With the Comprehensive Income Policy Agreement the government and the trade unions try to reach a common understanding of the best choices for the national economy in terms of economic growth and real wages. The basic conundrum is simple: employees want higher salaries, employers want no wage hikes. The government wants to keep national competitiveness and employment rate high but also to ensure sufficient tax revenues and keep inflation in check.
The Comprehensive Income Policy Agreement is usually agreed on for a two-year period. It is not compulsory: if the employers' and employees' national organisations can't reach an agreement, no comprehensive treaty is signed. In that case, negotiations on salaries are carried out by individual trade federations with no government participation instead of a comprehensive treaty. Sometimes talks are not even initiated due to differences of opinion between trade unions.
The first Comprehensive 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 economical deal with employers' organisations and labour unions in order to prevent inflation due to rising wages. These negotiations resulted in the first Comprehensive Income Policy Agreement, 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 doomsayers predicting their end. Currently, there is no such agreement. This follows from the political pressures to increase public sector competetivity 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 comprehensive 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 their inflexibility, incompatibility with global markets and 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 the recent times where globalization puts pressure on both the employer and employee. 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 contrary, 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.
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Last updated on Saturday July 12, 2008 at 11:00:46 PDT (GMT -0700)
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