Stress testing the Nordic models: Manufacturing labour adjustments during crisis

Abstract

This article discusses how the actors in the internationally exposed sectors of four Nordic economies responded to the economic crisis of 2008. Though Denmark, Finland, Norway and Sweden are commonly viewed as similar countries, there are important variations in the regulation of workers’ rights and the available measures of labour market adjustment such as short-time working and temporary lay-offs. We find that such differences produced significant differences in adjustment patterns, in the cooperation and influence of trade unions during these processes and in institutional adaptation.

Keywords

Company restructuring Denmark economic crisis Finland flexicurity Nordic models Norway short-time working social partner responses Sweden

Introduction

The Nordic countries are small, open economies accustomed to economic change. With the global financial crisis in 2008, their labour markets faced challenges as international market demand slumped. Katzenstein (1985: 24) emphasized that Nordic labour markets are equipped to handle economic shocks, as the interplay between the strong collective organizations and the collective insurance provided by the welfare state serves to cushion insecurity and muster legitimacy for swift policy adjustments through concertation with the state. But how did such cooperation influence company-level adjustments?

The Nordic labour regimes have traditionally been associated with a strong tier of workplace negotiations, within a framework of centralized coordination and state support (Kjellberg, 1998; Sippola, 2012). Regulation of collective dismissals is in comparative perspective relatively weak, especially in Denmark (Muffels and Luijkx, 2008; Rogers and Streeck, 1995); but law and central collective agreements ensure company trade unions – the local union ‘clubs’ – the right to information, consultation and negotiation in a range of areas, including labour adjustments (Bruun et al., 1992; Sippola, 2012). Thus local negotiations over workforce adjustments concerning wages, working time, use of temporary lay-offs and dismissals are a crucial arena for bargaining over crisis adjustments (Glassner et al., 2011).

In this article we study how the actors in the most internationally exposed sectors of the Nordic economies responded to the crisis at plant level. They faced different possibilities for adjustment because of national variations in the institutional regulation of dismissals and available means of workforce adjustment, but how did such differences influence the extent of cooperative adjustment, the way adjustments were negotiated and the distribution of costs? By comparing companies within a single sector with similar product market conditions we can detect the impact of differences in national institutions and regulations on the pattern of adjustment and union involvement (Marginson et al., 2004: 18–20). The decline in output in the wake of the 2008 crisis was largest in manufacturing, which was most directly hit by the collapse in export markets. Manufacturing is highly unionized, and though density has declined in recent years, the figures are still high in an international perspective, ranging between 79 percent in Sweden and 58 percent in Norway (Kjellberg, 2010; Nergaard, 2010).

Labour adjustment in the Nordic countries, inspired by the Swedish Rehn-Meidner approach (Meidner and Rehn, 1953), has traditionally emphasized external flexibility and reallocation of labour from less to more productive companies. Egalitarian, centralized wage bargaining forced companies to restructure or go out of business, since they could not resort to downward wage competition. The focus on external flexibility and mobility, combined with relatively generous unemployment benefits and reallocation of labour, has in recent years been replicated in the Danish notion of flexicurity (Ibsen, 2011; Madsen, 2004; Muffels and Luijkx, 2008). Nordic trade unions have usually rejected concession bargaining on the American model or as involved in German company employment pacts (Lehndorff, 2011; Zagelmeyer, 2011).

Labour adjustments negotiated locally between employers and trade unions are framed by institutions and regulations that both constrain and enable different cooperative dynamics and solutions for workplace actors. These institutions rest on compromises that may be subject to change, especially during economic shifts, either by tripartite or bipartite central negotiations, or through local negotiations and bottom-up pressure (Howell and Givan, 2011; Katzenstein, 1985; Mahoney and Thelen, 2010). Local negotiations are subject to a peace obligation and are embedded in relationships where bargaining usually is voluntary, informal and based on continuous exchange (Kjellberg, 1998).

In spite of many similarities, the Nordic labour markets show significant differences concerning temporary lay-off institutions and work-sharing schemes (Hijzen and Venn, 2011), dismissal regulation (Berglund et al., 2010; Sigeman, 2002), early retirement, access to company-specific training schemes and in traditions for local codetermination and tripartite cooperation. Together with variations in rules and customs regarding leadership styles (Byrkjeflot, 2001; Trygstad and Hagen, 2007) and trade union approaches, such differences can be expected to affect the pattern of cooperation, power relations and adjustment at company level. For instance, strict dismissal regulation may increase trade union bargaining power (Elster, 1992). We therefore raise three interrelated questions concerning such national variations. First, how were labour voice, cooperative relations and the extent of negotiations over labour adjustments at plant level influenced by differences in rules regarding participation? Second, how did variations regarding regulation of dismissals, early exit options, seniority, income security and temporary lay-off schemes influence such negotiations? Third, do variations in regulations, available means of labour adjustment and cooperative efforts have distributive consequences at plant level?

Research design and methods

The study was based on case studies carried out during 2010 in 15 manufacturing companies – three each in Denmark, Finland, and Sweden, and six in Norway. All plants were part of larger corporate structures; all three Swedish plants and two of the Danish, but none of the Finnish and only two of the six Norwegian, were foreign-owned. Even though the case studies were limited to a single plant, the adjustments sometimes involved other plants in the company or group, and when relevant we also gathered information about these. To ensure that the cases were typical for the phenomena under study and to enable comparison, we selected plants (in most cases with sizeable export markets) which had experienced a substantial drop in demand, leading to a substantial labour adjustment process. Products included ball bearings, engines, windmills and pumps. Two plants (NO4 and DK2) were not oriented to export markets, but both produced for the crisis-ridden construction sector and thus faced similar pressures for labour adjustment. All plants were based on fairly traditional mass production, with medium advanced technology, a sizeable blue-collar workforce and high union density. All had more than 50 employees, and all but three over 200, ensuring that the management– trade union relationship had some weight and that the number of workers affected by the adjustments was large enough to gain insight into their distributional effects. We contacted central unions and employer federations, used the Eurofound restructuring database (EMCC, 2009) and our own knowledge about the crisis at company level to find cases fitting the criteria.

Data were collected through interviews with representatives of site management (HR director and/or production/division manager) and of the main blue- and white-collar unions. Interview data were supplemented by annual reports, business data, management–union agreements and so on. A common interview guide was used in the fieldwork, and to ensure data quality all the interviews in Denmark, Norway and Sweden were summarized and emailed to the interviewees for comments. In this article we anonymize the plants, using country initials and numbers.

Background and institutional frameworks

Economic crisis and changes at company level

After a long period of growth, manufacturing production fell sharply in 2008–2009: by 20 percent in Finland, 19.5 percent in Sweden and 17.2 percent in Denmark, though only 6.2 percent in Norway. With production lines attuned to incoming orders – just-in-time production – this implied steep and sudden reductions in demand for labour. Subsequent recovery was strongest in Sweden (a 9.2% increase in 2010) followed by Finland (5.5 percent), but only 2–3 percent in Norway and Denmark. Nordic manufacturing was thus among the most severely affected by the international contraction in demand.

Rules and regulations concerning dismissals

According to the 1998 EU directive on mass redundancies, employers must consult with employee representatives before making a decision involving redundancies of 10 or more employees, in order to reduce the number of dismissals and to mitigate their consequences. Nordic employers facing economic or production-related difficulties may legally dismiss employees without other cost than pay through the notice period: severance pay is not required by law (Sigeman, 2002: 272–273). While these regulations show similarities and are rather lax in comparative perspective (OECD, 2012b), the regulation of (collective) dismissals also involves other dimensions, with more variations between these countries.

In cases of collective redundancy, selection rules are important. While discriminatory decisions are forbidden in all countries, there are regulatory differences. In Denmark the Basic Agreement between Landsorganisationen i Danmark (LO) and Dansk Arbejdsgiverforening (DA) states that dismissals must be based on reasonable grounds related to the employee or the company, but criteria for selection are not defined. The same pertains to Finnish legislation, while the Dismissal Protection Agreement between Suomen Ammattiliittojen Keskusjärjestö (SAK) and Elinkeinoelämän Keskusliitto (EK) contains guiding principles emphasizing the importance of retaining skilled employees and securing those who have lost a part of their ability to work. The lack of specification also pertain to the laws in Norway, but the Basic Agreement between Landsorganisasjonen i Norge (LO) and Næringslivets Hovedorganisasjon (NHO) specifies a seniority rule, but permits deviation from this principle with due reason. In contrast, the last-in-first-out principle is mandatory under Swedish law (Lagen om Anställningsskydd, LAS), so long as the remaining employees have qualifications to carry out the work.

Legislation or collective agreements stipulate a period of notice before permanent employment contracts can be terminated, varying between 14 days and six months, depending on length of service. In Denmark it also varies according to occupational groups (Jensen, 2011). In manufacturing there are only minor variations in notice periods between and within these countries. In all the countries but Denmark, employees have the right to re-employment in the enterprise for a period of nine months (Finland and Sweden) or one year (Norway) after their dismissal (Berglund et al., 2010).

In company adjustments the actors may take the unemployment benefit and early retirement systems into account. Reforms in Sweden before the crisis, lowering the benefits and raising the insurance costs increased the number of workers outside the (voluntary) unemployment insurance system (Kjellberg, 2009); the same occurred, though to a lesser extent, in Denmark (Due et al., 2010). Nevertheless, there were only minor differences in the generosity of the insurance schemes in the Nordic countries (OECD, 2012a). At the time of the crisis, Denmark had an allowance (efterløn) enabling workers to retire from the age of 60; in Finland individuals who turned 60 before the 500-day period of unemployment benefits was over could move directly into old age pension; and in Norway a state-subsidized collectively agreed supplementary pension scheme allowed those covered to retire at the age of 62. In Sweden there was no such publicly subsidized early retirement system, and the normal retirement age was 65.

Pre-crisis schemes for temporary lay-offs and work sharing

State-funded temporary lay-off or work-sharing schemes had been widely used in Finland, Norway and Denmark long before the current crisis. The schemes share many similarities, most importantly payment of unemployment benefits to laid-off employees. However, state funding commenced only after an initial period of lay-off or short-time working; until then, the cost was borne by the worker, the employer, or both. There was also a minimum proportion of time off work before payment was available: 40 percent in Finland, 50 percent in Norway, while in Denmark the employee had to be off work at least two days per week or one week off followed by one week at work. In Denmark, temporary working had to be shared evenly between employees in at least a whole production unit, and there could be no redundancies within the unit during work-sharing.

In Finland there was no maximum period for lay-offs, but the 500 days duration of unemployment benefits served as a cap. In Norway, until the crisis lay-offs were restricted to 30 weeks within 18 months, while work-sharing in Denmark could be used for up to 26 weeks within 12 months (Ibsen, 2011; Jørgensen, 2011b).

By contrast, in Sweden such schemes were traditionally used only on a small scale (Björklund, 1996), and ceased to exist from 1995 (Malmberg, 2003). However, a number of job security schemes based on collective agreements and financed by the employers provided training and guidance to employers and employees on how best to handle the labour adjustment process and its outcomes (Håkansson and Isidorsson, 2009).

Initial crisis responses: Central and sectoral adjustments of regulations

Besides forceful macroeconomic measures, the Nordic countries responded to the market collapse by expanding active labour market policies and education (Jochem, 2011), and partly by adjusting the duration and generosity of the unemployment benefit system. In Denmark, Finland and Norway, temporary lay-off or work-sharing schemes were also made more accessible.

Finland and Sweden eased access to unemployment benefits in 2009 (temporarily in Sweden, after being tightened severely in 2006), as was the minimum age for receipt of open-ended unemployment pensions in Finland (Jokivuori, 2011; Lovén, 2009). The Finnish criteria were further loosened in 2010. In contrast the Danish government reduced the maximum duration from four to two years in spring 2010, and tightened criteria for re-qualifying (Jørgensen and Schulze, 2011). In response, DA and CO-industri (the ‘cartel’ of LO affiliates in manufacturing) agreed on a severance pay supplement for workers with more than three years tenure raising the unemployment benefit to 85 percent of previous pay for a limited period (Ibsen et al., 2011: 333; Jørgensen, 2010).

Companies, employers’ organizations and trade unions in Denmark, Finland and Norway put pressure on the state to relax the arrangements for temporary lay-off schemes. In Denmark, temporary changes enacted in March 2009 allowed two weeks of work to be followed by one or two weeks of unemployment (Jørgensen, 2011b). Large Danish companies called for prolongation of the work-sharing period from 26 weeks to 18 months. This was supported by most trade unions on condition that the period off work did not count as a supplementary benefit period (Jørgensen, 2011a), but the centre-right government refused further changes. In Norway, temporary changes in spring 2009 increased the maximum duration of lay-offs from 30 to 52 weeks, and the period without benefits was reduced. Even after these changes, the costs to employers for hours not worked the first month were 25 percent, which was in the high end of employer costs in the OECD area (Hijzen and Venn, 2011: 12), and much higher than the 15 percent in Denmark and zero in Finland. The minimum threshold was also decreased, allowing employers to lay-off full-time workers two days each week, instead of two and a half. In Finland the minimum threshold was temporarily lowered to one day off work per week, and in January 2009 the ‘change security’ activation programme, which included retraining, was extended to temporary lay-offs (Arnkil, 2011). Company-level training was also made more accessible by reducing employer contributions for small and medium-sized companies (Miettinen, 2009).

The flexibility enabled by such arrangements was most extensively utilized in Finland, where over 90,000 employees, just under 4 percent of the entire labour force and 31 percent of redundant workers, were temporarily laid off in 2009. In Denmark the number of employees engaged in work-sharing peaked at around 18,000 in May 2009 (Stuvøy and Jørgensen, 2009): 0.6 percent of the labour force and 9 percent of redundant workers. In Norway the peak was just over 18,000 in April 2010 (Olberg, 2010): 0.8 percent of the labour force and 20 percent of redundant workers.

Exceptionally for Western Europe, Sweden had no equivalent temporary lay-off scheme when the crisis hit. However, in response to dramatic job losses in 2009 the main manufacturing union, IF Metall and its employer counterpart, Teknikföretagen, signed a path-breaking ‘crisis agreement’, establishing procedures for negotiated work- and burden-sharing at company level. Working time could be reduced to 80 percent without compensation, subject to a company agreement (thus requiring trade union consent). Employees could be laid off for a limited number of days with a corresponding or lower cut in pay. It was the first time that a national Swedish union agreed a reduction in benefits for its members, and subsequently other unions came under pressure to follow. As a result, many workplaces settled for agreements that allowed unpaid, temporary lay-offs in order to save jobs (Henriksson and Kullander, 2011). According to a report by IF Metall (2009), almost a third of its clubs signed a local crisis agreement in 2009, covering about 60,000 workers (38% of the membership) (IF Metall, 2009). According to the white-collar manufacturing union, Unionen (2009), local branches signed 138 crisis agreements, covering nearly 14,000 members.

In the 2010 bargaining round, the crisis agreement was prolonged until October 2010 on condition that re-employment of formerly redundant workers gained priority over the use of temporary agency workers (Kullander and Henriksson, 2010). In 2012 the social partners in manufacturing proposed a revised version of the agreement as a permanent measure to handle economic crisis throughout the private sector. After revising the proposal, the government in spring 2013 decided to introduce a public scheme for short-time work, with the state, the employers and the employees sharing the costs. The scheme applies only if severe recession is expected, and if necessary structural changes are not obstructed.

In no country were pay cuts or wage freezes centrally agreed during the downturn. Pay increases were low, but various procedural innovations were developed. In Norway, the social partners in 2009 agreed an opt-out from the national pay increase for companies facing economic difficulties, if the local union accepted (Nergaard, 2011). In Finland and Sweden, similar innovations were included in some of the manufacturing wage agreements, as in the agreement for blue-collar workers in electronics, ICT and metal-working in Finland in August 2009 (Glassner et al., 2011: 312).

Employment adjustment: What scope for cooperation in hard times?

Management and trade union cooperation

As would be expected in the core sector of the Nordic models, workforce adjustment in most of the case companies involved fairly extensive cooperation between management and trade unions. In 12 of the 15 companies, management consulted the unions in an effort to find mutually acceptable ways to adjust working hours and labour costs, thus protecting employment security. To varying degrees, both parties appeared open and willing to explore alternative solutions. In the remaining three companies (DK1, DK2, FI3), consultation was merely at arms’ length (Walton et al., 1994). Management consulted the unions and kept their involvement to a minimum. This restricted the process to mostly one-way formal information. In SE1, DK1 and DK2, the actual decisions about workforce adjustment were taken at higher levels in the corporate organization, leaving little room for real local union voice. The unions in SE1 nevertheless felt that the process was fair, as they had influence on these decisions higher up the organizational chain. This was not the case in the two Danish companies. Although the fine details necessarily were left to the local actors to work out, the range of issues to settle at this level was narrow and mostly oriented towards implementation, such as securing good terms for those dismissed.

Sequence and sources of internal and external adjustments

The depth of the fall in product demand in 2009 – the median for the case companies was around 40 percent – required swift and substantial cost savings and workforce adjustments, and the available repertoire of relevant measures was crucial in the consultations. The choice of measures was influenced by the perceived depth of the crisis: many companies saw a need to adjust labour and production capacity immediately.

The measures used by the companies fall within six broad categories: cutting external employees, temporary changes in working time, internal redeployment, pay cost savings, voluntary redundancies and early retirement, and dismissals. The use of measures is summarized in Table 1. Drawing on Greenhalgh et al. (1988: 243), it depicts the short-term impact of these measures on company costs, and ranks them by their assumed contribution to integrative solutions which are perceived as the combined preferable option for both management and trade unions (Walton et al., 1994).

Table 1.

Adjustment measures.

	Type of measure	Subtype	Company
	Type of measure	Subtype	DK	FI	NO	SE
>———-Increasing integrative bargaining solutions——— →	1. Cut external employees			2	2,3,4,6	1	>——Increasing short-term savings ——→
	2. Temporary working time adjustments	a) Flexible working time arrangements	2	1,2,3	2	1,2,3
		b) Temporary lay-offs, work-sharing	2,3	1,2,3	1,2,3,4,5,6
		c) Training courses without normal pay	2	1,2		1,2,3^a
		d) Reduced working time and pay			1,2,3,5	1,2
	3. Internal redeployment		1,2,3	2	2,4,6	1,2
	4. Changes in pay systems		2,3
	5. Exits and early retirement	a) Voluntary redundancy with severance pay	1,2,3			1,2,3	←Increasing long-term savings —<
	5. Exits and early retirement	b) Early retirement incentives	1,2			1,2,3
	6. Dismissal	a) Phasing out temporary employees		2	2,4,6	1,3
		b) Dismissals	1,2,3	2,3	1,2,3,4,5,6	1,2,3^b

In SE1, training measures were funded by the operating budget. In SE3 an externally funded project covered the training costs, while the wage costs were underwritten by the company.

In SE2 only a few white-collar employees were dismissed.

Shedding external labour

When the crisis broke, the prime trade union concern was to shield their own members from loss of jobs and pay, while management was looking for ways to save costs. As a first line of defence, unions in many companies thus called for, and usually won acceptance for, a reduction in external labour such as agency workers and consultants.

A dismissal is always painful, irrespective if the person is employed by the company or is working as a consultant. But from the perspective of the union, the first priority must be to keep employees in the company employed. (Union representative, SE1)

Since the number of external workers was low in most companies (except SE1), this measure had little impact, but for the unions it sent an important message to their members: external labour would be cut before dismissals were discussed. To avoid dismissals, the unions would seek temporary measures to enhance internal flexibility and possibly voluntary redundancies, even though there was usually a shared understanding that, when needed, some workers would have to leave in order to secure the jobs of others.

Wage cost savings

As the fall in demand accelerated, it soon was clear that further measures were required. While nominal wage cuts, in modern time, have been unthinkable in Nordic countries, other ways of reducing wage costs were indeed a central issue. As noted, very modest central wage increases were agreed in 2009–2010, also involving procedural adjustments to enhance local pay flexibility. In Sweden, the crisis agreement implied that workers’ pay could be temporarily reduced in line with working time, and some similar but more short-term agreements were negotiated at company level in Norway. All the case companies negotiated very modest local wage settlements in 2009, including pay freezes in four of the companies.

In Finland, the blue-collar unions offered no temporary pay concessions, but in FI2 the executive group’s pay was reduced, and in FI3 bonuses were suspended. In Norway, some employers suggested using the opt-out from the centrally agreed increase, but the unions argued that it made no sense since the savings would be too small and could permanently damage wage levels: the issue was a temporary lack of market demand. In Sweden, the local parties negotiated measures in line with the central crisis agreement, even when not covered by it. Wage agreements were delayed and moderate. In Denmark, management seemed more able to win trade union acceptance for reorganizing bonus systems in order to lower wage costs permanently. In DK2, management obtained substantial savings on pay, implementing a new pay and bonus system for blue-collar workers, while in DK3 a planned pay rise was converted into a bonus agreement.

Sharing burdens and searching for internal flexibility

As pay curbs and cuts in external labour could in no way match the fall in sales, the local parties also sought complementary means to cushion the crisis by internal flexibility. Companies in Finland and Sweden drew initially on existing agreements regarding flexible working time; such agreements enabled hourly adjustments of around 10–15 percent within a year. Only one Norwegian company (NO2) had a similar option, allowing five stop days with full pay during seasonal shifts. In DK2, working hours were usually adjusted to seasonal demand fluctuations. At the time of the interview they had not worked overtime during the summer, therefore facing a problem when entering the winter period. In all these cases these arrangements only postpone working hours, requiring more work later in the year. The actors in several instances therefore renegotiated their agreements or struck entirely new deals. This was usually instigated by the unions, who wanted to distribute the losses of work and income evenly while saving jobs.

Negotiations over more radical solutions were underway in SE1. Propelled by the IF Metall club, which was working actively to win support for development of similar frameworks at sector level, this eventually led to the signing of the ‘crisis agreement’, which was soon implemented. The union signed the agreement in April 2009 on condition that there would be no more dismissals in 2009, and that the savings would be equally distributed between blue- and white-collar workers. A similar deal was negotiated in SE2, corresponding to a reduction of payment equivalent to 1.3 percent on an annual basis, which the union had to concede in return for early retirement.

There were no cuts in pay in line with working time in any of the Danish and Finnish cases. In four of the Norwegian companies, however, it was agreed that employees, or just the blue-collar workers, could work three or four days a week for a month or two. In two cases the cut in pay equalled the cut in working time, in the other two the cuts in pay were 5–10 percentage points lower, a sign of integrative cooperation.

Some companies also agreed internal redeployment, whereby some employees were moved from parts of the organization with excess capacity to units with higher need for labour. Only in SE2 and DK2 did this involve a substantial proportion of employees.

Towards a new Swedish way: Market-driven micro-corporatism?

In contrast to firms in other Nordic countries, Swedish companies had no state-sponsored buffers for labour hoarding or flexibility. Both management and unions would have preferred to have access to temporary lay-offs until the crisis was less severe. Instead, the parties in SE1 agreed on 20 ‘stop-days’, when production was suspended, and paid the workers 85 percent of their normal wage. Similar measures were seen in SE2. To complement the drive towards flexible working-time adjustment, a training scheme (SE1) and earmarked funds for education and in-service training (SE2) were used to retain employees in the company. Faced with market collapse, management was forced to negotiate with the blue-collar union over how to save costs and skills by developing a scheme for internal working-time flexibility that, in effect, served as a private functional equivalent to the public lay-off schemes known elsewhere. Instead of passing the costs on to the state, they were shared between the workers and the company. In line with the notion of ‘productive constraints’ (Streeck, 1992), the external market rigidities prompted the actors to find new integrative ways to improve flexibility that implied a significant shift towards local continental-style employment pacts. As mentioned, 60–80,000 employees took part in such schemes in 2009.

The traditional Nordic way: Cushioning the crisis by state-sponsored flexibility

In Finland, Norway, and to lesser degree Denmark, the companies possessed extended opportunities for labour hoarding and time flexibility by means of temporary lay-offs and work-sharing. In the Norwegian and Finnish companies, temporary lay-offs were used extensively to postpone and if possible avoid dismissals, supported by both sides in the plants. All the Finnish companies used temporary lay-offs, often to a large extent. As stated by management at FI2:

It’s the Finnish law that makes dismissals and lay-offs basically the only possible workforce related adjustments. Everything else can be locally agreed, reductions in wages and such. This system, unemployment benefits and such, leads to workers not wanting to even discuss other options. It leads to the point where dismissals and lay-offs are the only sensible options.

In some Norwegian companies hit by the crisis before the lay-off rules were relaxed, a significant number of (recently hired) employees were dismissed before the use of the temporary lay-off scheme. The Finnish, Norwegian and two of the Danish companies preferred to use temporary lay-offs or work-sharing instead of dismissals so as to retain general and firm-specific skills. Procedural innovations were seen in several companies, such as fairer burden-sharing by means of rotational periods off work, reduced work weeks, extended vacations and so on.

Dismissals and criteria for selection

The unions considered any temporary, internal measures (including temporary lay-offs) to be better than permanent, external solutions. Dismissals without severance pay were the least preferable. Still, there was in most cases a shared understanding that dismissals were unavoidable, and most of the companies reduced their staff substantially: in the majority of cases by 20 percent or more (with a peak of 83 percent in DK1). The issue in the negotiations was thus not for or against dismissals, but where to draw the line and how to spread the burdens. In spite of wide-ranging joint efforts to retain labour, the depth of the crisis made dismissals unavoidable in all but one company (FI1), and mainly affected blue-collar workers. In terms of reduced labour input, regular dismissals were the most decisive means of adjustment in all companies but two (FI1 and SE2). In two companies with less trustful relations, the dismissals were perceived as an illegitimate ‘cleansing operation’ (FI3), or an unfair decision made by foreign headquarters (DK1). Union representatives mainly considered the dismissals fair, as long as all alternative measures were utilized, and efforts were made to distribute savings across the entire organization, at all levels.

As regards dismissals, the scope of company negotiations varied according to the national regulation of dismissals procedures and criteria. In Denmark and Finland, the selection of whom to dismiss and retain was largely a management prerogative. In Sweden and Norway the overriding rule for dismissal of blue-collar workers was seniority. This reduced the employers’ latitude, and deviations from the seniority rule usually needed to be justified and negotiated with the union club. Being in control of the conditions for deviations from seniority was an important source of power for trade unions. The young usually had least tenure and were dismissed first in all cases. According to Norwegian managements, most employees with short tenure were also less skilled. For management it was imperative to keep employees with specific competences, regardless of seniority, while the blue-collar unions saw seniority as an important and ‘fair’ principle for selection. In all the Norwegian and Swedish cases there were negotiated deviations from seniority, indicating that the unions accepted some flexibility if it was justified by skill requirements for a specific task or unit. For white-collar employees, competence was the sole criterion in the Swedish cases, while a mixture of seniority and competence was applied in the Norwegian cases. Usually the number of dismissals among white collar employees was low, mostly related to a reduced need for special tasks, such as invoices, buying parts, foremen etcetera. Skill requirements made seniority a less applicable criterion in such instances.

With management responsible for decisions, seniority played little or no role in the Danish and Finnish cases. In Denmark the criteria were based on perceptions of the future need for skills and capabilities in the company; in DK2, employees’ motivation and sickness absence were also considered important. Even the unions saw dismissal selection as an employer prerogative, although in DK2 and DK3 they could forward views for instance regarding social considerations. According to the unions the selection criteria had sometimes biased distributive consequences, especially in one case (DK2) where management emphasized functional flexibility, since every employee after former rounds of downsizing had to be able to operate a minimum of three workstations. The result was that all those over 60 years of age were dismissed. In the two Finnish cases (FI2, FI3) the dismissal selection was more in the hands of the employers and conducted more flexibly than in the Norwegian and Swedish cases, with more weight on job descriptions and skills and less on seniority, but not to the same extent as in Denmark. The unions were consulted, but they felt they had little influence regarding the number, selection and distribution of dismissals. In FI3 the CEO explained that bad economic conditions gave a perfect opportunity to remove employees not fitting management’s perception of the future organization. Still, the dismissals did not affect particular groups, apart from blue-collar employees in general.

Give-and-take in tailoring adjustment packages

In the Swedish companies we find the clearest signs of give-and-take cooperation. The blue-collar unions would only accept cuts in working time and losses in pay on condition that there would be no dismissals within a given period of time (SE1, SE2), that blue- and white-collar employees would be subject to fair distribution of the savings (SE1) and of early retirement and redeployment offers (SE3). Further, in the Swedish companies, voluntary redundancy with severance pay was frequently used as part of trade-offs in negotiating crisis packages. The unions could for instance demand such offers, especially for elder employees, in ‘return’ for accepting dismissals. Severance pay was to some extent also applied in the Danish cases (DK1, DK2) and a few rare instances in DK3 in order to promote employee loyalty, calm union discontent and provide incentives to keep up productivity while working through the notice period. In the Norwegian and Finnish companies relying on temporary lay-offs, such measures were not prioritized by the blue-collar unions. In Norway this also reflected the recent pension reforms and the associated political attention and (social partner) campaigns to prevent exclusion and make the elderly prolong their careers (in order to counter the effects of workforce ageing). Pressure to take early retirement was thus perceived as normatively inacceptable. While only a few employees retired early in NO1, NO3 and DK2, a sizeable share of the external flexibility in SE1 (10%), SE2 (35%) and DK3 (27%) was obtained through early retirements. The aim of the unions in these latter companies was to avoid dismissals. Early retirement or severance pay was viewed as a better option, leaving the individual employees with a choice and some financial returns.

Discussion and conclusion

As expected within the Nordic two-tier systems, company-level negotiations between management and trade unions proved important in achieving swift workforce adjustments. Differences in dismissal regulations and in the existence and form of state-sponsored temporary adjustment measures influenced the extent and form of cooperation, the way these adjustments were negotiated and the distribution of costs.

We find that the company actors make their adjustments in articulated interaction with central actors and institutions. The Nordic countries showed different patterns of institutional adaptation, depending on the arrangements prior to the crisis and the subsequent level of tripartite cooperation and state support. In Sweden, with no state support, collective bargaining and autonomous sectoral actors were decisive. When facing market shocks, these contingencies worked as beneficial constraints, spurring cooperation at company and sectoral levels, enabling the creation of innovative agreements at both levels. In Norway and Finland the state-funded temporary lay-off measure shaped the cooperative efforts, but even so there was significant renewal in local agreements, and central actors showed ability to respond swiftly by adjusting such arrangements as temporary lay-off rules. These changes underpinned local choices and flexibility. Norway faced a smaller unemployment crisis, and had ‘unlimited’ funds to use for temporary lay-off arrangements. Denmark seems to exhibit an intermediate approach. The budget crisis and government reluctance to contribute caused a political blockage in the established tripartite channels, restricting cooperation at national and sectoral levels. Since dismissal rules were the most lenient amongst the Nordic countries, and the work-sharing scheme was more restrictive than in Finland and Norway, in 2010 Dansk Metal negotiated increased severance pay, increasing the cost of dismissing employees.

In spite of such differences, we found largely comparable results in terms of social outcomes. Still, while one should be cautious with generalizing from outcomes when using a case study design, our cases follow the national statistics in that temporary lay-offs were used more in Finland and Norway than in the other countries. In all cases, across the countries, the actors knew that the alternative would be dismissals; the priority was to save jobs. Further, while seniority rules meant that the youngest workers were worst affected in Norway and Sweden, greater employer influence in Denmark and Finland seemed to create a more differentiated pattern of dismissals: the ‘least productive’ tended to be dismissed, regardless of age. Indeed older workers, with narrower skills, might be most vulnerable. The early retirement systems in these two countries seemed to smooth conflicts in case of such choices, as in DK2.

While the extent of management–labour cooperation and trade union voice in handling labour adjustments during the crisis varied between companies in the four countries, the most striking variation was in the extent of strategic renewal and institutional innovation. The negotiation of local and central agreements facilitating temporary cuts in working hours and pay in Swedish companies was remarkable in several respects. This was the first instance in modern history where Swedish metalworker unions ceded acquired rights and indirectly accepted cuts in pay, a significant departure from the traditional Rehn-Meidner model with its emphasis on external flexibility as means of adjustment. The gain was that the unions achieved a more even distribution of losses among the workers retained, and as such an integrative solution. While companies in all countries emphasised the importance of retaining company-specific skills, the Swedish move towards more emphasis on internal working time flexibility resembles the German model of local employment pacts. Eventually, tripartite talks in the wake of the crisis agreement led to the government proposal described above.

In terms of interests and objectives, there was no salient difference between the actors in the different countries. Both sides shared the overriding goal of rescuing the site and retaining competences and crucial company-specific skills, on which production and the remaining workplaces would be reliant. Both sides also soon realized that external flexibility would be necessary to rescue as many jobs as they deemed possible, but views naturally diverged as to where and how the line was to be drawn – and the division of costs – depending on which alternative options were available. The conflicts of interests between management and labour over such distributive issues took different forms, depending on the alternatives that were at hand. In all cases, the division of costs for employers and the losses of income or jobs for workers were at the heart of discussions, but how the burdens were to be distributed among the workers was also contentious. In practice, such disagreements first and foremost played out with regard to the number of dismissals as against alternative adjustments (reduced pay, working time, lay-offs, severance pay, retirement) and with regard to the criteria and selection of those dismissed. For the employers such questions were primarily functionally related to skills and productivity, whereas for the unions they were more a matter of justice and equality. The combination of common and conflicting interests meant that the actors both were dependent on each other, and, to different extent, had control over parameters that could be used in exchange processes and as power resources.

The study reveals interesting variations in the power relations and the extent and depth of cooperation. Swedish unions, and to considerable extent also the Norwegian, were markedly more involved and influential in decision-making over labour adjustments than were the Finnish and Danish. With broadly the same general rights of participation, the main source of such variations stems in our view from differences in regulations and criteria for collective dismissals. The access or not to publicly funded schemes for lay-offs or reduced working hours also influenced the options and constraints facing the actors. Besides reducing the level of conflicting interests between management and unions, the buffer function of such schemes apparently implied that the depth of union involvement in decision-making was less profound than in Sweden.

The requirement of union consent regarding the application of seniority criteria in Swedish (and Norwegian) companies, and the absence of external public buffers in Sweden, entailed that the mutual interdependence between the actors and the pressure to find negotiated solutions were stronger than in the other countries. Swedish unions thus had control over parameters that were of utmost importance to management, at the same time as they faced stricter economic constraints. Paradoxically, it can be argued that the Swedish company actors, constrained by lack of short term, external flexibility schemes, engaged in rather balanced, integrative internal adjustments, notably for those who remained in the companies.

In Norway, where the central collective agreements allow much less local working time flexibility, the incentives to engage in such negotiations were much stronger during the crisis, also because of the costs and losses in pay associated with the temporary lay-off scheme. Such pressures were considerably higher in the early phase before rules were relaxed, prompting a number of local agreements on internal work-sharing schemes which were preferred by both sides because they involved fewer costs. Further, the unions controlled the conditions for flexible application of the seniority principle, but the access to external labour hoarding co-funded by the state eventually made the pressure to negotiate internal flexibility less urgent than in Sweden.

This was even less so in Finland, where the issue of dismissal selection was mainly under management control and the alternative of temporary lay-offs was virtually costless for the companies. Similarly in Denmark, managements’ prerogative to decide the number and selection of dismissals, and the somewhat strictly regulated work-sharing scheme meant that the parties had less incentive to negotiate over further internal flexibility beyond the already quite flexible working-time schemes. This implied that there was little to negotiate about, and the plant-level unions therefore played a minor role, as seen also in another recent study (Ibsen, 2011).

In sum, the cooperative system of labour relations still played an important role in accommodating large-scale workforce adjustment in Nordic manufacturing, but the extent of local trade union participation in such processes varied significantly between the countries. The differences in cooperation between the local social partners, and in trade union influence, can according to our analysis mainly be attributed to national differences in regulation of dismissal selection criteria, and in the availability of short-term work or temporary lay-offs. These differences provided variations in the need for cooperative solutions and in the actors’ control over issues of interest to their negotiating partner. The lower level of trade union participation in Denmark and Finland reflects the fact that employers enjoy much greater discretion and flexibility in dismissal selection than in Norway and Sweden. In the latter the strict seniority criteria implied that employer decisions were reliant on trade union consent, which granted the unions a stronger say. In Sweden, the absence of a temporary lay-off scheme, a significant disadvantage for employers’ ability to save company-specific skills, also posed greater pressure on the actors to negotiate mutually acceptable solutions, showing how the actors in the Nordic economies, when facing crisis and inflexible institutional mechanisms, are able to adjust by way of swift institutional changes.

Footnotes

Acknowledgements

We are grateful to the referees and the Journal’s Editor for challenging and constructive comments.

Funding

The article is part of a larger research project, Nordic models facing crisis: Implications for labour market adjustment and Inclusion. The project is headed by Fafo and funded by the Research Council of Norway’s program on welfare, working life and migration (VAM).

Author biographies

Jørgen Svalund is a PhD candidate in sociology and a researcher, and Jon Erik Dølvik is senior researcher at Fafo, Institute for Labour and Social Research in Oslo, Norway.

Gunilla Bergström Casinowsky is a researcher and Kristina Håkansson is Associate Professor at the Department of Sociology and Work Science, Gothenburg University, Sweden.

Heidi Kervinen and Tatu Piirainen are researchers at the Work Research Centre, University of Tampere, as was Anu Järvensivu who is now a senior researcher at the Finnish Institute of Occupational Health, Finland.

Rasmus Juul Møberg is Assistant Professor at Centre for Comparative Welfare Studies (CCWS), Department of Political Science, Aalborg University, Denmark.

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