Labour market parties agreed on a comprehensive social policy package

(Helsinki 26.01.2009 - Juhani Artto) The major labour market parties announced on Thursday that they have reached common understanding on a few changes in unemployment benefits and the financing of pensions. The organisations behind the proposals are the union confederations SAK, STTK and Akava and the employers' Confederation of Finnish Industry (EK).

The package is a compromise on important social policy issues that have in recent times been under discussion. Some of the issues concerned are also being dealt with by the SATA committee, which is preparing a comprehensive reform of the Finnish social welfare system.

Reactions to the proposals have mainly been positive, especially in the trade union movement. For the latter the negotiations and their outcome are seen as a continuation of the comprehensive income policy agreements. Since the late 1960s, until recently, those agreements constituted the basis of the labour market policy that significantly improved the economic and social status of Finnish wage and salary earners. However, a couple of years ago the employers' power-centre EK abandoned this line of comprehensive income policy agreements.

Therefore, the comprehensive package consisting of common social policy proposals came, for many commentators, as a surprise.

Improved unemployment benefits

The package is supposed to put a stop, at least for a while, to efforts to weaken income-based unemployment benefits. Instead, the package proposes improvements in unemployment benefits. Unemployed members of the unemployment fund will be entitled to income-based unemployment benefit after having been employed for eight months during the 28 months preceding his or her unemployment. Still now, the minimum condition is ten months of work.

The period of entitlement to income-based benefits should remain 500 days, the confederations insist. At the SATA committee there have been efforts to cut the duration even by half.

The formula used in calculating the income-based benefits will be changed so that benefits paid to middle-income earners especially, will rise. Their benefits may rise by almost 100 euro per month.

Another step forward, for the wage and salary earners, is the proposal to make the extensive leave system permanent. In the system an employee may take a whole year's leave and get an income-linked compensation that amounts to almost 50 euro per day in case of middle-income earners (about 2,500 euro per month). Conditions are a work history of at least 10 years, agreement on the leave with the employer and replacing the leave-taker with an unemployed job seeker.

Up until recently, some employers had lobbied for the elimination of the whole extensive leave system. On the employee side the experiences of the system have been very positive.

Changes to the pension system

In the package, one major victory for business is the dropping of the national pension contribution, mandatory for companies. This reform means an annual saving of about 800 million euro to the companies. Trade unions were ready to approve the proposal as a measure to stimulate the economy.

Contributions - payable by both employers and employees - to the work pension system, will be raised by 0.4 percentage points annually, from 2011 to 2014. This extra burden will be compensated for employees by further cuts in income tax.

A concession from the union confederations is the proposal to raise the minimum age for unemployment pensions. Also conditions for part-time pension will be tightened.

Political support promised

There are good chances that the proposals will be adopted into the legislation. Several key ministers have waved a flag for the changes, proposed by the four labour market confederations.