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Centralized Labor Agreements in Finland: How Unions, Companies, and Government Can Work Together for a Better Society

Research & Commentary
November 10, 2011

by Salvatore Babones

Here in the United States, corporations treat their workers as adversaries.  The role of management is to “keep costs down,” which is another way of saying that it gets paid to cut other people’s salaries.  The role of the worker is to deliver “more for less” every year or look for another job.  The role of government is to keep its nose out of the whole mess.

People on all sides think of this adversarial system as the only one, almost a law of nature.  Not all countries, however, are so combative in their approaches to labor relations.  Many European countries have more consensus-driven systems.  The Finnish system in particular is one of the most cooperative in the world.

In Finland, representatives of the Central Organisation of Finnish Trade Unions (equivalent to our AFL-CIO) sit down with representatives of Confederation of Finnish Industries and other stakeholders to negotiate a broad framework agreement for the economy as a whole.  Government takes a seat at the table and helps the two sides come together.  The whole system relies on cooperation, consensus, and goodwill — all sorely lacking in the United States.

[pullquote]The whole system relies on cooperation, consensus, and goodwill — all sorely lacking in the United States.[/pullquote]

Their most recent agreement — worked out last month, and due for ratification in a few weeks — covers 23 points, ranging from hours and wages to on-the-job training to family leave policies.  It even includes seven changes to tax and benefits policies, agreed to by the government.  With all parties at the table, broad reform is possible.

Contrast this with the United States, where a simple extension of unemployment benefits during a recession sparks a major nation-wide political battle.

Centralized labor agreements in Finland have served the country well.  The Finnish system delivered a cumulative 37% increase in real wages for Finnish workers over the past ten years.  A recently-inked agreement will give them a further 2.4% raise in 2012 and 1.9% in 2013.  By comparison, the average American has seen no increase in real wages since the year 2000 . . . at all.

Oh — and while the US economy has shed jobs over the past decade, the Finnish labor market has been expanding.  Finland’s official unemployment rate is 7.8% (versus 9.0% here).  Its real underemployment rate compares even more favorably: because corporate layoffs in Finland are coordinated with unions and government, far fewer Finns than Americans are forced to take inappropriate jobs just to make ends meet.

[pullquote]Finland’s official unemployment rate is 7.8% (versus 9.0% here).[/pullquote]

Of course, all this consensus comes at a price: CEO and other executive salaries are much lower in Finland than in the United States.  When corporate CEOs have to sit down at the table with workers and government to hammer out agreement on wages and working conditions, it’s much harder for them to claim extraordinary wages for themselves.  You can’t cry poor when you make 350-400 times as much as your workers, as in the United States.

The average big-company Finnish CEO makes 21 times as much as the average Finnish worker.

So Finland gets low unemployment, strong wage growth, and consensus-driven policies on retraining and family leave.  What’s not to like?  Maybe it’s time for centralized labor agreements in America.  Fantasyland?  Perhaps.  But it’s a fantasy we should be moving towards, not moving away from.

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