The coordination of collective bargaining 2008

Brussels, 05-06 December 2007

I. The economic and political context

1. Another economic context. With the return of stronger growth as from 2006, the overall context for collective bargaining and the formation of wages has undergone a sea change in Europe. On the one hand, lower unemployment and a stronger dynamic of job creation make workers less vulnerable to being blackmailed by employers claiming that the existing jobs need to be saved by practising wage moderation. On the other, with order books once again nicely full, companies can afford less in the way of labour unrest.

2. Nevertheless, pressure on collective bargaining remains. The ETUC notes that despite these improved economic conditions, pressure from the ‘political’ players to pursue the policy of wage moderation remains, and is even becoming more pronounced. This pressure comes in particular from the European Central Bank, but also from the Council of Finance Ministers (Ecofin).

a. The European Central Bank continuously calls on the trade unions to preach wage moderation. The ECB’s basic idea seems to be that any acceleration in the formation of wages poses a threat for inflation. So the ECB makes no distinction between a certain upturn in nominal wage growth starting from a very modest level on the one hand, and an inflationary wage drift on the other. The ECB tries to conceal this fundamental error by invoking a whole string of reasons which are not always so persuasive. The ECB’s view is that moderation is necessary in order to create jobs, as a response to the increase in the euro exchange rate, to offset the rise in raw material prices, to rebalance the competitive positions within the euro zone, to combat inflation. There has never been any mention of the role of wages as a factor in demand and stabilisation against general falls in price levels.

b. The Ecofin Council takes a paradoxical approach: on the one hand, Ecofin has discovered that the share of wages in added value in the European countries is experiencing a structural trend downwards and gets involved in discussions about this phenomenon, while on the other, and instead of drawing the logical conclusion that wage moderation is excessive and that collective bargaining needs to be beefed up, the president of the Eurogroup announces that we need to examine alternatives such as non-contractual profit-sharing.

It is important not to underestimate the political signal that the decision-making power for remuneration should be transferred back to the employers, ignoring the role that the trade unions and collective bargaining need to play in achieving a fair division of the benefits of growth.

c. Aside from this paradoxical approach on non-contractual profit-sharing, the Ecofin also focuses on the formation of public-sector wages, claiming that this formation of wages in the public sector is stronger than in the private sector, and is liable to operate in a ‘pro-cyclical’ manner. The ETUC regrets to note that the Ecofin seems to be basing itself on incorrect data. The point is that the results of the ETUC questionnaire show that in recent years, the dynamic of wages in the public sector has been lower than the (already very small) rises in the private sector. The finance ministers cannot have it all ways: wage moderation to abide by the standard of 3% maximum deficit and an extension of that moderation also when the deficit has virtually disappeared on average across the euro zone.

II. Trends in collective bargaining in 2007

3. The better growth effectively leads to a break in the trend in wage evolutions, but sometimes this break still remains modest. On the basis of members’ replies to the questionnaire, the ETUC notes that effectively, some European countries have seen a strengthening of collective bargaining on wages thanks to stronger economic growth. The countries concerned are primarily in Scandinavia (Denmark, Norway, Iceland), where negotiated wage increases are becoming (even) higher. The same conclusion may be drawn in the case of Central and Eastern Europe with regard to effective wages, where we are sometimes even seeing rates of wage increases of almost 20%. But effective and negotiated wages are also rising in some countries in the euro zone (Germany, Austria, the Netherlands), where the slackening of growth has had sometimes drastic effects on wage increases. Nevertheless, even if there is more growth in nominal wages in these countries, the ultimate result, at least for 2007, remains quite modest, given that effective nominal wage growth remains close to inflation, or even slightly below.

4. The euro zone is already practising the ‘competitive stability’ model. One of the major concerns of the ECB is that the return of wage increases in one or two countries (Germany in particular) would have a big impact on the euro zone average, thereby pushing inflation in the euro zone above the 2% threshold. In addition, it is highly likely that the ECB has continued to increase interest rates for this reason. Nevertheless, this does show that the reality is completely different, and that there is no general acceleration in wage increases across all the euro zone countries. In practice, the acceleration (limited or sharp) in wage increases in Germany is offset by a slow-down in wage rises in Italy and Spain, while wage increases in France are pretty stable. All of this means that at least some of the tightening of the ECB’s monetary policy has been based on flawed premises.

5. Formation of wages and surge in raw material prices. Of the 18 countries which responded to the questionnaire, five are close to the guideline of offsetting inflation and the rise in productivity in wages, and two are doing spectacularly better. On the other hand, there are five which remain well below the guideline, with one or two countries where this is a persistent state of affairs. Nevertheless, there is not a single country in the report which is recording real wage losses in 2007, compared to three countries in 2006 and four countries in 2005.

6. Minimum wages: some movement. Both in countries where there is a legal minimum wage and those which do not have one, there are some interesting developments afoot. In the first case, and in particular in the countries of Central and Eastern Europe, not only are we finding steep increases in minimum wages, but also there are governments and/or parliaments which are announcing relatively ambitious statistical objectives (in terms of percentage of median wage). In these countries, the shortage of labour, coupled with the need to combat ‘cash in hand’ wage payments, are forcing governments to raise the minimum wage. In the second case, we are seeing a reinvigorated political discussion on this issue, which has already led in Austria to an agreement between the social partners to implement a minimum wage of 1000 euro in 2009 in all sectoral collective bargaining agreements.

III. Guidelines for the coordination of collective bargaining in 2008

7. Collective bargaining on the formation of wages is particularly important in 2008. Continued economic growth in 2008 will depend on boosting household consumption; but the surge in raw material prices is once again busily chipping away at purchasing power.
On this subject, the ETUC observes that this surge seems to be determined more by financial speculation than by any genuine tensions between global supply and demand . It is suspicious that since summer 2007 and since the ‘sub-prime’ financial crisis, raw material prices and food prices have started to rocket. International speculative capital, having lost confidence in the traditional investments within the OECD countries, has clearly shifted its investments, speculating on increases in raw material prices. For example, it is extremely odd that the price of oil should be increasing when at the same time, the margin for the surplus between global supply and global demand is allegedly set to increase in 2008.

8. Let us add to this that in some countries; the governments are intending to go ahead with an ‘internal devaluation’, which is a less well-known element in Danish-style ‘flexicurity’. By increasing VAT and then reducing employers’ charges on labour, the result is a nominal reduction (instead of moderation) of the wage bill in favour of the employer and in addition, part of this operation is funded by exporters from the other (European) countries.

9. Faced with these challenges, the ETUC calls on the union negotiators in Europe to demand the biggest possible increase in purchasing power. With regard to the price of raw materials, the ETUC is hard pushed to see why wages should be the only adjustment variable and only workers should have to pay because of inflationary financial speculation. Here, a re-regulation of the financial markets to achieve productive and non-speculative use of the cash created, coupled with policies to tax profits from speculation, needs to be implemented if we are not, as usual, to have to resort to even more excessive wage moderation. If internal devaluation does happen, the ETUC asks the negotiators not to put up with this operation, but to try to achieve an additional wage increase to offset the effect on consumer prices.

10. In more practical terms, the ETUC urges the trade union negotiators to base themselves more than in the past on the formula guiding wage increases in light of the total of inflation and structural productivity.

Cross-border co-operation

11. The action plan approved by Congress had flagged the importance of a political initiative designed to ‘encourage, promote and support all initiatives for co-operation at cross-border level’ and to extend the co-operation initiatives to the ‘areas where economic, territorial, monetary and social conditions are similar (in particular in the countries of the euro zone)’.

12. On the basis of this mandate, the IRTUC Coordination Committee on 6-11-2007 examined and debated the matter, and decided on the basis of IRTUCs which had put themselves forward to get this activity underway starting with 7 IRTUCs:

1. Friuli-Venezia-Giulia/Slovenia,

2. Andalucia/Algarve,

3. Lombardy/Tessin/Piemonte,

4. Viadrina (Berlin-Brandenbourg/Lubuskie),
5. Friuli-Venezia-Giulia /Veneto /South-West Croatia,

6. Elbe-Neisse (Germany-Poland-Czech Republic),

7. Galicia/North Portugal.

13. In this first group of IRTUCs, the ETUC will support co-operation which should deliver more effective exchanges of information, improve inter-union co-operation, the selection and dissemination of good practices and experiences, while respecting the various collective bargaining systems.

14. With regard to the euro zone, a first seminar to provide an exchange of opinions and avenues of initiatives for individuals is scheduled for 18 and 19 February 2008.

Transnational agreements

15. The Commission has signalled the launch of a communication on the subject before the end of the year.

16. The communication should be structured around three principles:

a. It should be a ‘status communication’ vis-à-vis the initiatives conducted thus far (expert panel, report on the agreements, two seminars conducted by the Commission during 2006 to explore the various aspects of the issue)

b. As a status communication, it does not seek to open a phase of formal consultation of the social partners, because at this stage, the Commission does not claim to give rise to a legislative consequence.

c. The goals that should be proposed will be narrower, namely:
i. Towards the implementation of the actions aimed at improving exchanges of information and knowledge. In that context, the Commission will put up a website to collect and analyse the texts, and it would anticipate the preparation of a guide on the subject
ii. The encouragement of the initiatives by the social partners at confederal and sectoral level
iii. To conduct initiatives designed, within the context of the evolution of the process, to build a broader consensus in order to result in the selection of criteria capable of giving the subject a European reference framework.

17. On our side, following the text approved on this subject at Congress, in terms of the methodology, we have been heartened by the fact that the Commission has decided to revive the initiative with a Communication, because this allows us to keep open the issue of retrying an initiative with Business Europe which until now has been strongly in contrast with this subject and getting the other European institutions (EP, EESC, Committee of the Regions, etc), to which the communication will be addressed, involved. The importance for our side of paying the closest attention to this issue has been confirmed by the most recent data collected by the Commission.

18. The number of transnational agreements has risen from 92 (2005) to 147 (2007.) Accordingly, the trend and the dynamic are very strong. Two thirds of these texts have an exclusively European dimension, and they relate to all the biggest European multinational groups.

19. Consequently, the problem of clarifying which players have the representative character to give a mandate to the negotiations and the power of signature remains unresolved, and needs urgently to be settled, like the definition of clear procedures on the implementation of the texts signed.

20. Obviously, the texts do not all have the same status. Some are restricted to the signature of declarations of principle, while others, on the contrary, relate directly to restructuring and relocation processes.

21. In that connection, the clarification on the procedures for the application of the agreements is becoming a thorny issue: one which the Federations need to resolve on a case-by-case basis without a reference framework.

22. Consequently, the ETUC calls upon the Commission to create, after the launch of the communication, a ‘permanent place’ to allow the continuation at this level of a debate directly with the social partners, rather than with experts, so as to organise ongoing monitoring on the texts signed and the possibility of examining the most salient general points emerging from the agreements.

23. The ETUC will notify the EC step by step as this issue evolves.

Improvement of exchanges of information

24. In implementing the 2006 resolution, the ETUC has started to publish bulletins on the collective bargaining with a view to increasing the exchange of good negotiating practices and organising an exchange of information in ‘real time’. The ETUC, with financial aid from the Institute, plans to step up this work, bringing in the team of researchers on the Dutch ‘wage indicator’ project at the University of Amsterdam. This team will give the ETUC a monthly overview on the most recent trends in collective bargaining across Europe.