Bargaining in times of crisis EFFAT seminar Torino January 2011

Two parts Some macro economic issues on wages in the crisis What is actually happening across Europe at this moment?

A ‘typical’ crisis exit Pressure from higher unemployment leads to moderate wages Restores business profit margins Central banks reacts and cuts interest rates Interest rate cut invites the private sector to take up more debt…. …triggering an asset price boom, increased household demand, business investment… Debt is the ‘accelerator’ of economic recovery

This time is different (1)

Debt loads already very high Implies monetary policy is ‘pushing on a string’ Cutting interest rates or central banks printing money and flooding banks with liquidity does not help much :Actors are not asking for new credit. ‘Pulling the string’ does work: Interest rate hikes make matters worse (ECB)

This time is different (2): A ‘split’ in the Euro Area….

…along with enormous divergence in unit wage cost trends (2000 equals index 100)

German wage stagnation Moderate sectoral wage agreements But also and even more importantly: – Company level opening clauses – Hike in temporary agency work on the basis of ‘unequal pay for the same work » – Rising low wage sector and all sorts of precarious work practices (mini jobs/ 1 euro jobs/ in work benefits)

The case of the Euro Area Evolution of nominal unit wage costs with 2000 as base year

The case of CEE members Evolution of nominal unit wage costs, 2000 base year

Implication of the ‘competitiveness tale’ Wages need to become much more flexible An ‘internal devaluation’ to correct a 30% wage gap: – Cut wages – Prices fall (while profits go up) – Falling prices means one can nominal wages again – In this way, you get a spiral of falling nominal wages and prices sustaining itself – 5% price falls a year means the wage gap is corrected over a short period of time

This has now become the offical view … Wages are to become the ‘servant of competitiveness’ Current official policy view is that workers ‘have lived beyond their means’ : « Wages have risen faster than productivity » So, their key message is that: – « Wages need to fall »… – … and wage formation/collective bargaining systems need to be weakened. – …so as to restore ‘competitiveness’

– Financial bail outs – ECB bond purchasing programm – EU2020 strategy – Euro Plus Pact; – ‘Old’ proposals on Economic Governance (Excessive Imbalances Procedure)…. – … and new ones: A New (International) Treaty on excessive defcits and all policy domains that are vital for the functioning of the single currency …to be found in a multitude of policy processes at the European level….

What is on their mind (1)? Setting European standards for wages: – Wages should no longer reflect inflation but limit themselves to claim the evolution of productivity (this is broader than just abolishing the few wage indexation systems that still exist around Europe) – Compare unit wage cost developments with trading partners (so as to detect and correct ‘large and sustained’ wage increases that may erode competiteveness)

What is on their mind(2)? Imposing how wage formation systems should look like: – Degree of centralisation of collective bargaining systems (increase role of company level bargaining) – Reform (‘abolish’) wage indexation mechanisms – Use public sector wages as a signal to private sector wages – So, this is not just about temporary interventions in wages… but also about reviewing wage setting systems so as to make sure loss of competitiveness does not repeat itself in future (Irish example)

The danger All labour market institutions that promote wages and bargaining position of trade unions (in particular those that protect wages from being cut) may be put into question – Minimum wages – Legal extension of collective bargaining – Job protection systems – Unemployment benefit systems (« reservation wage »)

What is actually happening across Europe? Model of flexible wages and bargaining is being implemented Government imposed reforms… … but also negotiated framework agreements

Government or European imposed reforms of bargaining systems Spain 2011: – Reversal of the hierarchy of collective bargaining levels :Primacy of company level agreements over sector and regional/provincial agreements (unless sector or regional agreement stipulates the contrary, the latter was negotiated in a few sectors or regions) – Agreement between employer and workers becomes sufficient to opt out from higher level agreement. There are also cases where employer, unilaterally, decides to reduce wages and court rules in favour of employer) – Number of workers covered by a company opt out on the rise (8% in 2010) – In 2011,nominal wages start falling despite 2 to 3% increase in collectively bargained wages.

19 Wage drift: negative since 2010

Government or European imposed reforms of bargaining systems Greece: – Beginning 2011: Company level agreement can undercut wages and working conditions set in the national sector agreement – Mid 2011: Cut minimum wage or eliminate (for three years?) national intersectoral agreement containing this universal minimum wage – Recently: A ‘company union’ consisting of minimum 5 workers obtains the right to bargain an agreement deviating from higher level agreement – Pressure from Troika to abolish 13 th and 14 th month also in the private sector

Government or European imposed reforms of bargaining systems Luxembourg: End 2011: Tobacco and alcohol removed from the wage indexation system. Timing of automatic wage indexation is slowed down (one indexation a year instead, previously every moment the index increased by 2,5%)

Government or European imposed reforms of bargaining systems Portugal – 2012: Troika bail out defining criteria to assess the extension of collective agreements, extension becomes dependant on the impact of extension on the competitive position of non affiliated firms – Period during which expired and non renewed agreements are valid is cut further – Increase in working week (2,5 hours) – 3,5 months of pay in public sector are gone

Government or European imposed reforms of bargaining systems UK – No legal framework on collective bargaining exists in the UK (except for a consultation on a statutory minimum wage somewhat higher than 5 £). Even so, several big companies have left the (voluntary) metal sector agreement and are in the process of reducing wages from 20£ to a range of 10 to 16£, thereby also intending to replace open ended contracts with agency work contracts and splitting up jobs contents into work requiring higher qualification and work requiring little qualification.

Opting for the lesser evil? Germany No new framework agreement has been signed since the existing framework agreements at the level of several sectors (metal, chemicals, services) already provide the possibility of adapting collective agreements including wages at company level in response to the new situations arising from the crisis (‘opening clauses’).

Opting for the lesser evil? Italy – Summer 2011 agreement signed by all central social partners organizations: – Confirmation of the fact that collective bargaining rules are the responsibility of social partners. – National agreements to maintain their central role; intention to increase number of company based collective agreements. Company agreements to be endorsed by the works council or trade union shop stewards. – Exceptional possibility to derogate in a company level agreement from sector agreement provisions in case the company’s survival is at stake or in case major investments can be attracted – Such derogation is to be signed by official trade unions representing a majority of workers – Background: Pressure from the ECB and ongoing turmoil from Fiat management questioning the national metal sector agreement

Opting for the lesser evil? Portugal agreement – 150 additional hours ‘for free’ – Works councils get more leeway to conclude firm level agreements without trade union delegation involved (in companies from 150 employees on) – In exchange:not a total ‘liberalisation’ of trade union bargaining rights – In exchange: No special industrial zones without any workers’ protection

Opting for the lesser evil? Finland – End 2011: Frame work agreement to ensure competitiveness and employment, to be applied in bargaining in various industries. Increase in wages plus all other cost related improvement in working conditions set at 2,4% for first 13 months and 1,9% over following 12 months.Extension of paternity leave by two weeks, no increase in worker’s unemployment insurance contributions, corporate tax rate reduced by 1,5 instead of 1 percentage point.

Opting for the lesser evil? Spain: – 2010: National intersectoral agreement to set maximum guidelines for lower level bargaining (1% wage increase in 2010/1,5% for 2011/2% for 2012) – No application of wage indexation clauses during the agreement, intention to apply indexation at the end of the agreement. – End 2011:Extension of the principle of wage moderation into the period. – Sector agreements now being signed and providing a wage increase of ‘maximum’ 0,5%

Quo Vadis? Where is this going to end?