Bargaining in times of crisis

1. Bargaining in times of crisis EFFAT seminar Torino January 2011 rjanssen@etuc.org

2. Two parts • Some macro economic issues on wages in the crisis • Whatisactually happening across Europe atthis moment?

3. A ‘typical’ crisis exit • Pressure fromhigherunemploymentleads to moderatewages • Restores business profit margins • Central banksreacts and cutsinterest rates • Interest rate cut invites the privatesector to take up more debt…. • …triggering an assetprice boom, increasedhouseholddemand, business investment… • Debtis the ‘accelerator’ of economicrecovery

4. This time isdifferent (1)

5. Debtloadsalreadyveryhigh • Impliesmonetarypolicyis ‘pushing on a string’ • Cuttinginterest rates or central banks printing money and floodingbankswithliquiditydoes not help much:Actors are not asking for new credit. • ‘Pulling the string’ doeswork: Interest rate hikesmakemattersworse (ECB)

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

7. …alongwithenormous divergence in unit wagecost trends (2000 equals index 100)

8. Germanwage stagnation • Moderatesectoralwageagreements • But also and even more importantly: • Companylevelopening clauses • Hike in temporaryagencywork on the basis of ‘unequalpay for the samework » • Risinglowwagesector and all sorts of precariouswork practices (mini jobs/ 1 euro jobs/ in workbenefits)

9. The case of the Euro AreaEvolution of nominal unit wagecostswith 2000 as base year

10. The case of CEE membersEvolution of nominal unit wagecosts, 2000 base year

11. Implication of the ‘competitiveness tale’ • Wagesneed to becomemuch more flexible • An ‘internaldevaluation’ to correct a 30% wage gap: • Cutwages • Pricesfall (while profits go up) • Fallingpricesmeans one can nominal wagesagain • In thisway, youget a spiral of falling nominal wages and pricessustainingitself • 5% pricefalls a yearmeans the wage gap iscorrected over a short period of time

12. This has nowbecome the officalview … • Wages are to become the ‘servant of competitiveness’ • Current official policyviewisthatworkers ‘have livedbeyondtheirmeans’ : « Wages have risenfasterthanproductivity » • So, theirkey message isthat: • « Wagesneed to fall »… • … and wage formation/collective bargainingsystemsneed to beweakened. • …so as to restore ‘competitiveness’

13. …to befound in a multitude of policyprocessesat the Europeanlevel…. • Financial bail outs • ECB bond purchasingprogramm • EU2020 strategy • Euro Plus Pact; • ‘Old’ proposals on EconomicGovernance (Excessive ImbalancesProcedure)…. • … and new ones: A New (International) Treaty on excessive defcits and all policydomainsthat are vital for the functioning of the single currency

14. Whatis on theirmind (1)? • Setting European standards for wages: • Wagesshould no longer reflect inflation but limitthemselves to claim the evolution of productivity (thisisbroaderthanjustabolishing the few wage indexation systemsthatstillexistaround Europe) • Compare unit wagecostdevelopmentswithtradingpartners (so as to detect and correct ‘large and sustained’ wageincreasesthatmayerodecompetiteveness)

15. Whatis on theirmind(2)? • Imposing how wage formation systemsshould look like: • Degree of centralisation of collective bargainingsystems (increaserole of companylevelbargaining) • Reform (‘abolish’) wage indexation mechanisms • Use public sectorwages as a signal to privatesectorwages • So, thisis not just about temporary interventions in wages… but also about reviewingwage setting systemsso as to make sure loss of competitivenessdoes not repeatitself in future (Irish example)

16. The danger • All labour market institutions thatpromotewages and bargaining position of trade unions (in particularthosethatprotectwagesfrombeingcut) maybe put into question • Minimum wages • Legal extension of collective bargaining • Job protection systems • Unemploymentbenefitsystems (« reservationwage »)

17. Whatisactually happening across Europe? • Model of flexible wages and bargainingisbeingimplemented • Governmentimposedreforms… • … but alsonegotiatedframeworkagreements

18. Government or Europeanimposedreforms of bargainingsystems • 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 19

20. Government or Europeanimposedreforms of bargainingsystems • 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 13th and 14th month also in the private sector

21. Government or Europeanimposedreforms of bargainingsystems 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%)

22. Government or Europeanimposedreforms of bargainingsystems • 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

23. Government or Europeanimposedreforms of bargainingsystems • 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.

24. Opting for the lesserevil? 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’).

25. Opting for the lesserevil? • 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

26. Opting for the lesserevil? • Portugal agreement • 150 additionalhours ‘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

27. Opting for the lesserevil? • 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.

28. Opting for the lesserevil? • 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 2012-2015 period. • Sector agreements now being signed and providing a wage increase of ‘maximum’ 0,5%

29. Quo Vadis? • Whereisthisgoing to end?