To cope with success

Sigurður Bessason, chairman of Efling, sent me an open letter in Morgunblaðið yesterday about the upcoming wage agreements. Sigurður is a logical man and a strong advocate for workers. I had a meeting with Sigurður and his colleagues in the leadership of the Federation of Labour last Tuesday and agreed with him on most points, not least on the need to improve the situation of people with low and middle incomes.

As Sigurður rightly points out, I have advocated for looking more at fixed amount increases when making wage agreements, as this is a fair way and likely to lead to agreements. Fixed amount increases on the lowest wages have often reached the entire wage ladder in the form of percentages, but such is not a natural law. It is, for example, noteworthy that in a recent report from labour organizations, »Before the wage agreements«, it is seen that wage distribution was more even in 2014 than in 2006 - that those on the lowest wages now have a larger share of the wages of the highest earners than before. It is important to continue on the same path, and in this work, fixed amount increases could perhaps be the best tool. Equally important is to reduce the negative marginal effects of the tax and welfare systems, which often result in pay increases not fully translating into higher disposable incomes. This is unacceptable and it is imperative for the state, labour movements, and employers to join forces to address the problem.

It has been suggested that the state's wage agreements have disrupted the balance in the labour market and that the wage increases for state employees have been out of sync with other wage developments. That is not the case, as the state has negotiated with nearly 90% of its employees in a similar manner to how the general labour market had previously done. Agreements with doctors and secondary school teachers, who together make up about 10% of the state's employees and 1.5% of the labour market in total, however stand out. In those agreements, significant changes were made to the working arrangements and the salary structures of the professions. The agreements are also for a much longer period, or nearly three years. They therefore cannot set a precedent for the agreements that are to come in the labour market. However, I share Sigurður's concern that small groups can, by virtue of their position, force their counterparts into significant deviations from the established wage policy. This is a problem in the Icelandic labour market model that the authorities and labour market parties must jointly address.

The purchasing power of wages has increased by 5.3% over the past twelve months, which must be considered a significantly good result. Many have contributed to this success, which is partly explained by responsible wage agreements last year. A 6.6% increase was agreed upon, which almost entirely resulted in increased purchasing power due to the significant price stability during the period. Indeed the result is historic, as the purchasing power of wages was measured last November to be higher than ever before, as data from Statistics Iceland clearly shows. Lower taxes on households and the correction of housing debts have further increased household purchasing power. The situation is therefore better than often before and fortunately there is something to share around. However, it is now crucial to ensure that fear of missing out on a share of the proceeds does not result in less to share around for everyone.

Sigurður Bessason has worked in the labour movement since the national accord agreement 25 years ago. He knows how important stability is for Icelandic wage earners and has worked diligently to maintain it.

It is important to know how to handle success as well as adversity. Let us continue on the path of increasing purchasing power with a joint effort, as it benefits both households and businesses best. Social welfare and a strong business environment go hand in hand. Let’s put the inflation ghost to rest and stand together to increase purchasing power even more.

Sigmundur Davíð Gunnlaugsson The article appeared in Morgunblaðinu on 19 February 2015.

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