The incomes policy agreements have been signed on a bipartisan basis: by workers’ and employers’ representatives, but not by the government. The government does not have the power to give binding promises to the social partners, because parliament can veto government decisions¹ However, government representatives take part in the negotiation process, and incomes policy agreements reflect tripartite consensus. The government endorses the agreements by undertaking to implement the necessary policy measures. Such measures in recent years include holiday return bonuses, earning related unemployment benefits, shortened working hours as well as tax relief. Incomes policy agreements normally last two years.
Since 1968, the social partners and the government have concluded several incomes policy agreements. The general content has changed over time. The agreements of the 1960s and 1970s concentrated on the improvement of pay and working conditions, and the social security system. In addition to these issues, the recent agreements focused on macroeconomic issues such as measures to reduce unemployment or the maintenance of a low level of inflation. Rather than listing detailed measures, recent agreements set out a broad economic and social policy framework, leaving room for initiatives and decisions at the workplace level.
These qualitative changes are related to the structural change in economy and the decentralisation of industrial relations: the Finnish economy shifted from the domination of the forest industry to a society dominated by service and information industries.
In the beginning of the 1990s the economy suffered from the recession. It experienced a record current account deficit and soaring inflation rates. The unemployment rate rose drastically from 3.3% in 1990 to 17.2 % in 1993. Consequently, policy measures to improve productivity, competitiveness and employment became some of the most important issues of discussion in incomes policy agreements in the first half of the 1990s.
During 1994 and 1995, there was a break in incomes policy agreement, because employers could not agree to start fresh negotiations. Rather than on comprehensive agreements, employers wanted to concentrate on remuneration issues and encouraged local bargaining rather than centralised agreements. However, the negotiations for a comprehensive agreement resumed again in 1995. Finnish membership to the EU (1995) triggered a renewed commitment to social concertation. The government embarked on a comprehensive economic recovery programmes to enhance competitiveness and employment. The preparation for EMU/EURO added another impetus for negotiating a comprehensive incomes policy agreement of 1998-99. The discussion on this agreement was dominated by the requirements for EMU membership, i.e. the Maastricht treaty convergence criteria.
The long-standing tradition of incomes policy agreements/social pacts has helped to maintain a positive economic and political climate through social dialogue.
¹Taken from Kauppinen (2000) "Social Pacts in Finland" in Giuseppe Fajertag and Philippe Poceht eds. Social Pacts in Europe – New Dynamics. Brussels: ETUI/OSE
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