The National Mediation Office seeks to improve wage-formation process

In May 2001, Sweden's new National Mediation Office had been in existence for nearly a year, and here we review its background, role and early experience. According to its director-general, Anders Lindström, achieving a well-functioning and sustainable process of wage formation, rather than achieving industrial peace at any price, is the National Mediation Office's most important goal.

The National Mediation Office (Medlingsinstitutet) was created in June 2000, with its first director-general, Anders Lindström, taking up his post in September of that year. The National Mediation Office is a relatively small organisation, employing only seven staff, mostly statisticians, lawyers, and social scientists. The 30 or so mediators themselves are not permanently employed staff, but are available to be contracted when need arises.

With the National Mediation Office having been in existence for one year, we take this opportunity to look at: the extensive debate on wage formation and pay determination which preceded its creation; its tasks; and its progress so far.

Cause for concern

During the 1980s, the wage formation process started to give cause for concern in Sweden. There were high nominal wage increases plus a high rate of inflation, and, beginning in the early 1990s, a sharp increase in unemployment. Membership of the European Union and a shift in economic policy, making currency devaluation impossible, made the need for a new process of wage formation and pay determination all the clearer.

In 1997 a special investigator, Svante Öberg, was appointed by the government to propose measures to promote a more satisfactory system of pay determination (SE9704111F). He proposed, among other measures, that the then National Conciliator's Office (Förlikningsmannaexpeditionen) should be replaced by a new national National Mediation Office. The trade union confederations were quite sceptical about his proposal, fearing that the new body would infringe on free collective bargaining (SE9712160N).

A year later, a committee appointed by the government charged with the task of proposing measures leading to an improved system of wage formation, presented its report (SE9812129F). The committee agreed that a National Mediation Office should be created, and proposed a number of measures that provoked debate, notably: the introduction of a principle of proportionality (ie an organisation should not have the right to take industrial action resulting in substantial costs for the opposite party and third parties, without itself incurring substantial costs); a limitation on the right to take sympathy industrial action; and a prohibition of industrial action against sole traders or family companies. Furthermore, it was proposed that the government should appoint a council to hold regular discussions with the labour market parties, in order to achieve a common understanding of what level of pay rises would be compatible with the economic well-being of the country. The reactions of the social partners to the committee proposals were strongly negative, although the reasons for their standpoints varied.

The private sector employers and the trade union confederations then made their own efforts to draw up rules for bargaining procedures and pay determination (SE9901135N), but failed to reach an agreement. The government decided that it was time to step in, and on 9 December 1999, presented a bill to parliament, proposing the creation of the National Mediation Office (SE9912110F).

Main tasks of the National Mediation Office

When the National Mediation Office finally came into being, its mandate was less far-reaching and controversial than suggested earlier. Its main tasks are as follows:

• the National Mediation Office may appoint one or two mediators to help in the negotiations over a collective agreement, by agreement with the negotiating parties. It also has the right to appoint mediators without the parties' consent if there is a risk of conflict. However, the mediators do not have the power to intervene to halt industrial action and the clause on proportionality proposed earlier was dropped from the final legislation;

• the notice period that either party must give before starting a strike or a lockout is now seven working days, rather than the previous seven calendar days. Notice of action must be given to the National Mediation Office and the parties are subject to fines if they do not comply. The National Mediation Office also has the right to order a "cooling-off period" of up to 15 days before a notified action may begin; and

• as well as promoting good industrial relations, the National Mediation Office is charged with the task of publishing an annual report on wage developments. It is responsible for public wage statistics, makes analyses and collects and promotes research all in order to provide a good basis for the social partners' negotiations.

The National Mediation Office's mediation role does not apply where the social partners in a sector are already committed to an existing collective agreement setting out certain rules on negotiation and mediation.

As well as dropping the principle of proportionality, the final legislation also did not take up the proposals for a limitation on the right to take sympathy strike action, or for the creation of a government economic council. This made the new National Mediation Office much more acceptable to the social partners, and less controversial. As a result, says Mr Lindström, the National Mediation Office's director-general, "I do feel that we are very much accepted by the social partners." However, in March 2000, parliament did adopt a ban on industrial action against one-person and family companies, despite the opposition of the minority Social Democrat government (SE0004132N).

Manager of negotiations

Anders Lindström notes that the creation of the new National Mediation Office means that focus of the mediator's work has shifted from the role of the conciliator to the role of a "manager of negotiations". The task of the traditional mediator is less important than that of making sure that the process of wage formation works in such a way that the result is compatible with sound economic development. "Achieving peace on the labour market is not the overriding goal," Mr Lindström emphasises.

According to the National Mediation Office's director-general, the level of pay rises should be compatible with the rate of inflation and the growth of productivity, and not deviate too much in the long term from what is happening in competing countries. It should also contribute to directing labour to areas where there are shortages. "What level of increase is reasonable is a million-dollar-question, but I would say that in the European zone it is more likely to be 3% than 4%, and there is no reason why Sweden should be different," Mr Lindström says.

However, if the negotiating parties conclude agreements that involve higher pay rises, there is nothing that the National Mediation Office can do about it, having no right to intervene or decide on the normative content of agreements. "The basis of our system is that the parties come to an agreement on their own," stresses Mr Lindströ.

Contact with social partners

What the National Mediation Office can do, and does, is to provide statistics, information and analyses about the economic conditions and the process of wage formation. "We will have continuous contact and discussions with the social partners. It is very important to be open about these issues," according to Mr Lindström.

For the past three years, wage formation has worked very well, according to Mr Lindström, and the near future looks bright too. The National Mediation Office is currently undergoing its first real test, the spring 2001 bargaining round (SE0105102F). By late April, almost all employees in the private sector were covered by new three-year agreements, and so far, the annual pay rise varied between 2% and 3.5% - there was thus no sign of wage increases which were "too high". The only conflict to break out, in the building industry, was not about the level of pay increase, which the parties agreed upon, but about the pay system. The conflict lasted only a few days and stopped when a new collective agreement for the industry was reached. "So far, things look good, but of course it will take some three or four years before we really know if the process of wage formation works well," notes Mr Lindström.

Collectively agreed procedures

It is important to note that 60% of the Swedish labour force are covered by collective agreements that provide their own framework for mediation, and are thus excepted from the statutory rules (SE0006146N). The pattern for such agreements was set by a major agreement on cooperation and bargaining procedures signed in the industry sector in 1997 (SE9703110N). This is something that the National Mediation Office's director-general looks very favourably upon: "The more that the social partners can do themselves the better. It gives the system more credibility."

The worst thing that can happen, for Mr Lindström, is a return to the tendency of the 1970s and 1980s for groups of workers to seek more for themselves than achieved by other workers: "It would be disastrous. Devaluation no longer being an option, we would get higher interest rates and higher unemployment and a worsening of the standard of living for all of us." In earlier decades, the trade unions often tried to achieve a clear change in the relationships between the wages of different occupational groups. "It did not work. You cannot fool the system collectively by taking more out of it than it can stand," asserts Mr Lindström. There is no clear-cut answer to the much discussed question of how wage relationships should be changed today: "The research done does not really tell us what determines the wage relations between different groups. However it seems that market forces play a very big role."

Commentary

It will be a few years before we can judge whether or not the National Mediation Office will be able to achieve its goal of a sustainable and well-functioning wage formation process. The fact that the National Mediation Office has on the whole been well accepted by the social partners makes the preconditions favourable. Another important factor seems to be the clearly positive standpoint that the National Mediation Office takes towards the social partners' own activities within their own framework of mediation, in the form of the bargaining procedures laid down in recent cooperation agreements for the industry sector and the governmental and municipal/city council areas. (Lena Skiöld, Arbetslivsinstitutet)