How do the unions handle the new debate on salary gaps?

Norway’s Foreign Minister Jonas Gahr Støre compares what is happening in Europe today to the student riots in the 1960s.

“May 1968 has gone down in European history as the time something boiled over. It was a generational event, a protest against the overfilled universities, especially in Paris. But the tensions in European capitals and in the countryside is potentially larger today. We find ourselves in a situation where established truths about Europe might be out of date the following day,” he tells the Norwegian weekly magazine Ny Tid.

The arguments coming out of the Occupy Wall Street movement, which started in New York but quickly spread to hundreds of other cities, is that it no longer is acceptable for one percent of the population to take home such a large percentage of incomes. 

According to the New York Times the peak was reached in 2007. At that time the US population’s top one percent earners took home 23.5 percent of the nation’s income, if salaries and capital income are taken into account, but not capital gains. This is the highest percentage since 1928. 

Norway has largest gap

Salary gaps are increasing in the Nordic countries too. Despite being described as the most egalitarian of the Nordic countries, Norway’s top one percent earners take home the largest part of the total income out of the five countries.

“People in the top one percent have sharply increased their share of the total earnings during the 2000s. It has now reached 10 percent in Norway, compared to six percent in Sweden, Finland and Denmark,” says Daniel  Waldenström at Uppsala University.

He is professor of economics and his main areas of research are income and wealth distribution, intergenerational mobility and tax. 

He agrees that times have changed and that there is far more focus on salary gaps than before. For a long time the gaps were decreasing; from the end of the war until 1980. That was the year when things started to change and salary gaps began to grow.

“Why this changed at that particular moment in time is a question which to a certain extent still puzzles researchers. But we know that this happened in the entire Western world and that it came as a result of a range of policy changes,” says Daniel Waldenström.

The changes were a reaction to the stagnation in the wake of the 1970‘s oil crisis. Companies were deregulated and unions lost influence. Technological progress and globalisation also benefited capitalists to a large degree.

“With deregulation the value of companies which had earlier not had a market value emerged.”

Unions at the time also decided to accept larger income gaps as this was considered necessary to increase growth.

“Unions have also not stood together to defend a more equal wage distribution. Saco in Sweden has for instance been an active proponent for increased wage differentiation,” he says.

LO report on the power elite

The Swedish Trade Union Confederation (LO) has made 11 reports since 1999 on what the economic and political elite earns compared to industry workers. Using historical statistics LO has managed to compare figures all the way back to 1950.

The graph shows the economic power elite’s average pay compared to workers. In 2008 the difference was at it's highest: A CEO then earned 51 industry worker salaries. Source: LO

Because inflation and salary levels change all the time, LO has calculated how many industry worker salaries people within the economic and political elite earn. 197 positions of power have been selected for the report. These have been divided into different groups. The economic power elite consists of CEOs of 50 different companies which have been followed for 59 years.

In 1950 the economic power elite’s average earnings was equal to 26 industry worker salaries. The gap was closing until 1980, when it was at its narrowest. The average income among the power elite at that time equalled ten industry worker salaries. Since then the gap has widened and it peaked in 2008, when the economic power elite’s average pay equalled 51 industry worker salaries. 

“There was as much attention around the report as there usually is. It was in the media for a few days and then it went quiet,” says Jeanette Bergström, one of the LO economists behind the report which was published in February this year.

A legitimate social actor

She wrote an opinion piece in the daily Dagens Nyheter together with colleague Ola Petterson and LO president Wanja Lundby-Wedin, in which they concluded:

“Without a new direction for the economic policy, Sweden will become a country with increasing economic gaps and with a power elite with decreasing understanding of the economic realities facing the majority of people. But it is also important that the business elite, both its organisations and the individuals who hold leading positions, start to take responsibility for their unfair income development. If not, this group which always tells others to be frugal risks loosing all legitimacy as a serious social player.”

Yet according to Daniel Waldenström the skewed salary level debate is not an easy one for the unions:

“So far the unions have kept a low profile. They are on the defensive. They have a problem fighting employers’ demands for free salary levels for top bosses.”

Since unions are also represented on many boards that make decisions on top salaries they are also responsible for the salary levels. Two years ago the LO president Wanja Lundby-Wedin was in the middle of a storm. As a board member at AMF Pension, half owned by LO, she had agreed to a salary and bonus package for the CEO worth 42 million kronor (€4.6m) over ten years. He also stands to collect 62 million kronor (€6.8m) in pensions.

In May this year the think tank Policy Network, which is trying to put together a policy for the social democratic parties, hosted a conference in Oslo where many European union leaders and social democratic party leaders participated. 

The conference invite said:

“Over the last two years, the recurring question has been why, in the midst of a crisis whose origins clearly implicate the neoliberal right, it is social democrats who appear battle weary and defensive.”

Ed Milliband, middle, and Håkan Juholt, far right, were among the participants at Policy Network’s Oslo conference. Photo: Björn Lindahl

Those who claim that the Occupy Wall Street movement is mainly made up of anarchists, could have listened at the conference to professors like Jacob S. Hacker from Yale University, author of “Winner-Take-All Politics” together with Paul Pierson.

Many of the arguments in the debate about the skewed salary distribution come from this book. In his introduction Hacker writes about how Goldman Sachs and other banks used public money to avoid bankruptcy in 2008, only to “shove it out the backdoor and into their employees‘ private bank accounts” the next year.

In the US the 0.1 percent who earn the most (one in a thousand people) take home 12 percent of the total national earnings. 

According to Jacob S. Hacker the skewed distribution is not only unfair, but an important explanation to the present crisis. 

So will the disquiet, as Jonas Gahr Støre suggests, lead to revolutions and conflicts akin to what happened after the student riots of 1968, and which also took issue with the trade unions?

At that time the number of illegal strikes grew. In Sweden there were more than 500 during 1974 and 1975. Even legitimate labour conflicts, which followed the then rules for industrial action, resulted in a large number of lost working days through strikes and lock-outs. The Nordic countries were shaken by a succession of major conflicts during the 1980s, but since the turn of the millennium things have been remarkably quiet. 

Maybe Statistics Finland’s historical sum-up of the country’s labour conflicts paints a true picture:

“Trade unions’ present salary demands are more realistic than they were during previous decades and knowledge about the pressure salary negotiations put on inflation stretches all the way to the factory floors. The negotiating parties’ goals are usually so close to one-another that long strikes would be more costly than the benefit either side would get by winning the conflict.”

Daniel Waldenström hopes the three-party cooperation will not suffer:

“It’s the Nordic agreement model’s unique strength that we have responsible trade unions and respectful employers as well as active governments which enter into dialogue with the parties yet remain on the sidelines.”

“I hope the mutual will to cooperate will stay.”