newsdog Facebook

A Labor Dispute Threatens to Wipe Out Denmark's Economic Growth

Bloomberg 2018-03-13 20:48:38

Denmark is edging closer to a public sector strike that has the potential of wiping out most of the country’s economic growth.

Employers have already warned some 450,000 employees -- more than half of the total -- not to turn up for work on April 10 unless a protracted dispute over pay is resolved.

Helge Pedersen, chief economist at Nordea, the Nordic’s largest bank, says such a scenario would cost Denmark about 5 billion kroner ($830 million) a week in lost production value. According to his calculations, a work stoppage lasting six to eight weeks would wipe out “almost all of the economic growth in Denmark in 2018,” which he estimates at 1.5 percent to 2 percent.

“The consequences of a comprehensive lockout of the public sector are so significant that it will not be politically allowed to run for a long time," Pedersen said in emailed comments. “A government intervention can therefore be expected within a few days.”

Pay Fight

Union leaders representing central government employees are demanding a pay rise of 8.2 percent over three years but have been offered 6.7 percent, according to local newspaper Politiken. The workers say they deserve to be compensated after years of restraint in the wake of the global financial crisis.

Doctors and teachers employed by regional authorities are also demanding better pay and working conditions, including continued access to paid lunch breaks.

Dorthe Pedersen, an associate professor at the Copenhagen Business School, says the origins of the dispute can be traced to 2008, when public sector workers were able to secure a pay rise of around 13 percent (spread over 3 years) in the face of higher wages in the private sector.

The Danish Model

That deal, which employers now say was excessive, was secured at the end of a dispute that for the first time posed a serious threat to the “Danish Model” -- a century-old system for securing collective agreements without political interference. The Confederation of Danish Industry says the Danish Model is an essential element of “flexicurity,” Denmark’s way of reconciling businesses’ freedom to hire and fire with workers’ demands for security.

Under such a system, the government is supposed to be neutral and only act as a sort of court of last resort during pay disputes. But since this one involves ministry bureaucrats and other central government workers, it has been accused of wearing two hats. The last time a lockout took place was in 2013, when protesting teachers had their pays docked for a total of 25 days.

Pedersen, who has written a book about the Danish Model, says the dispute is more about principles than money. She says the real long-term strategy is to weaken collective agreements in favor of the budget and finance ministries.

“For the first time, all of the unions are standing together in solidarity,” Pedersen said in a telephone interview. That’s because they’ve realized that this is a “systemic conflict" that threatens the model’s very DNA.