September 02, 2016

Sweden’s tech sector eschews the country’s traditional collective bargaining model

Sweden’s fast-growing technology companies are shunning traditional collective bargaining agreements which have historically helped deliver moderate pay increases and high minimum wages in the country.

Increasing tension in a labor market that has traditionally used the salaries of industrial workers as a benchmark for wage increases across the board, two-thirds of firms operating in Sweden’s IT sector choose not to sign collective agreements because they find them inflexible and unattractive.

Increasingly fierce international competition means that the more centralized agreements are, the more difficult it is for companies to handle them. An aging population and a record flow of immigrants are also adding to turbulence in the labor market. Are Sweden’s entry wages, relatively high by international standards, appropriate for the large pool of new workers from abroad who may need additional training to match the requirements of Sweden’s increasingly specialized labor market?

Sweden’s collective bargaining model, benchmarked on industrial wages, has served a useful purpose: Sweden experiences fewer industrial conflicts than many other countries and before coordination excessive wage increases led to job losses.

However, the same issues that are affecting the IT sector are also evident elsewhere. In 2015, employee shortages resulting from a booming economy prompted construction workers and nurses to demand a bigger raise than their service sector colleagues.

Torbjoern Isaksson, an economist with the Swedish financial services group Nordea, believes that there is more tension to come as a shortage of workers in a tight labor market results in the increasing likelihood that the industry benchmark won’t be kept.

Ernesto Villanueva has written about the employment and wage effects of industry- or region-level collective bargaining agreements for IZA World of Labor. He notes that, when the minimum wages and working conditions set in collective bargaining contracts negotiated by a limited set of employers and unions are subsequently extended to all the employees in an industry it can ensure common industry working conditions, limit wage inequality, and reduce gender wage gaps. However, Villanueva also warns that those benefits can also come at the cost of reduced employment levels, especially during recessions. The income losses of workers who are displaced because of a collective contract extension can offset the wage gains among workers who keep their jobs.

Related articles:
Employment and wage effects of extending collective bargaining agreements, by Ernesto Villanueva
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