Norwegian minimum wage model spreading across trades

In some European countries trade unions have been weakened so much that statutory minimum wages have become a necessity. It happened in Germany from the beginning of 2015, where trade unions chose actively to spearhead the drive to introduce minimum wages. In other countries minimum wages are combined with strong trade unions. There are many different minimum wage models, but what they all have in common is that the social partners no longer are solely responsible for wage formation. 

In the Nordic countries, where trade union membership is still high, there is strong opposition to minimum wages. It is a burning issue, however, especially in the wake of the introduction of a minimum wage in Germany, and the new EU Commission President Jean-Claude Juncker’s desire to introduce minimum wages in all EU countries — which he made clear as he started in his new job on 1 November. 

Line Eldring, Fafo.

 “I think some of the predictions for how fast a common minimum wage for the EU will be introduced are exaggerated. But Nordic trade unions are also right to be worried about the fact that this issue will remain on the agenda,” says Line Eldring, senior researcher at the Norwegian research foundation Fafo.

She and Kristin Alsos have just updated a report they wrote two years ago on statutory minimum wages in Europe and in the Nordic region, on commission from the Nordic Confederations of Trade Unions. 

The report identifies three ways of regulating minimum wages:

• Through negotiations between the social partners
• Through making the minimum wage in a collective agreement universally applicable to cover an entire region, trade or occupation
• Through statutory minimum wages. It is most common to set a level which covers all workers across the labour market.

LO warns against “wage dumping”

A statutory minimum wage often lies considerably below the average or median wage for a trade.

“There is an emerging debate in Europe about a common statutory minimum wage. In the Nordic region we believe the partners should determine the minimum wages,” said Knut Bodding, who headed the Norwegian Confederation of Trade Unions’ (LO) negotiating team when Fafo organised a debate on minimum wages on 27 January.

“If you introduce a statutory minimum wage it will lie considerably below the collective agreement. You end up with two minimum wages; the one in the collective agreement and the statutory one. In the service industry this could mean a 20 percent wage cut overnight,” warned Knut Bodding. 

Norwegian LO would rather make it easier to introduce a time limited universal application of collective agreements. This is a relatively new model which both Sweden and Denmark have shown an interest in. Finland and Iceland have systems where most collective agreements are made universally applicable for all trades.

Took a long time 

The Norwegian wage formation system is similar to the Danish and Swedish ones. But because of the high number of foreign workers in the oil industry, trade unions started calling for other tools which could prevent wage dumping. Universal application was introduced in 1993, but it was not actually used until 2004.

“This covered seven onshore petroleum plants, because there had been so many complaints over foreign labour being paid far less and suffering far worse working conditions than what the collective agreement stipulated,” says Line Eldring. 

The motivation for making collective agreements universally applicable in Norway is to make sure foreign workers are not exploited, which is unique. In the rest of Europe the debate centres on statutory minimum wages. In reality there are often two different debates:

Some want to introduce minimum wages as a way of fighting poverty and to make it possible to live off one wage. Eurofound, which aims to improve living and working conditions in Europe, has calculated the cost of introducing a pan-EU minimum wage at 60 percent of the median wage (which is half way between the lowest and highest wage). It would mean a pay increase for 28 million EU workers, or 16 percent of the labour force. 

Others, however, are interested in minimum wages as a tool to fight social dumping. A statutory minimum wage makes it harder for companies to cut wages.

Much interest in Norwegian system

Denmark and Sweden are showing a growing interest in the Norwegian system of universal application. In Norway one of the social partners has to ask for an agreement to be made universally applicable. The request must be documented and it is then up to the state Tariff Board to decide. It has five members, including one from LO and one from the employers. They do not have a veto, however.

Since 2004, universal application has been used for the construction industry (2005), the shipbuilding industry (2008), agriculture (2010), cleaning industry (2011) and fishery industry as well as electricians (2015). The Board is currently considering the agreement for transport workers.

Most countries would not be very interested in the fact that parts of the collective agreement covering the fisheries industry has been made universally applicable from 1 February. But in Norway fisheries is one of the country’s most important industries. In 2014 Norway produced fish and shellfish worth 68.8 billion Norwegian kroner (€8bn), an increase of twelve percent on the previous year.

Onshore fish processing plants in Norway have been facing great problems, however. Norway’s Minister of Fisheries, Elisabeth Aspaker, was presented with a report just before Christmas which has now been referred for consultation:

“The fisheries and shellfish industry has for many years suffered from poor profitability. The report points out that the situation has deteriorated in recent years. It is necessary to stop the downward spiral,” she said as she received the report.

Bad reputation

The report says it is unfortunate that companies are competing over salaries and working conditions, as that this has a negative effect on productivity and innovation. 

“Extensive recruitment of unskilled foreign labour, where some have less than an ideal pay and working conditions, can also contribute to a bad reputation for the fisheries and shellfish industry,” the report says.

It says it is positive that the fisheries industry will be covered by a universally applicable collective agreement form 1 February.

“This represents a good balance between the need to avoid potentially unacceptable wages and working conditions, and the need for Norwegian companies to use seasonal labour.”

Increased support

According to Line Eldring and Kristin Alsos support for the universal application of collective agreements has increased in Norway, both among employers and within trade unions. 75 percent of the business leaders they interviewed in 2013 still felt there was a need to introduce it within the construction industry.

Among elected representatives in Norway’s private sector trade union Fellesforbundet, a full 94 percent supported the system. Previous worries about a drop in membership, because people could get a “free ride” while still being covered by the terms in the collective agreement, have been laid to rest. On the contrary, the universally applicable collective agreement system has become an important tool for recruiting more members from among labour immigrants.   

There are calls in both Denmark and Sweden to introduce the Norwegian system there too.

Henning Jørgensen, a labour market researcher at the Aalborg University, does not understand why the Danish Confederation of Trade Unions is not more open to the idea, especially in the light of the increased interest in minimum wages in Europe and the worry over social dumping in Denmark.

“Making collective agreements universally applicable would be a giant leap in the fight against social dumping,” he told Ugebrevet A4.