Fiscal Pact and its impact on wage formation and the role of the social partners Meeting of the industriAll Collective Bargaining and Social Policy Committee Luxembourg, 06 November 2012 Dr. Torsten Müller European Trade Union Institute - ETUI

Structure of Presentation 1.) Fiscal Pact and the new European system of economic governance; 2.) Impact on wage setting and collective bargaining: empirical evidence; 3.) Rationale behind the European policy-makers’ strategy; 4.) Alternatives to the European policy-makers’ current approach industriAll – Collective Bargaining and Social Policy Committee

Fiscal Pact – What’s in it? 1.) Stricter rules on general government budgets and annual structural deficits 2.) Automatic correction mechanism in case of deviation and stronger role of ECJ 3.) Increased competences for Commission and Council in endorsing and monitoring implementation of national programmes to correct excessive deficits industriAll – Collective Bargaining and Social Policy Committee

Fiscal Pact and the new system of Economic Governance January 2011: European Semester and AGS ● Specific recommendations for member states; amongst other things on wage policies; March 2011: Euro Plus Pact (“Competitive Pact”) ● Automatic procedure for imposing penalties in case of breaches of either the deficit or the debt rules of SGP December 2011: “Six Pack” ● Enhancing fiscal and macroeconomic surveillance (alert mechanism based on scoreboard including unit labour costs as one indicator) March 2012: Fiscal Pact ● Balanced Budgets and monitoring implementation of national corrective policies industriAll – Collective Bargaining and Social Policy Committee

Overall tendency 1.) Strengthening the European policy-makers’ means of surveillance and direct intervention into national policies and institutional framework agreements 2.) Increasing restrictions on “free collective bargaining” and the trade unions capacity to act 3.) Fiscal Pact yet another turn of the screw in European austerity policies: “straightjacket for wages” (Ronald Janssen) industriAll – Collective Bargaining and Social Policy Committee

Implications for wages and wage setting arrangements Three main tendencies: 1.) (Downward) Flexibility of wages and terms and conditions 2.) Decentralization of Collective Bargaining 3.) Increasing Flexibility of Bargaining Processes industriAll – Collective Bargaining and Social Policy Committee

Downward Flexibility of Wages and Terms and Conditions 1.) Reduction and Simplification of Minimum Wages 2.) Suspension of automatic wage increases 3.) General wage freezes or cuts 4.) Longer Working Hours 5.) Facilitating Lay-offs industriAll – Collective Bargaining and Social Policy Committee

Decentralization of Collective Bargaining Direct and indirect promotion of firm-level agreements: 1.) More restrictive criteria for extension of agreements 2.) Facilitating derogation of firm-level agreements from sectoral agreements 3.) Suspension of favourability clauses 4.) Promoting bargaining capacity of company-level actors in addition to or independently from trade unions industriAll – Collective Bargaining and Social Policy Committee

Increasing Flexibility of Bargaining Processes 1.) Reducing duration of agreements 2.) Reducing validity of agreements after they expired 3.) More restrictive access to arbitration 4.) Increasing the employers’ capacity for unilateral decisions without the need for union consent industriAll – Collective Bargaining and Social Policy Committee

Key Questions What economic and ideological rationale lies behind these measures? Why this extreme fixation on cutting wages and on dismantling existing systems of collective bargaining and wage setting? industriAll – Collective Bargaining and Social Policy Committee

Narrative of European Policy-Makers The austerity story in a nutshell : 1.) Uneven wage developments in “surplus” and “deficit” countries 2.) Uneven development of unit labour costs 3.) Competitive wage gap 4.) Fall in external demand for products of “deficit” countries 5.) Increasing trade deficit and current account deficit in “deficit” countries industriAll – Collective Bargaining and Social Policy Committee

Narrative of European Policy-Makers Conclusion: In order to prevent (excessive) wages from undermining the competitiveness of countries: 1.) Wages should not increase above the productivity rate 2.) Crack down on centralized systems of collective bargaining industriAll – Collective Bargaining and Social Policy Committee

Wrong diagnosis... The link between (low) unit labour costs and (high) competitiveness is not as straightforward as the European Policy-Makers want to make us believe ● Narrow definition of competitiveness as “wage cost competitiveness” ● Increases in competitiveness in terms of export performance can be offset by fall in internal demand industriAll – Collective Bargaining and Social Policy Committee

...and the Wrong Cure Wage cuts are not the appropriate cure for the current problem of macro-economic imbalances ● “Deficit” countries compete amongst themselves: wage cuts do nothing to improve their competitive position vis-à-vis “Surplus” countries ● Key problem of “Deficit” countries is not a lack of cost competitiveness but non-price competitiveness industriAll – Collective Bargaining and Social Policy Committee

Alternative Strategies 1.) Upgrading of industries in “Deficit” countries: Transfer Union 2.) Including the introduction of a statutory minimum wage in those “Surplus” countries where there is no effective wage floor 3.) Shift of wage policy in “Surplus” countries away from wage moderation in order to stimulate internal demand industriAll – Collective Bargaining and Social Policy Committee

. Thank you very much for your attention!!! Torsten Müller Senior Researcher European Trade Union Institute Bld. du Roi Albert II, Brussels Tel.: industriAll – Collective Bargaining and Social Policy Committee