Collective Bargaining Agreement In Iceland Reached

The labour union Efling and its allied unions (VR, LÍV, Framsýn, VLFA and VLFG) reached a collective bargaining agreement with representatives of management last night that also entails the direct involvement of government measures and Central Bank policy.

“It is entirely possible that no wage contract in Iceland has ever contained better assurances of pay rises for low-wage workers,” Efling said in a statement. “All the pay rises which the contract guarantees for the members of the fellow unions are actual increases in kronas, in addition to certain rate-increases in kronas.”

The agreement is indeed far-reaching, going beyond simple wage increases; it also entails changes directed by the government and the Central Bank, and applies from April 1 of this year until November 1, 2022. Here’s what’s involved:

Wage increases

While Efling was aiming to increase the minimum wage for its workers from 300,000 ISK/month to 425,000 ISK/month over three years, the agreement that was signed increases the wages to 390,000 ISK/month over the next three years and eight months. This concession, Efling says, was made “in light of the state of the economy after bankruptcies and layoffs in the tourist-industry, and with an aim to create favourable conditions for the lowering of interest rates.”

The Confederation of Icelandic Labour Unions (ASÍ) has detailed the schedule of these increases, which starts with a retroactive pay rise of 17,000 ISK from April 1 of this year.

Of special note is the fact that these rises are not based on percentages but in actual krónur amounts, a departure from past precedent that the unions are especially happy about.

Bonuses

Workers in Iceland traditionally receive two guaranteed one-time bonuses per year; one in May and another in December. This year, the May 1 bonus will not only increase from 48,000 ISK to 50,000 ISK; there will also be a payment of 26,000 ISK to be paid no later than May 2. The December bonus will increase from 89,000 ISK to 92,000 ISK.

Both the May and December bonuses will increase incrementally up to and including 2022.

Workplace democracy

One of the key issues in this ongoing labour struggle has been the concept of workplace democracy; that workers have a greater say in determining their work conditions and benefits. This new agreement gives workers in any given workplace the right to establish a full time work week of 36 hours, whether in shortening each work day slightly or by making Fridays half days, for example. For Efling workers, this will, however, entail giving up your paid coffee breaks.

Government involvement

Arbitration in Iceland often, although not always, involves government participation as well, and this particular agreement sees the Icelandic government playing an active role.

First, those in the bottom step of Iceland’s three-step tax system will receive some mild relief in the form of an extra 10,000 ISK per month in disposable income. The government has also pledged to devote 2 billion ISK from 2020 to 2022 to the creation of some 1,800 apartments, which the government will work closely with real estate actors in helping young people especially to be able to purchase.

In addition, parental leave will be extended from 9 months to ten months at the start of 2020 and then to a whole year at the start of 2021.

One of the most radical changes involves indexed loans, a controversial banking policy wherein the interest rate on a given loan is subject to change based on property values and the exchange rate on the króna, amongst other factors. In the new agreement, indexed annuity loans will be forbidden from extending beyond 25 years starting in 2020, with few exceptions, and indexed consumer loans will extend their minimum periods from five years to ten.

Interest rates

The agreement also involves a change in policy from the Central Bank. Specifically, short-term interest rates will be lowered. The Central Bank has been concerned with the economic effects of WOW Air’s bankruptcy, but they do believe it will help to lower property values, and they do see considerable room for lowering interest rates. This trend will likely continue as other airlines usurp the market that WOW Air used to occupy.

Good timing

The timing of this signed agreement is crucial. As reported, the unions had postponed planned strike actions on March 27, attributed to “a new basis for talks, which has now been presented on behalf of the employers’ association”. The next day, WOW Air ceased all operations and announced its bankruptcy.

Late April to early May is typically the start of the tourist high season in Iceland, so WOW’s collapse could not have come at a worse time. Indeed, over 1,100 workers and counting have lost their jobs, and the timing of WOW’s crash put pressure on management and unions alike to make a deal, lest the conflict snowball into greater damage to the economic system as a whole.

With this new collective bargaining agreement reached, and new airlines coming in to pick up the slack, both management and workers within the tourism industry especially are breathing easier today.