A win-win deal

By Stefán Ólafsson.

Kolbrún Halldórsdóttir, chairman of BHM, criticized the involvement of the ASÍ unions that are currently negotiating contracts on the public market in an article that was published on January 1st. Sameyki’s chairman Þórarinn Eyfjörð did the same in an article that was published on January 8th. 

Kolbrún wrote in her article that the unions in question only represent 47% of the labor market. This is a very misleading statement.

The Unions that are currently sitting at the negotiating table generally make collective agreements that come close to being valid for about 75% of individuals on the labor market. Most of them are in the private market (in the private sector), but there is also a significant number of ASÍ members that work in the public sector (e.g. unskilled kindergarten staff and people in caregiving jobs).

The collective agreement made by the Union Alliance on the private market will thus cover the vast majority of employed workers in the country.

In Þórarin’s article, it is criticized that the term “national consent” (þjóðarsátt) has been used for the proposed collective agreement on the general market. The parties from the ASÍ unions that are now at the negotiating table are mostly the same parties that made the Living Wage Agreement (Lífskjarasamninginn) 2019, but some of the tradesmen now chose to stay out of the coalition. That agreement became a general model for other agreements, precisely because it covered such a large majority of workers in the labor market.

The Living Wage Agreement yielded good results for the majority of ASÍ members and also for the BSRB unions, not least for the members of Sameyki. The increase in purchasing power was greatest for lower-wage groups and women. The highest-paid groups received the same flat wage increase as others but it brought about a lesser percentage increase for them. There has been dissatisfaction with that in higher salary groups, especially within BHM. However, in its contracts with the state in the autumn 2019, BHM managed to implement these increases in its salary wage tables in such a way that more increases were obtained than could have been expected from a flat wage increase alone. But that’s another story.

Agreement on rapid reduction of inflation and other benefits

The Union Alliance has developed a comprehensive plan to achieve the goal of rapidly reducing inflation and interest rates. It can be done with moderate wage increases and a call for a consensus between the main parties in society for rigid price control. Everyone needs to shoulder their burdens (companies, state, municipalities, banks, pension funds, and the labor movement). That is why these goals have been called “national consent”.

To achieve this, a low wage increase is offered in the first year which will if everything goes as planned cause a reduction in purchasing power for almost all wage earners, due to the high price level that currently prevails. To make this possible a significant strengthening of public redistribution transfer systems (child benefits, interest benefits, and housing benefits) is demanded, which delivers significant wage benefits to lower and middle-income groups. In particular, it is expected that child and interest benefits will be increased well across income groups. It is no less useful for BSRB members than for ASÍ members, and a large part of BHM members would also benefit from it.

If the BHM Unions want to apply for salary benefits for university staff of a different nature than through direct wage increases they could use other means, for example with a demand for better terms on student loans.

Reduction in interest rates will also be an important benefit

However, we must not overlook the fact that if the goal of a rapid reduction in inflation and interest rates is achieved there will be a significant improvement in the financial status of all households with housing debt, by a reduction in mortgage payments. It would bring many BHM members a significant financial improvement.

That’s because higher-income households tend to have higher mortgage debt and those with larger debt will benefit from a larger reduction in repayments with lower interest rates. For example, a household that owes 25 million krónur in an unsecured mortgage would have its payments reduced by 52,000 krónur per month when interest rates have dropped by 2.5%. The benefits of those with indexed loans will be similar, but partly in a different way. Those who owe 45 million will receive a much greater reduction in payments.

The benefit of the interest rate reduction will apply to everyone who owes residential property, but more so to middle and higher-income groups.

A comprehensive plan for living standards and reducing inflation

The Union Alliance has presented a comprehensive and realistic plan for a rapid reduction in inflation with wage increases that come to a greater extent from the strengthening of public redistribution systems and by lowering interest rates. The increase in wages is the least important factor in the benefits of the agreement for employees, especially in the first year, but it creates the scope for a rapid reduction in inflation. In the later years of the contract wage increases will result in a fine increase in purchasing power well up the wage ladder when inflation will be at a much lower level. Interest rate cuts should likewise be delivering an improvement in earnings for the duration of the agreement.

Finally, I would like to point out that the path taken by the ASÍ unions, with a flat wage increase and the restoration of the public redistribution systems, is generally better for women than for men because women are to a greater extent in lower paid jobs. This is therefore a good way to reduce the class-based wage gap between men and women. Advocates of BHM must not forget that the majority of women in the labor market do not have a university degree.

Although not all unions sit at the negotiating table at the same time because contracts expire at different times, it is clear that the plan that is currently being worked on will benefit all workers in the labor market should it be successful. It will be good for the whole society. There is a call for a synchronized effort in the fight against price increases so this could be called “national consent” if the plan is implemented.

The Unions in the public sector that still have yet to negotiate will of course negotiate their own implementations and special terms.

The author is a professor emeritus at the University of Iceland and works as an expert at Efling.

The article was first published on Vísir on January 8, 2024.