The Equality Agreement of 2019 – by Stefán Ólafsson

9. 04, 2019

Basic information about the collective agreementThe new collective agreement between the labour movement and employers is novel in many respects. Living standards are raised in unusually diverse ways and therefore many have begun referring to the agreement as a “Quality of Life Agreement”.However, I believe that the agreement’s most defining feature and most impressive innovation is that it is uniquely geared towards equality. The wages of the lowest paid increase the most. This applies to pay rises, tax cuts, increases in child benefits and far-reaching housing reforms.However, the agreement also includes the precondition that the purchasing power of average salaries will increase.Pay risesIn this agreement, for the first time ever, raises come as a fixed number of ISK across the wage scale ISK, instead of the conventional percentages, which have resulted in a higher raise for higher paid groups. Therefore, those with the lowest wages will receive the biggest proportional raises.  Those who get paid according to stripped down wage table rates will also receive comparatively large pay rises.Another innovation consists of additional raises based on economic growth per capita if it is over a certain percentage. Judging by the numbers from 1990 to the present, it is very likely that this will result in considerable additional pay rises during the period of the agreement.The chances of the this being too expensive for employers are therefore slim to non-existent, because of moderation in pay rises for the highest paid groups – high wage earners have already received generous wage increases in the past few years.The contribution of the stateThe state plays an unusually active role in facilitating negotiations this time around. Its tax cuts of 10.000 ISK for low-wage earners are the most important contribution, as they are the equivalent of a pay rise of 15.900 ISK per month (see presentation here).The state will also increase child benefits, which is especially beneficial to families with low wages (the equivalent of a pay rise of 15.000 ISK for a single parent of two on the minimum wage). Married couples on the minimum wage will get 50% more in total. Parental leave will be extended from 9 months to 12.A firm effort is made to increase the number of new apartments being built for low-wage earners and remedies will be put in place to aid low-wage earners in their first home purchase and to pay off their loans. All this is geared towards countering the effects of the low supply of housing and the price hikes which the unbridled market has produced in the past few years.The government will also seek to pass a legal rent-brake, to restrain excessive increases in rent, and to make it a punishable offence for employers to steal wages. Other multi-faceted measures are included in the government’s plan of action, particularly against social dumping. They are all very important.Conditions for the lowering of interest rates and restrictions on loan indexingA modest pay rise in the first year of the agreement will, in the opinion of the contracting parties, create favourable conditions for a lower inflation rate and the lowering of interest rates, which will greatly benefit homes as well as companies.This is a matter of some interest to young families who are burdened with large debts because of the excessive rise in house prices in the past few years. If the interest rates don’t go lower, given these conditions, then the contract can be cancelled in September of 2020 or 2021.The government also pledges to place restrictions on new indexed consumer loans and to remove house prices from the index calculations for new consumer loans by the end of the year.Increased flexibility for workplace agreementsFlexibility in making workplace agreements on working hours is increased, which can lead to a shortening of mandatory presence at the workplace from 40 hours a week to 36 in some cases.The total increase in living standards for low-wage earnersIt’s clear that if we want to assess the agreement’s benefits for low-wage earners, then we need to consider as many factors as possible, as well as the direct wage increases.In the table below this is done by comparing the development of minimum wages during the agreement of 2015 to 2018 with the new agreement, which will be in effect from 2019 until November 1st of 2022.The pay rises in the previous collective agreement were considered to be good but the increased tax-burden and lowering of child benefits worsened that agreement for low-wage earners. This time around it has been assured that this will not happen. On the contrary, the intended tax-cuts and raised child benefits will benefit the lowest paid workers considerably.The total increase of the minimum wage guarantee during both periods (2015-2018 and 2019-2022) are displayed, as well as the GDP growth-based wage increases and the pay rise-equivalent which the lower taxes and higher child benefits will provide for low-wage earners during the entire agreement.Increases in the minimum wage during the period of the agreement, as compared with the previous collective agreement

Scenarios: GDP scenario I GDP scenario II GDP scenario III
Minimum wage, increase from 2015-2018 86.000 86.000 86.000
Minimum wage, increase from 2019-2022 68.000 68.000 68.000
Added now:
With an economic growth-based pay rise 9.000 19.000 24.000
With a raise in child benefits 15.000 15.000 15.000
With a tax-cut of 10.000 kr. 15.900 15.900 15.900
Total from 2019-2022 107.900 117.900 122.900
The difference between agreement periods: 21.900 31.900 36.900
NB: The increase in living standards resulting from a possible lowering of interest rates is not factored in
Explanation of scenarios:GDP scenario I – Three years with 1% economic growth per capitaGDP scenario II – Two years with 1,5% growth and one year with 2%GDP scenario III – One year with 1,5%, the second with 2% and another with 2,5%
The increased child benefits and lower taxes are converted into the equivalent pay rises. Those who get paid according to wage tables will receive the full economic growth-based raise while others will get 75% of it. No economic growth-based bonus is expected for the year 2019.

The minimum wage guarantee increased by a total of 86.000 ISK during the last agreement period, from 214.000 to 300.000 ISK per month. Now it not rise as much, specifically by a total of 68.000 ISK and will peak at 368.000 in the last year of the agreement. Wage table rates will rise more; by around 90.000 ISK during the period.On the other hand, the tax cuts and the increased child benefits will provide low-wage earners with the total equivalent of a pay rise of around 30.900 additional ISK and will be coupled with economic growth-based wage increases. Given the experience of the past three decades it is likely that scenario II will be the outcome, with an additional monthly raise of 19.000 ISK.Should that be the case, the living standards will have improved by the equivalent of a pay rise of 117.900 ISK. The demand of the unions was to achieve a raise of 120.000 ISK in three years.As you can see in the table, the gains for those close to the minimum wage guarantee (which is 300.000 ISK until new collective agreements take effect) will amount to somewhere between 21.900 to 36.900 ISK more than during the last agreement period. The contribution of the government plays a considerable role in securing this advantageous result.The table does not include gains from the possible lowering of interest rates, which would make loan repayments cheaper.I believe that this presentation plainly demonstrates that this collective agreement marks a definite turning point.A new leadership gets results with new methodsIt is now plain to see that the labour movement’s new leadership has had great success. Its foundation was laid with an original and clever presentation of demands, which was aimed at employers and the government simultaneously.The unbroken solidarity between commercial workers and general workers under new leadership made all the difference. Steadfast persistence and the tactical use of strikes created the necessary pressure.The agreement includes far-reaching social reforms and will also respond to the financial sector’s recklessness toward the interests of households and smaller businesses.The Equality Agreement is a Quality of Life Agreement – and The Quality of Life Agreement is an Equality Agreement.Whichever way it is defined it’s clear that this is a turning point in the history of the nation’s quality of life.The author is a professor at the University of Iceland and is employed part-time as an expert by Efling – Union