CHAPTER 9 Employment Relations in Denmark

1. CHAPTER 9 Employment Relations in Denmark Jørgen Steen Madsen, Jesper Due and SørenKaj Andersen

2. Lecture outline • Key themes • Employment relations context • Background • Employer associations • Trade unions • Government • Processes of industrial relations • Current and future issues and trends • Conclusions

3. Key themes • The Danish political economy can be seen as a coordinated market economy, with clear liberal elements. • There are high levels of trade union and employer association membership and collective bargaining coverage. • Collective bargaining based on the principle of ‘self-regulation’ constituted a coherent system of coordinated negotiation, however decentralisation in recent decades has eroded this. • The system of ‘centralised decentralisation’ with controlled coordination is shifting towards multi-level regulation. • Major industrial conflicts have led to significant developments in the evolution of Danish labour market regulation. • Denmark’s ‘Flexicurity’ policy (strong social security for wage earners coupled with ease of hiring and firing for employers) has been influential in the European political debate on labour market regulation.

4. Employment relations context 1 • The unification of the labour market parties into confederations at a national level and the establishment of both the system of collective bargaining and labour law came into being around 1900. • Collective bargaining subsequently became the preferred method of regulation for pay and working conditions. • Labour market and welfare policies have been largely formulated within the framework of tripartite agreements.

5. Employment relations context 2 • Denmark has features of a coordinated market economy: policy development and coordination take place in a network of trade unions, employer associations and the political-administrative system. • However, there are clear liberal elements: • the principle of self-regulation by the labour market parties, and • the absence of specific laws governing trade unions and employers’ associations. • For the most part, regulation takes place within the framework of collective bargaining and not via legislation, thus the Danish labour market is one of the most flexible in Europe. • Denmark has been described as a ‘negotiated economy’.

6. Employment relations context 3 • The manufacturing industry accounts for more than half of Danish export revenues and the three largest areas of employment in the Danish private sector are manufacturing, financing/business services and retail trade/hotels/restaurants. • Public sector employment is high at over 37% of the total workforce. • Unemployment fell to a historical low in 2008 of 1.6%, down from a peak of 12% in the 1990s. • The labour force participation – more than 80% of 15- to 64-year-olds – is among the highest in the OECD countries. • Women’s labour force participation is high at 76%. • Various forms of atypical employment are rare in Denmark.

7. Legal, economic and political background 1 • The Danish model of collective bargaining was born out of extensive industrial conflict between employers and unions around turn of the 20th century. • The ‘September Compromise’ in 1899 between newly founded confederations for wage earners and employers created the foundation for an institutionalised collective bargaining system. • Conflict continued, leading to the establishment of a comprehensive labour law system in 1910. This included a mechanism for the arbitration of disputes, a new labour court and a state conciliation board. • The ‘Ghent system’ in which unemployment benefits are administered by trade unions rather than the state was established in 1907, practically making membership of an unemployment insurance fund synonymous with union membership. This secured high levels of union density and collective bargaining coverage.

8. Legal, economic and political background 2 • Overall the Danish IR model was set up on the basis of self-regulation by unions and employer associations. A prerequisite for self-regulation is the ‘consensus principle’ – the notion that unions and employers’ associations are willing and able to reach a compromise between their different interests. This principle has been largely adhered to over time. • Originally unions and employer associations struggled over the degree of centralisation of the collective bargaining system, with unions seeking a more decentralised system and employers seeking a highly centralised system. De facto centralisation was established by the Conciliation Act of 1934 and 1936. • The state started intervening in industrial conflict from the 1930s and state interventions became the norm in labour market conflicts. • Unions and employers developed strong relations at the enterprise level with a dense network of shop stewards, union branches and cooperation committees. This helped ensure the implementation of collective agreements. • A mechanism for locally setting pay was also established very early. This provided flexibility for individual companies.

9. Legal, economic and political background 3 • The decades after WWII are known as the ‘golden age’ of the collective bargaining model, as regular highly centralised collective bargaining rounds took place between the union confederation LO and the employer confederation DA, with mutual cooperation and benefit. • The public sector expanded greatly as the welfare state was developed from the 1960s onwards. Collective bargaining was also introduced in the public sector and replaced the old civil servant system. • The 1970s saw the establishment of the most coordinated rounds of collective bargaining whereby the private sector agreements negotiated by LO and DA were transferred to the public sector. • However, the high level of centralisation began to produce inflexibilities.

10. Employers’ associations – private sector • Danish Employers’ Confederation, Dansk Arbejdsgiverforening (DA) was established in 1896. It is a peak body of employer associations. • Since late 1980s, many small employers’ associations have amalgamated. Over 150 employers’ associations were members of DA in the 1980s, and there are only 13 today. Three of these associations account for 90% of total payroll of enterprises covered by DA. • DA has developed to be more of a coordinating body for large organisations, similar to the trade union confederation. • In addition to the DA and the two other main confederations there are a few smaller associations, but companies accounting for 40% of private sector employment are not members of any employer association.

11. Employers’ associations – public sector • With the expansion of the welfare state in the 1960s, employment in the public sector grew enormously. Civil servant status shifted to contractual employment as the dominant form of employment. • Therefore, the public sector has acquired increasing importance as an element in the overall IR system. • From the 1970s, local authorities became dominant as welfare services are administered at the local level. Today about three-quarters of public employees work in the regions and municipalities, and one-quarter at the national level. • At the national level, the minister in charge of public sector pay and the employing agency are involved in public sector collective bargaining. The regions and municipalities negotiate via their respective associations, the Association of County Councils in Denmark and Local Government Denmark (KL).

12. Trade unions 1 • The Danish Confederation of Trade Unions, LandsorganisationeniDanmark (LO) was founded in 1898. • It is the largest trade union confederation in Denmark and represents mainly skilled and unskilled manual workers from the private and public sectors. • The LO’s member unions are a mix of craft, industrial and general unions, and there is a trend towards concentration of unions in fewer and larger units. In 2008, there were 17 member unions in the LO and the 4 largest ones represented 80% of total membership. • The LO has always functioned as a coordinating organ rather than an independent power in itself in order to preserve large unions’ independence in negotiations.

13. Trade unions 2 • The LO unions achieved high union density and thus established collective agreements as the dominant form of regulation in private sector. • Other confederations represent professionals and managers (most managers in the private sector are on individual contracts). • Fierce competition between the confederations is gradually being replaced by cooperation. • Recently membership of the LO has declined to 56% of all organised wage-earners in 2008, a trend predicted to continue. • Overall, union membership density across all confederations has fallen from 73% in 1995 to 69% in 2008. Absolute membership numbers have remained quite stable at around 1.8 million.

14. The role of the state • In the Danish system of self-regulation the state’s role is more limited than in some other countries, but is still important. • Apart from supportive procedural legislation, the collective bargaining system is self-regulating. Rules governing relations between organisations and regarding industrial conflicts are fixed in the agreements between the parties. • State legislation is extremely limited – there is none governing formal registration of trade unions; there is no statutory minimum wage. • Increasing political intervention in the past decade is in part due to EU directives requiring legislation. • Regarding labour market policy, the state consults with unions and employer associations on councils, boards, committees and commissions. • The state also plays a significant role in IR as the employer in the public sector.

15. Employment relations processes: collective bargaining 1 • Coverage of collective agreements very high – more than 90% of employees are covered in the three main employer confederations (DA, FA, SALA) areas. • In the private sector, collective bargaining coverage is 73%. Unions have achieved this high rate by entering into adoption agreements with employers who are not members of an employers’ association. • Correspondingly, more than a quarter of wage-earners in the private sector are not covered by a collective agreement and are on individual contracts. • Until the 1980s, coordinated collective bargaining negotiations took place simultaneously across all areas of the economy. Since then, this system has broken down. • Now the LO/DA area negotiates in one year and the rest of the private sector and the public sector follow in the next year. • This new system increases the scope for creating leverage effects across bargaining rounds. The public and financial sectors typically set standards for social welfare elements in collective agreements.

16. ER processes: collective bargaining 2 • The economic crisis in the 1970s made it difficult for the DA and LO to continue the culture of consensus and accommodate their divergent interests. • Major industrial conflict set the scene for a new collective bargaining model, which returned the collective bargaining process from the confederations to the sector organisations, whilst retaining overall coordination. • In addition, large, sector-wide organisations were formed and retained some power to coordinate bargaining even when negotiations were transferred to the enterprise level – hence the system that developed in the 1980s-90s is one of ‘centralised decentralisation’. • Traditionally, the iron and steel industry has been the key bargaining area, and this was expanded in the 1990s to include all of manufacturing. Bargaining is coordinated between the newly established employer confederation, the Confederation of Danish Industry (DI) and the new Central Organisation of Industrial Employees in Denmark (CO-industri).

17. ER processes: collective bargaining 3 • Decentralisation occurred as more collective agreements changed from being standardised pay agreements with centrally determined wages to various flexible pay systems with wages being determined at the enterprise level. • Second, negotiation over other areas – particularly working hours – has also been transferred to the enterprise level. This creates possibilities for greater flexibility and variation of work hours. • Decentralisation is driven by the emergence of new kinds of work organisations demanding flexibility and employee participation. Danish employers also argue that they need greater flexibility in order to be internationally competitive. • Employers recognise the necessity of strong local union representation in enterprises, as it is a prerequisite for using flexibility provisions, and 80 % of employees are represented by shop stewards at their workplace.

18. ER processes: collective bargaining 4 • Since the 1990s, there has been an expansion in the scope of collective agreements to include a number of welfare-related issues, particularly occupational pension schemes. • Further issues include the right to further training, sick pay and paid parental leave. • A system of ‘double regulation’ has developed under which welfare-related issues such as paid parental leave are regulated both via collective agreements and legislation. • This double regulation of welfare issues creates interplay between unions and employer associations and the political players, and means politicians are gaining greater influence over collective bargaining agendas. Thus the independent self-regulation of labour market issues that unions and employer associations enjoy is increasingly under pressure.

19. ER processes: collective bargaining • As a member of the European community, Danish labour regulation has been under pressure from Europe and has had to incorporate a number of European labour law directives regulating matters such as working hours, part-time employment, fixed-term work and European works councils. • This has been a source of tension and debate as common directives are difficult to implement within the finely balanced Danish system of collective bargaining and legislation. • A tripartite Implementation Committee was established and a process for implementing the directives through collective agreements and legislation was developed.

20. ER processes: dispute settlement • The right to initiate conflict is in practice reserved only for conflicts of interest –the renewal of existing collective agreements or when entering into collective bargaining in new areas. • In recent history there have been four major conflicts: 1961, 1973, 1985 and 1998. • In general, the State Conciliation Board has effectively resolved disputes through mediation. • Industrial conflict eventuates if the parties can not reach agreement via the Board, but is rarely long in duration due to the tradition of political intervention. • The largest independent conflict in the public sector was in 2008 in the health, elderly care and kindergarten sectors. Unlike in the past, the government chose not to intervene. • Local disputes often lead to unofficial strikes but these have been declining recently. • Most conflicts of rights are resolved through the labour law system. Many are solved locally but some proceed to arbitration or the Labour Court.

21. Current and future issues and trends • Recent changes to collective bargaining and labour market regulation in Denmark have revealed some of the challenges facing the Danish model. • The labour market parties desire to maintain strong self-regulation and avoid increasing political control and intervention in collective bargaining by the political parties. • New tripartite agreements are being concluded in areas that were previously the domain of the bipartite collective bargaining arena. • The public sector unions demanded large wage increases in 2008, breaking with the principle of the private sector setting wage levels.

22. Declining union membership • The special position of the labour market parties in the Danish model is legitimised by a high level of membership and collective agreement coverage. • Falling union density may challenge this status quo – 69% in 2007 down from 73% in the mid-1990s. • There has been growth in membership of the alternative ‘yellow’ unions. • The decline in unionisation can be partly explained by changes to regulations surrounding unemployment insurance funds. It is now possible to join the funds of the ‘yellow’ unions.

23. International pressures • The large influx of foreign workers, mainly from Poland, is associated with economic prosperity and the expansion of the EU. • There is debate centred on the Laval Case brought before the European Court of Justice in 2007. The case is about obligations of foreign companies with respect to pay and conditions of workers brought in from their home countries. This is particularly an issue in the construction sector, where many foreign companies employ foreign workers at low wages in Denmark. • International legal regulation also influences the Danish system e.g. freedom of association rules have meant that closed shop agreements had to be abolished (this also explains some of the decline in union membership).

24. Labour shortages • There is an ageing population in Denmark and Europe generally. • A shortage of 200 000 employees by 2015 is predicted by the Confederation of Danish Industries. • At the same time, a surplus of unskilled workers is predicted. Thus there is a call for increased education and training. • This has also led to debate about whether to allow more migrants to work in Denmark and whether the early retirement scheme should be retained. • The global financial crisis diminished the labour shortage problem, but as the economy recovers the problem is expected to reappear.

25. Conclusions • Three key pressures threaten the self-regulation of the labour market parties • Political players exerting influence on the system • Pressure from the actors at the enterprise level • Increasing influence of international regulation (EU) • The Danish model remains nonetheless robust; trade unions and employers’ associations are strong and collective agreements retain a high level of coverage