Helsinki (07.12.2015 - Heikki Jokinen) Negotiations on a broad labour market pact have been developing like an ancient Greek tragedy. But instead of a catharsis it seems likely that the end result will be chaos.

How did we have come to a situation where the Finnish labour market is heading towards a lack of mutual trust and possible wave of industrial disputes?

Prime Minister Sipilä’s Government announced in September this year that they will introduce new legislation that sets the maximum limits on what can be agreed collectively in certain cases.

They will shorten annual leave, eliminate two bank holidays, make the first day of sick leave unpaid and - as the modified proposal today is - cut the holiday bonus by 30 per cent.

The fact that a Government is prepared to interfere directly in collective bargaining is totally unheard of in Finland and unique internationally, too.

The reaction from the general public and trade unions was clear: these cuts and interference in labour rights is unacceptable.This message was brought home in a major demonstration and by the huge jump in members joining trade unions.

Public reaction was so clearly against these government measures that Prime Minister Sipilä did something of a volte-face. The Government modified it's original proposal taking back one of the the most irritating proposals to reduce and limit Sunday and overtime pay by law.

Sipilä also said that should the labour market organisations agree to draft an agreement which would have the same effect as what the Government is planning in it's legislation, they might hold back on their planned legislation .

Confederations worked hard for an agreement

All three trade union confederations Akava, SAK and STTK were prepared to negotiate. The Central Organisation of Finnish Trade Unions SAK made a unique proposal to the Confederation of Finnish Industries EK to draft a national labour pact freezing pay in 2017.

SAK also proposed that after that any level of salary rise should be set by the export industry, a bit like in Sweden. The holiday bonus could also be in line with the level of unemployment, SAK suggests.

However, notwithstanding all that, the employers' EK made it clear that it was unwilling to enter into any future negotiations with the central union organisations. From 2016 these negotiations will take place only at union or at company level.

The timing of the announcement was probably no coincidence, right at the final stage of negotiations with trade union confederations.

This came as a disappointment to the trade unions. Finland has a longstanding and successful history of national labour market agreements. In turn industrial disputes have been rare. All in all, industrial relations have been good.

In the media EK's move was widely perceived as an attempt to get the maximum out of a situation: first zero rise in salaries and after that ending all the national level wage negotiations totally. The Government will do the rest for them with their legislation packages.

What will happen to social capital?

Negotiations continued in any event, until they eventually broke down at the beginning of December. The employers association EK pulled out, claiming as a reason that the Transport Workers’ Union AKT were not willing to join the national pact.

This is seen as the excuse EK was looking for. And the Employers can count on the Government, in any case, to give them what they want so there is no major need for negotiating during the process.

The Government will cut salaries and companies expenses simultaneously and the icing on the cake will be an end to the centralised negotiations, which has been their goal for a long time.

The price has been high, though. Trade unions are extremely worried and a big part of the mutual trust between trade unions, employers and Government has been destroyed.

Finns have had a strong idea of themselves as being people looking for consensus and negotiations instead of fruitless struggle. This social capital is widely seen as one of the key parts of the Finnish success model.

The Government will now go on to draft legislation to transfer collective bargaining more towards the company level. A lot depends on how this legislation pans out in practice.

If it aims to become a tool to cut salaries locally, it will be the beginning of a new fight. If it means reasonable flexibility but keeping the terms of employment more or less as they are, it opens a way to negotiations and agreements.

The Government parties are, however, also nervous. Their limited understanding of the labour market has led to hasty and ill-considered decisions, which have created more problems than they could anticipate.

In the opinion poll in November the Government parties reached 48.8 per cent of support, in the election in April they got 57 per cent of votes. The support for the populist-nationalist Finns Party slumped in particular, from 17.7 per cent in April to 8.9 per cent in November.

The atmosphere in the labour market is extremely turbulent and there is a danger of major industrial action in the next collective bargaining round next year, or even before.

Read also:

Government hits hard against freedom of agreement with their new legislation for cuts (11.09.2015)

Negotiations for a national labour market package begin after partial Government turnaround (01.10.2015)

Employers pull out of negotiations for national labour market pact (02.12.2015)