Comprehensive Income Policy Agreement
Encyclopedia
Finnish national income policy agreements or comprehensive income policy agreements are tripartite
agreements between Finnish trade union
s, employers' organization
s, and the Finnish government. They are policy documents covering a wide range of economic and political issues, such as salaries
, tax
ation, pension
s, unemployment benefit
s, and housing costs. They represent collective bargaining
taken to its logical maximum, reaching virtually all wage-earners. Their enforcement is made easier by the universal validity of collective labour agreements
. However, they are voluntary agreements and are not considered government legislation, i.e. they do not represent central planning of the economy.
In national income policy agreements, the government and the employees' and employers' organizations attempt to reach a common understanding of the best choices for the national economy
in terms of economic growth
and real wage
s. The basic conundrum is simple: employees want higher salaries, employers want no wage hikes. The government wants to maintain international competitiveness and a high employment
rate, while simultaneously ensuring sufficient tax revenue
s and keeping inflation
in check.
National income policy agreements are usually valid for a two-year period. They are not compulsory: if the employers' and employees' national organisations cannot agree on terms, no agreement is signed. In that case, negotiations on salaries are carried out by individual trade federations with no government participation. Sometimes talks are not even initiated due to differences of opinion between employers' and employees' organizations.
The first national income policy agreement was negotiated by National Labour Dispute Conciliator
Keijo Liinamaa
. In 1967, Liinamaa was given a special task by Prime Minister
Rafael Paasio
: Liinamaa was to negotiate a comprehensive economic deal with employers' organisations and labour unions in order to prevent inflation due to rising wages. These negotiations resulted in the first national income policy agreement, the so-called "Liinamaa I" and brought fame to Liinamaa, a later caretaker prime minister. The tradition of comprehensive agreements has been particularly persistent since then, even if there are always doomsayer
s predicting their end. Currently, there is no such agreement. This follows from the political pressures to increase public sector competitivity that led to comparatively higher increases in public sector wages, particularly nurses' wages.
In 2008, the main employer's union Confederation of Finnish Industries
, representing 70% of Finland's GDP, announced that new national income policy agreements will not be made, and that they will radically reduce the influence of the central union, and close down the special office that has prepared previous agreements. The reasons cited were the inflexibility of comprehensive agreements, their incompatibility with global markets and the differences between different industries. This was met by accusations of irresponsibility from some trade union leaders.
The agreements have ultimately been an effective way to curb inflation, particularly in recent times where globalization
has placed pressure on both the employers and employees. The consensus policy unravelled several "perpetual inflation machine" problems: wages tied to price indices
, constant competition over nominal wages between different employee unions resulting in constant nominal wage hikes, the government effectively subsidising these wage hikes by subsidising exports
based on costs (including wages), and perpetual strikes to increase minor benefits (particularly Niilo Wälläri
's seamen's union). On the other hand, a comprehensive agreement maintains distortions that have arisen between different industries, i.e. when wages are too low in one industry relative to other industries.
Tripartism
Tripartism refers to economic corporatism based on tripartite contracts of business, labour, and state affiliations within the economy. Each is to act as a social partner to create economic policy through cooperation, consultation, negotiation, and compromise...
agreements between Finnish trade union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
s, employers' organization
Employers' organization
An employers' organization, employers' association or employers' federation is an association of employers. A trade union, which organizes employees is the opposite of an employers' organization...
s, and the Finnish government. They are policy documents covering a wide range of economic and political issues, such as salaries
Salary
A salary is a form of periodic payment from an employer to an employee, which may be specified in an employment contract. It is contrasted with piece wages, where each job, hour or other unit is paid separately, rather than on a periodic basis....
, tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
ation, pension
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
s, unemployment benefit
Unemployment benefit
Unemployment benefits are payments made by the state or other authorized bodies to unemployed people. Benefits may be based on a compulsory para-governmental insurance system...
s, and housing costs. They represent collective bargaining
Collective bargaining
Collective bargaining is a process of negotiations between employers and the representatives of a unit of employees aimed at reaching agreements that regulate working conditions...
taken to its logical maximum, reaching virtually all wage-earners. Their enforcement is made easier by the universal validity of collective labour agreements
Universal validity of collective labour agreements
In Finland, Universal validity of collective labour agreements is a condition that a collective agreement in an economic sector becomes a universally applicable legal minimum for any individual's employment contract, union member or not. It requires that half of the workforce in that sector support...
. However, they are voluntary agreements and are not considered government legislation, i.e. they do not represent central planning of the economy.
In national income policy agreements, the government and the employees' and employers' organizations attempt to reach a common understanding of the best choices for the national economy
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
in terms of economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
and real wage
Real wage
The term real wages refers to wages that have been adjusted for inflation. This term is used in contrast to nominal wages or unadjusted wages. Real wages provide a clearer representation of an individual's wages....
s. The basic conundrum is simple: employees want higher salaries, employers want no wage hikes. The government wants to maintain international competitiveness and a high employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
rate, while simultaneously ensuring sufficient tax revenue
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
s and keeping inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
in check.
National income policy agreements are usually valid for a two-year period. They are not compulsory: if the employers' and employees' national organisations cannot agree on terms, no agreement is signed. In that case, negotiations on salaries are carried out by individual trade federations with no government participation. Sometimes talks are not even initiated due to differences of opinion between employers' and employees' organizations.
The first national income policy agreement was negotiated by National Labour Dispute Conciliator
Conciliation
Conciliation is an alternative dispute resolution process whereby the parties to a dispute agree to utilize the services of a conciliator, who then meets with the parties separately in an attempt to resolve their differences...
Keijo Liinamaa
Keijo Liinamaa
Keijo Antero Liinamaa was a lawyer and caretaker Prime Minister of Finland.Liinamaa, a lawyer specialised in labour law, began his career working for the Finnish Central Union of Trade Unions . In 1958, at only 29 years of age, he became the town manager of Mänttä, an industrial municipality in...
. In 1967, Liinamaa was given a special task by Prime Minister
Prime Minister of Finland
The Prime Minister is the Head of Government of Finland. The Prime Minister is appointed by the President, who is the Head of State. The current Prime Minister is Jyrki Katainen of the National Coalition Party.-Overview:...
Rafael Paasio
Rafael Paasio
Kustaa Rafael Paasio was a prominent Finnish politician and editor from Social Democratic Party. He served as Prime Minister of Finland twice ....
: Liinamaa was to negotiate a comprehensive economic deal with employers' organisations and labour unions in order to prevent inflation due to rising wages. These negotiations resulted in the first national income policy agreement, the so-called "Liinamaa I" and brought fame to Liinamaa, a later caretaker prime minister. The tradition of comprehensive agreements has been particularly persistent since then, even if there are always doomsayer
Doomsayer
Doomsayer can be:* A doomer or peaknik * A character class in Deadlands: Hell on Earth...
s predicting their end. Currently, there is no such agreement. This follows from the political pressures to increase public sector competitivity that led to comparatively higher increases in public sector wages, particularly nurses' wages.
In 2008, the main employer's union Confederation of Finnish Industries
Confederation of Finnish Industries
The Confederation of Finnish Industries is the largest business organisation in Finland. It was formed in the beginning of 2005 when two private sector organisations, Palvelutyönantajat and Teollisuuden ja Työnantajain Keskusliitto , united...
, representing 70% of Finland's GDP, announced that new national income policy agreements will not be made, and that they will radically reduce the influence of the central union, and close down the special office that has prepared previous agreements. The reasons cited were the inflexibility of comprehensive agreements, their incompatibility with global markets and the differences between different industries. This was met by accusations of irresponsibility from some trade union leaders.
The agreements have ultimately been an effective way to curb inflation, particularly in recent times where globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
has placed pressure on both the employers and employees. The consensus policy unravelled several "perpetual inflation machine" problems: wages tied to price indices
Price index
A price index is a normalized average of prices for a given class of goods or services in a given region, during a given interval of time...
, constant competition over nominal wages between different employee unions resulting in constant nominal wage hikes, the government effectively subsidising these wage hikes by subsidising exports
Export subsidy
Export subsidy is a government policy to encourage export of goods and discourage sale of goods on the domestic market through low-cost loans or tax relief for exporters, or government financed international advertising or R&D. An export subsidy reduces the price paid by foreign importers, which...
based on costs (including wages), and perpetual strikes to increase minor benefits (particularly Niilo Wälläri
Niilo Wälläri
Niilo Wälläri was a Finnish Socialist, syndicalist politician. Wälläri led the Finnish Seamen’s Union from 1938 until his death....
's seamen's union). On the other hand, a comprehensive agreement maintains distortions that have arisen between different industries, i.e. when wages are too low in one industry relative to other industries.
See also
- Collective bargainingCollective bargainingCollective bargaining is a process of negotiations between employers and the representatives of a unit of employees aimed at reaching agreements that regulate working conditions...
- Incomes policyIncomes policyIncomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually below market level.Incomes policies have often been resorted to during wartime...
- Polder ModelPolder ModelThe polder model is a term with uncertain origin that was first used to describe the internationally acclaimed Dutch version of consensus policy in economics, specifically in the 1980s and 1990s. However, the term was quickly adopted for a much wider meaning, for similar cases of consensus...
- Trade unionTrade unionA trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
- Labour law
- TripartismTripartismTripartism refers to economic corporatism based on tripartite contracts of business, labour, and state affiliations within the economy. Each is to act as a social partner to create economic policy through cooperation, consultation, negotiation, and compromise...
External links
- Finland: Industrial relations profile] (European Industrial Relations Observatory)
- Comprehensive incomes policy settlement (Central Organisation of Finnish Trade Unions - SAK)