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Perspectives

How Are Wage Floors Set in Swedish Collective Agreements?

Text: Ministry of Employment, Government Offices of Sweden1

In practice, minimum wages set by collective agreements appear to affect the lowest wage levels of all employees, including those whose employers are not bound by collective agreements. In areas where minimum wages have not been set by collective agreements, there are very few employees with low wages.

Collective agreements regulate terms and conditions for around 90 per cent of employees in the Swedish labour market. These agreements also regulate lowest wage levels, primarily for blue-collar workers. However, most collective agreements do not specify a set wage for prospective employees. Unlike many other countries with statutory minimum wages, pay in Sweden is generally negotiated individually upon recruitment – at times based on the lowest wage levels specified in an agreement.

Of the approximately 680 collective agreements on wages in Sweden, fewer than 250 have specified levels for the lowest wages. Minimum wages or tariff wages are primarily specified in agreements concluded by the member organisations of the Swedish Trade Union Confederation (LO), which organise blue-collar workers within both the private and the public sectors, and some of the unions belonging to the white-collar Swedish Confederation of Professional Employees (TCO), such as Unionen, the largest private sector white-collar trade union. Minimum wages exist in those areas deemed necessary by the trade union organisations. See Figure 1, which shows a sample of minimum wages per wage level.

The agreements of the Swedish Confederation of Professional Associations (Saco), which organises white collar graduate workers in the private and public sector, in general specify no minimum wages. This also applies to some TCO-affiliated unions in the public sector. Instead, these trade unions may unilaterally provide their members with recommended starting wages. Accordingly, there is no minimum wage that employers must take account of when it comes to employees at workplaces where there is no collective agreement or where the collective agreement does not specify a set minimum wage.


What determines the level of minimum wages in agreements?

Minimum wages in agreements are the lowest possible levels an employer bound by a collective agreement can pay employees in the labour market. As employees grow older and gain more experience and/or expertise, their pay rises even if they initially started their job on a minimum wage. There is no uniform pattern as to how the social partners choose to design the minimum wage system in the various agreements. One trade union can conclude agreements with two different employer organisations where the minimum wage is significantly higher in one of these.

Pay can be lower than the negotiated minimum wage

In some cases, the social partners have concluded agreements on types of employment with training components that allow pay lower than the collective minimum wage for a short period – usually less than one year. These cases primarily deal with agreements on labour market policy measures for people with a lower attachment to the labour market and younger people who lack relevant vocational experience or knowledge. It is usually a matter of fixed-term employment at a wage that may not fall below 75 per cent of the collectively agreed minimum wage. Some collective agreements also include minimum wages for very young people (16–17 years old) that are often very low, but these cases primarily concern part-time or holiday work.

Increase in minimum wages

How the minimum wage alters over time is determined in wage agreements. There is no direct link between the benchmark (i. e., the normative level for the agreements’ increase in costs) and in­creases in minimum wages. Instead, it is up to the social partners to decide how these should be changed within the framework of the agreement’s total labour cost increase. Almost without exception, there is an annual minimum wage increase in any collective agreement that includes minimum wages.2

Wages below 60 per cent of the national median wage are unusual

From an international perspective, Sweden has a low wage dispersion. Despite the absence of a statutory minimum wage, the country has a rather small low-wage sector. A common threshold for a low wage in international contexts is 60 per cent of the median wage. For Sweden, with a median wage of SEK 29,500 per month for a full-time equivalent basic wage in 2018, this would give a low wage of SEK 17,700. Such a low wage is uncommon in Sweden. Only 0.9 per cent of employees earned a wage lower than 60 per cent of the median wage in 2018. Wage levels below 50 per cent of the median wage (SEK 14,750 for a full-time equivalent basic pay in 2018) are extremely rare. According to official statistics, just under 0.1 per cent of employees were on such a low wage.3

„Almost without exception, there is an annual minimum wage increase in any collective agreement that includes minimum wages.“

Majority of low-wage workers are young or work few hours

Among the 0.9 per cent of those in the labour market who earn less than SEK 17,700, 0.6 per cent were either under the age of 20, worked less than 40 per cent of full time or received additional variable pay that meant that their total wage exceeded 60 per cent of the median wage. Three occupational groups can be identified where employees with wages under 60 per cent of the national median wage were over-represented – restaurant staff, cleaners and customer service staff. For 0.3 per cent of employees in Sweden, none of the above-mentioned criteria were met. Accordingly, this 0.3 per cent of employees had a low wage level although not under the age of 20, not on limited working hours, nor on significant supplements from variable pay.

The lowest wages in line with negotiated minimum wages

To assess the impact of minimum wages in collective agreements, they were compared to a breakdown of actual wages in occupational groups covered by the collective agreement.4 As expected, agreed minimum wages have a greater impact in areas characterised by high staff turnover and with many young employees, and/or in occupations that do not require lengthy formal education. This applies to occupations in areas such as the retail sector, restaurants, customer service and cleaners in the private sector. There, distinct clusters of employees with basic wages close to or just above the negotiated minimum wage applying to the occupations concerned can be observed.

Some incidences of employees whose pay falls below minimum wages can be seen. This may be because there are individuals who in reality come under a different collective agreement than the one the analysis is based on because employees have been classified in the wrong occupation or the collective agreement has not been applied. In general, however, there are few individuals with wages below the agreed minimum in the various occupational segments.


In Sweden, only very few employees earn less than 60 per cent of the median wage. Photo: luckyraccoon/ Shutterstock.com

Footnotes

1.
This text by the Ministry of Employment is based on a report from the National Mediation Office – a Swedish government agency responsible for mediating in labour disputes, overseeing the provision of official wage statistics and promoting an efficient wage formation process. The authors of the report are statistician Petter Hällberg and economist Christian Kjellström. The social partners in Sweden have been consulted in the preparation of this text.
2.
The National Mediation Office’s annual report, appendix 2.
3.
The figures are based on the official wage statistics. The wage structure statistics are an annual survey where most of the material is collected by the employers’ organizations.Complementary selection is made for statistics that are not covered by statistics for employers’ organizations. The survey is a comprehensive survey for the public sector.For the private sector, wage structure statistics are a sample survey that covers approximately 50 per cent of the total number of employees in the private sector.
4.
The official wage statistics are not designed to compare actual wages with agreed wage levels since the statistics are based on grouping by occupation, not agreement. For an individual occupational group and an individual collective agreement, the methods applied entail some degree of uncertainty.
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