NORWAY: FROM SOLIDARITY PACT TO FRAGMENTATION?


Geir Høgsnes, Department of Sociology and Human Geography, University of Oslo

Wage bargaining at the commencement of a new millennium seems to indicate that Norway is facing major changes in its approaches to wage determination. These changes primarily concern the wage bargaining structure; less-centralized arenas of wage determination are given a higher priority, and a larger proportion of the total wage growth is set aside for more decentralized negotiations. The purpose of this paper is twofold. Firstly, what explains the recent changes in the Norwegian wage bargaining system? Secondly, what are the consequences of these changes for future wage determination in Norway? The first question is related to the causes of recent trends. The second is related to whether or not these trends represent a complete break with Norwegian traditions of wage determination; are we moving from a system based on solidarity to one dominated by fragmentation and egoism?

Let me start with some theoretical and methodological remarks. It may be argued that the research on industrial relations and wage determination has had too great a focus on the systemic characteristics of the wage setting process, while the interests and resources of the actors of the game tend to be neglected. Without considering actors and their scope of possible actions, it is impossible to give a satisfactory explanation of what is actually taking place (Brox 1995). Hence, my main focus is on trade unions, employers’ organizations and the state as the most central actors in the Norwegian wage-setting process. The question is: What are their interests concerning bargaining structures and wage distributional issues, and what resources are at their disposal in achieving their goals.

This paper will discuss the organizational differentiation (or, some would say, fragmentation) in Norway on the part of both the employers and labor. This differentiation has created both direct and indirect competition between unions and employers’ organizations. Direct competition is related to member recruitment, while indirect competition concerns principles of a fair distribution of wages among wage earners. Both kinds of competition are the major cause of recent trends in changes of Norwegian wage determination. The Norwegian Confederation of Trade Unions, LO, as the most prominent representative of labor, has lost numerical strength, while other union associations now have almost the same number of members as LO. As a consequence, the struggle over relative wages has increased and is no longer settled solely on the basis of the LO ideology. For this reason a brief historical background of the Norwegian wage determination system will be presented here.

Background

The Norwegian system was traditionally widely recognized as being based on a high degree of centralized coordination.[34] Wage bargaining took place at the national level, either between main associations on both sides or between industry unions and their counterpart employer deputies. The outcomes of these negotiations usually had an impact on the pay level of most Norwegian employees, irrespective of whether or not they were members of a union (Stokke 1998).

These national-level negotiations have been mainly concerned with the macro-economic consequences of the outcomes of the wage determination process. Less attention has been given to the efficiency of pay systems at the firm level. The object was a wage growth in accordance with the carrying capacity of the Norwegian economy as a whole. This meant that the so-called sheltered parts of the labor market were expected to follow the pattern set in those parts of the economy that had to take international competition into account.

This system traces back to the class compromise, which was part of the post WW II agreement among the main political actors. Macro-economic planning was a central part of the agreement and was grounded on the idea of consensus solutions. In the early 1950s, the Labor Government was forced to withdraw its most ambitious goals of state planning (Nordby 1993). However, the belief in central economic and political planning as the best means with which to achieve a sound and prosperous society survived.

The key actors in the system during the 50s and 60s were, besides the state, LO and The Norwegian Employer’s Association, N.A.F. During these decades, the system seemed to work according to the intentions. Wage growth was kept in line with macro-economic targets and the labor market was characterized by full employment and few open conflicts. Most workers experienced a period of job security and real wage growth.

This state of affairs changed in the late 60s and early 70s. Firstly, the incidents of strikes increased in the late sixties. Secondly, nominal wage growth was not held in check in the early 70s. One major consequence was a less tight labor market, while mass unemployment was once more considered a threat. In this situation LO, N.A.F. and the Norwegian state reached a new agreement, which entailed a strengthening of wage coordination and control, through so-called combined wage settlements. This arrangement came to be known as the “Kleppe packages”, named after Minister of Finance Per Kleppe. It involved direct state participation in, and contributions to, the wage negotiations, by means of tax cuts, increased social benefits etc.

This experiment, which lasted from 1975 to 1978, was no success. On one hand, it lead to a so-called “Old Maid Game” (Hernes 1981), where the state had to pay the price for reaching peaceful and acceptable wage settlements. On the other hand, the combined settlements opened for a new and increasingly sharp struggle over relative wages, i.e., what are fair wage inequalities among various groups of employees. Concurrently, the increasing relative wage struggle paralleled the establishment of new major union associations - the Federation of Norwegian Professional Associations (AF) in 1974 and the Confederation of Vocational Unions (YS) in 1977.

A wage and price freeze followed the combined settlements in 1978/79. As of 1980 a more liberal income policy regime was introduced. The slogan of the governments, both Labor and Conservative, was now that “wage settlements are the responsibility of the labor market parties themselves”. This liberal practice lasted until 1986, when an acute crisis struck the country due to a sharp fall in oil revenues.

Increasing unemployment characterized the following years, which were dominated by strong state governance of wage determination by means of legal intervention, resulting in a ceiling on maximum wage increases in 1988 and 1989. Regular wage bargaining was suspended during these years. This state intervention was mainly based on cooperation with LO and N.A.F./NHO.[35]

The Solidarity Alternative

The early 90s were characterized by a continuation of wage moderation, but on more voluntary terms. The strategy of wage moderation was institutionalized through the report of the Employment Commission in 1992 (NOU[36] 1992:26), which paved the way for the so-called “Solidarity Alternative”. This policy was based on three elements:

  • Wage moderation
  • An active labor market policy
  • A fair wage distribution

The main aim of the Solidarity Alternative was to battle unemployment and attempt to restore full employment. This income policy cooperation was a great success in that respect. Within a few years Norway reached this goal, resulting in a rather steep increase in the number of jobs within the manufacturing industries.

One problem with this wage policy in the long run, however, was that it was based mainly on the cooperation of the three traditional central actors in Norwegian income policy, i.e., the state, LO and NHO, while other main labor market actors representing both the employees and the employers were excluded.[37] In the aftermath, it is a relatively simple matter to judge this as a mistake, with serious consequences for the traditional Norwegian wage determination system as a whole.[38]

All three architects behind the “Solidarity Alternative” benefited from this solidarity agreement. The state, as the responsible actor for macro-economic management, and NHO received moderate wage demands. LO gained both full employment, due to a commitment by the state to launch an active labor market policy, and a wage distribution target in accordance with its ideology. A fair wage distribution became identical with wage equalization and reduced wage inequalities. The problem was that no one seemed to be concerned with the interests of members of other organizations, such as AF.

From the mid 90s it became increasingly evident that the legitimacy of the Solidarity Alternative was eroding. First, many conflicts characterized those parts of the labor market not involving LO or NHO. Especially those unions affiliated with AF in the public sector frequently went on strike.[39] These strikes were mainly ineffective, as the government almost without exception solved the conflicts by use of compulsory arbitration, while the National Wage Board granted no extra gains to those involved in strikes.

Secondly, as the labor market situation improved and full employment was once more a fact in the mid 90s, an increasing number of members of LO also lost confidence in the strategy of wage moderation. A strike in the metal industry - for the first time since WW II – occurred in 1996. In 1998 the economic frames of the LO/NHO settlements broke completely with the postulate of wage moderation. Finally, in 2000, a referendum resulted in a huge majority voting against a recommended proposal for a wage settlement among the members of LO, and a new strike was a fact.

The events of 1998 made most central actors aware of the problems facing the Solidarity Alternative. As a consequence, the Center Government decided to establish a new commission (the Arntsen Commission) to elucidate the future prospects of this wage strategy. The commission was set up such that all major labor-market actors were represented. This entailed a clear break with the traditional LO monopoly on representing employees.

The Arntsen Commission gave its recommendations early in the winter of 1999 (NOU 1999: 14). It advocated a revival of the Solidarity Alternative, and all central actors now agreed to cooperate in the future in order to secure full employment by means of wage moderation. The 1999 intermediary settlement was a success in this respect.

A new employment commission (the Holden Commission, NOU 2000: 21), which included the same broad labor market representation, followed up this commission and gave its report in 2000. Its recommendations were to continue and strengthen the traditional strategy of centralized coordination from the 90s, with some important exceptions. Firstly, all parties were to benefit from this form of income policy cooperation, which meant that the social profile of the settlement in the private sector settlements was no longer to be copied by other sectors. Secondly, it recommended that areas where the impact of local bargaining in the past was small should increase the share of wage growth that was granted at the local level. These changes were considered a precondition if the strategy was to survive in the future.

The statement that all should benefit reflected a recognition of the fact that during the 90s LO had forced upon all parties a wage distribution policy, which had serious negative consequences for members of many non-LO unions and foremost for highly-educated employees in the public sector, usually organized in AF unions. The drops in relative wages of, for example, various categories of teachers were significant.[40] Some assert that LO abused its unique position of power within the system of wage determination.

This dominant position of LO within the Norwegian wage determination system was due to the traditional role they played in organizing workers in those industries exposed to foreign competition. This position also enabled LO alone to determine what was to be considered a fair distribution of wage income. LO’s definition of fairness was wage equalization or reduced wage inequalities in a post-industrial society, where the number of highly skilled employees was growing, at the expense of manual manufacturing workers (see Bell 1973). In one way LO, due to the principles of the Aukrust model (Aukrust 1970), kept its unique power within Norwegian wage determination long after the premises of an industrial society had outlived itself.

It may be claimed that the recommendations of the Holden Commission were correct and necessary, but that they were implemented too late to save the system. Too much strain had evolved during the 90s to enable necessary adjustments within the frames of wage moderation. Too many groups of employees had been seriously lagging behind, and it was hard to see how it could be possible to make the necessary adjustments within the existing system of wage determination.

One indication of this is found in the pay level of teachers, which was to be settled outside the regular rounds of bargaining in 2000 and 2001. The final outcome of the 2002 main round of wage bargaining underlines the same problem. It once more demonstrated that it is impossible to keep the wage growth level down to what is considered as moderate when urgent wage gaps are to be narrowed or closed. Both in the municipal government sector and the state sector the economic frames of the settlements broke with the strategy of moderation.

The Future

The results of the 2002 main round of wage bargaining seem to indicate the end of the traditional system of a highly centralized and coordinated wage determination in Norway. For the moment, only LO among the main labor market actors seems to be in favor of a wage determination system based on centralized coordination. LO has lost its most important ally in NHO. This is a result of the fact that LO on several occasions in the recent past has demonstrated that it is not in a position to deliver what NHO demands, i.e., wage moderation. As a consequence, NHO has reconsidered its position on centralized coordination.

In the fall of 2001, NHO published a paper (NHO 2001), which stated that the employers association had now decided to promote a completely decentralized wage determination system, where the competitive position and pay ability of the individual firm were to be the guiding factors. This change of strategy certainly reflects a pragmatic stance among the employers concerning bargaining structure. However, it also contained principled considerations on future wage determination.

Non-LO union actors seem to be more or less open to less-centralized wage settlements. The most radical proponent is The Academics (founded in 1997), which is in favor of a completely decentralized wage determination system. In 2002 The Academics gained acceptance in the municipal government sector when the employers (KS) agreed to remove the members of The Academics from the wage regulative and grant them 100% local wage determination. This signaled a revolution in this part of the labor market and was by LO clearly considered a provocation.

Also the newly established Main Union Association of College Educated Employees, UHO (2001), and the Confederation of Vocational Unions, YS, disagree with the LO strategy. In cooperation with the union of engineers, NITO, YS has gone far in the direction of accepting local wage determination. UHO is somewhat more reluctant, but certainly desires a higher proportion of the total wage growth settled outside the main national rounds of wage bargaining. They seem to favor the central adjustment negotiations, which follow the main settlements. UHO fears a purely local wage determination, as it will lead to internal wage inequalities among members with a similar length of education and seniority.

Also the state as employer acted in a new way in 2002. During most of the 90s, settlements in both the state and municipal government sectors were dominated by the redistribution strategy of LO. Thus most of the money granted was distributed in the central negotiations in the form of a fixed amount of money to all employees.

A reasonable question in this context is why both the state and KS, as the representatives of the employers’ interests in the public sector, accepted LO’s redistribution strategy. From a rational choice perspective, the stance of the state and KS is highly irrational. The pay structure in the public sector, resulting from this wage redistribution, prevented them from competing with private firms for key employee groups. Why then no opposition from these employer representatives? Two answers are plausible. Either they felt compelled to accept redistribution or they supported it due to ideological reasons and internalised social norms of fairness. The feeling of being forced to accept small wage inequalities might be traced back to the principle of a fair wage distribution, which was one of the basic elements of The Solidarity Alternative. On the other hand, it is noteworthy that the leadership of both the state and of KS during most of the 90s had their political background from the social democratic movement. Thus, many of the employer representatives in the public sector had a common ideological basis with LO. Which of these alternative interpretations is the better one is hard to determine, and probably it is a mixture of the two that best explains the stance of public sector employers.

A newspaper article written by the head of KS, Mr. Halvdan Skard, in the late 90s, seems to point in direction of the ideological alternative. He stated that the best solution to the problem of the huge wage gap between white-collar employees in the private and public sectors would be to include the private sector employees in the central settlements. He pointed to the disconnection of public sector employees as a less attractive alternative, due to its distributional consequences (Skard 1999).

The 2002 settlement in the public sector manifests the most obvious break with this strategy. First, more than half of the money set aside was reserved for central adjustment negotiations and local bargaining. Second, above a certain level of the state pay scale wage increments were granted in percentage terms and not as the customary fixed sum. These changes are the main reasons why the state wage settlement was so peaceful in 2002. Not even the nurses organized in the Norwegian Nurses’ Association, NSF, who had initiated strikes on several occasions during the 90s and in the winter of 2002, found reason to instigate a conflict.[41]

Are we, then, approaching anarchy, as claimed by some LO spokespersons? This is certainly not the case. The innovative turn previously specified in the agreement between KS and The Academics in the municipal government sector mainly implies that wages in this part of the labor market will conform to what is - and has long been - the case for highly educated white-collar employees in the private industries. In regard to the adjustments in the state sector, these provisions ensure that state employees will now have a system more similar to the one for manual workers on so-called minimum wage contracts in the private industries. The minimum wage is negotiated at the national level, while additional wage increments are as a rule determined at the firm level.

Another question is related to the consequence of ceding more of the responsibility to the parties at the firm level. With reference to the experience with wage growth for white-collar workers in the private industries during recent years, there is a fear that wage growth will exceed the carrying capacity of the economy if wage bargaining is moved to the local level.[42] The experiences in the wake of the 2002 main settlements, however, seem to point in another direction. The results of local settlements in the private industries in 2002 seem to confirm that unions and workers take into account the difficult competitive situation many firms presently are facing, and, as a consequence, have reduced their demands for local wage increments to the lowest level in years. Not surprisingly, workers feel responsibility when it comes to the future of their own jobs.

The changes described mean that LO has experienced a great loss of power. LO no longer has a monopoly in representing labor in various income policy settings; it has also lost most of its influence on distribution and redistribution issues. Further, LO’s traditional hold on wage development has vanished as a consequence of the change in the whole system of wage determination. As a consequence, the organization will be a less-interesting future partner in Norwegian economic policy in general. In terms of exchange theory of power, LO no longer controls what issues the employers and state authorities are interested in (see Hernes 1975).

It is possible to argue that LO’s fall from power actually occurred two decades too late. The power position of LO had outlived itself long ago, with the transitions within the labor market, from workers occupied with commodity production of the industrial society, to highly skilled and professional employees within service and knowledge-based production of the post industrial society.

At the same time, LO has found it difficult to recognize its losses. For example, it has implicitly threatened to restore the old system if the new system works in a direction they cannot accept. It is especially hard for LO to accept the fact that the reformed system will lead to larger wage disparity, both within and between groups of employees. Notwithstanding, is it possible to turn the system back to its old form? I find it highly improbable that LO will be able to reverse the recent developments. The Academics and KS, for example, will never accept reverting to a system they both found unsatisfactory. Among other actors on both the employer and labor side, there also seems to be a wide-spread common interest in the changes that have taken place this year. In its struggle to re-establish the old centralized system, LO for the moment seems to stand alone. At least reactions to news about secret talks between LO, NHO and the government in late August 2002 about new income policy cooperation seem to confirm this belief (see Aftenposten, August 29, 2002).

Conclusion

What then is the answer to the questions raised initially? Are we moving from a solidarity regime to a regime characterized by fragmentation where everyone is fighting with one another, with increased wage inequalities as a result? To some observers the answer seems to be a “yes” (Moene 2002). I agree that the new system of wage determination we see the contours of today, with greater weight on local wage determination, will increase wage inequalities in Norway. However, in my opinion this affects not only wage inequalities between wage strata in favor of highly paid employees, but also the distribution within occupations and professions. The winners and losers will mainly be determined by the market situation and the bargaining power of the local unions.

The recent developments also have consequences in relation to relevant social norms or principles of fairness, which have been central in Norwegian wage determination for several decades. One possible consequence is that it will be harder to reach a pay structure in accordance with the norm of pay according to length of education, i.e. a norm that during the 90s had AF as its most prominent advocate. At the same time, more decentralized wage determination will increase the importance of another social norm that pay should be in accordance with effort and contribution. The reason is not only that local wage bargaining will pay more attention to market signals but also that individual contributions to the firms’ results will become a more important criterion when the pay levels are determined.

At the same time, it is important to be aware of the fact that what has taken place in the public sector in 2002 means that employers in the two main parts of the labor market today will compete for core labor power on more equal terms. Thus, groups of employees in the private and public sector will in the future be treated on more equal terms in regard to the wage level. What characterized the 90s was that public sector employees with comparable education, responsibility and effort were paid far less than their colleagues in the private industries and that the wage gap increased over the years. Hence, the new and more decentralized system will be more in accordance with the norm of equal wage for equal work. This will certainly make it easier for public sector employers to attract and keep their key employees in the future.

In conclusion, I believe the changes we have experienced in Norway in 2002 will probably bring permanent change to the bargaining system. While wage determination in the past was seen as a major part of macro-economic planning, the focus in the future will be more on efficiency and the needs of the single firms. This certainly means that considerations regarding what are fair and solidaristic solutions in society as a whole will be less important in the years to come. However, it is highly improbable that this will result in American

patterns of wage inequality, and that the role of unions will be reduced dramatically in the near future.

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[34] For a discussion of this description see Høgsnes and Longva (2001).[]

35 The Norwegian Association of Business and Industry, NHO was established as a result of a merger of N.A.F. and other employer and business organizations in 1989.[]

36 NOU: Norges Offentlige Utredninger: Norwegian Government Reports.[]

37 The Head of the Employment Commission, Mr. Per Kleppe, has stated that it was against his will that other union actors were kept out of the discussions in the Commission, but that this was a result of an ultimate demand from LO (private conversation).[]

38 Among others, the former Head of the National Bank, Mr. Hermod Skånland, pointed at this weakness and its consequences for relative wages already in 1996 (Aftenposten, June 8, 1996).[]

39 For an overview of strikes outside the LO/NHO area, see Høgsnes 2002, table 1.[]

40 To give an example: On average, a secondary school teacher with a higher university degree in 1975 earned 60% more than the average of a male manufacturing worker. In 1999 this wage premium had dropped to 20% (figures based on Statistics Norway).[]

41 If Traxler’s concept of ”organized decentralization” (Traxler, Blaschke and Kittel 2001) is to have a concrete meaning in a Norwegian context, it must be in relation to recent trends in the bargaining structure in the state sector.[]

42 This potential problem might prove to be urgent for private industries but not the public sector, where the economic frames of local increments are decided in connection with the central national negotiations.


Publisert 25. nov. 2010 13:52