Wage policy responses to the crisis Training Session on Wages, Turin, June 29, 2010

ILO Response: ‘Avoid wage deflation’ (Global Jobs Pact ) In June 2009, ILO Member States adopted the Global Jobs Pact in which they agreed to implement measures to “maintain employment” and to “avoid the damaging consequences of deflationary wage spirals and worsening working conditions” To avoid wage deflation the Global Jobs Pact calls for measures to promote social dialogue, collective bargaining and also statutory or negotiated minimum wages. It adds that minimum wages “should be regularly reviewed and adapted”.

Correcting global imbalances At the G-20 summit in Pittsburgh in September 2009, the ILO urged the international community to implement recovery plans that support decent work and correct the imbalances which contributed to the crisis. These imbalances include, among other things: The gap between productivity and wages. Stagnating wages relative to productivity - together with growing wage inequality - have limited the ability of most households to increase consumption other than through debt. Excessive bonuses, unrelated to actual performance, contributed to the crisis by distorting incentives in the financial sector and promoting short-term risk taking.

Other wage policy recommendations The ILO considers that minimum wages are an important tool for social protection, but calls for the involvement of social partners in setting the level, and proposes that they are combined with other income support measures or tax reductions Work sharing is a reduction in working time intended to spread a reduced volume of work over the existing workers to avoid layoffs. To avoid proportional reductions in wages, the Government must provide wage subsidies.

Wage policy tools 1. Minimum wage fixing 2. Wage fixing in the public sector 3. Wage regulations also for private sector 4. Wage legislation 5. Collective bargaining on wages 6. Tripartite social dialogue on wages 7. Pay systems 8. Wage Statistics, analysis and monitoring

Wage policy responses to the crisis Budgetary cuts in the public sector Two alternative routes on the minimum wage Other wage reforms (integrating allowances into basic wage etc.) Working time (subsidizing shorter worker hours as an alternative to layoffs) Tax reforms (flat tax rate; increase in social security contributions as in Romania etc.) Bonuses to preserve employment Social dialogue

Some policy considerations Important to distinguish between wage reforms needed in general and the wage policy responses in the crisis Important to define the policy responses according to the policy objectives/targets that are fixed and see what wage tools are at disposal Once the wage tools are defined how to improve their respective efficiency?

Practical exercise 1 What examples of wage responses in your country? What wage tools were mainly used? How to improve their efficiency ?

Practical exercise 2 1. What steps could help in strengthening tripartite social dialogue on wages, and what role could you play in this process? 2. What steps could help in promoting wage bargaining and how could you contribute? 3. What steps would be needed to improve wage practices along the supply chain, and what role could you play in this regard?