The salaries of 500,000 Danes will not keep pace with inflation over the next two years in order to improve the competitiveness of the nation's workplaces.

This was the result of the latest collective bargaining negotiations between representatives of unions and employers that ended on Sunday. If approved by employees this week, the agreement will last from March 2012 until March 2014.

The agreement calls for salaries to rise between 1.25 percent and 1.5 percent at a time when inflation stands at 2.8 percent annually, meaning relative pay cuts for organised labourers and others whose salary is based on the collective bargaining agreement.

Harald Børsting, the chairman of LO, the organisation that represents 18 different labour unions and more than one million workers, said that the deal was necessary in order to save Danish jobs.

“I’m very satisfied that we have managed, despite the tough economic situation, to reach a sustainable deal with employers. The deal increases people's job security and it creates a foundation for increasing employment,” Børsting wrote in a press release.

The confederation of Danish employers, DA, also voiced its support for an agreement they argue will help companies remain competitive.

“Our competitiveness has been reduced in recent years, so it’s important we improve it,” DA managing director Jørn Neergaard Larsen told Politiken newspaper, adding in a press release that Danish companies were facing enormous challenges.

But while the agreement would ask union members to accept reduced buying power, it would also set aside increased funding for schemes to improve the employability of workers as well as their working conditions.

The extra money would pay for better access to training and improve working conditions both for older employees seeking to reduce their workload, as well as marginalised and low-paid foreign workers.

“I would especially like to highlight that employees will be given much better educational opportunities if they have been laid off, as well as if they need new qualifications for their work,” Børsting wrote.

But while Denmark’s lowest paid may have to tighten their belts, Politiken reported today that salaries for those in top positions have been rising at a tremendous rate.

According to figures from 25 major businesses, the salaries of their managing directors rose 14.5 percent between 2009 and 2010. And in companies that have released figures for last year, the increase has grown to 17.7.

Speaking to Politiken, Børsting said that it was still likely that workers would accept the salary agreement, but added that galloping executive salary increases sent a bad signal.

“What we have seen with senior salaries is unacceptable, but I don’t think it is going to affect the vote,” Børsting said. “But that won’t stop me from saying some people are behaving shamefully. You should taste your own medicine when you make your employees work for less.”