DEALING WITH THE NEW RECESSION : Collective

bargaining in the 2009 downturnETUC Collective bargaining

summer school

Rome, September 2009

Two parts

• Country overview

• The general picture

• Key questions to reflect upon

United Kingdom : Employers exagerate

• UK employers claim 58% of companies would freeze wages and 12% would cut wages

• Reality (up to Q2 of this year)? (IDS database on pay settlements)– Rate of increase in median pay settlement

falling rapidly (from 4% end 2008 to 2% June 09) but still in positive terrain

– One third of pay settlements : Freezes

United Kingdom: City bonuses dis(or re?)appearing

• From pay settlements to annual earnings• Annual earnings includes London City

bonuses but also pay increase because of tenure or shifts in the work force

• Average earnings including bonuses:From 5% rate of increase end of 2008 to zero in Q1 (and bouncing back to 3% in Q2)

• Average earnings excluding bonuses: From 3,5 to 2,5%

TUC position on concession bargaining

• Accepts reality of concession bargaining (pay cuts) in some companies to survive the downturn…

• …but warns for a generalised cut in wages throughout the economy

• Important reasons to maintain earnings during a recession:– Workers’ motivation and productivity– Negative impact on demand, further aggravation of

the downturn

Spain: Social partner concensus breaks down

• For first time in many years: No intersectoral agreement to guide wage negotiations in sectors and companies

• Trade union position: At least 2% wage increase• Employer demands:

– Cut employers’ social security contributions (5%)– Crisis employment contract with lower severance pay (21st century

contract with 20 days severance pay per year, with an absolute ceiling of one years’ pay and no recourse to labour courts)

– Delete obligation to autorise ‘company redundancy plan’– Wage increases not to exceed 1%– If higher, then no ‘wage revision’ clause (indexation to inflation)– If wage revision clause, also adjust wages downwards in case inflation

is lower than expected. – Opening clauses for companies to refuse agreed pay increases in case

of losses.

Spain: Government decides (March 2009)

To tackle the crisis (PM: 18% or more unemployed):

– ‘Temporarely (?)’ laid off workers can have a longer period of benefit entitlements (120 or 60 days).

– Companies ‘temporarily’ laying off workers (instead of simply firing them) only have to pay 50% of normal social security contributions up to 240 days

– Postponing of 2009 payment of company social security contributions for viable firms in financial difficulties

– A firm hiring an umployed (for at least three months) can use workers’ benfits to reduce employers’ social security for up to three years

– Recruiting part time employees delivers full time (100%) cuts in employers’ social security contributions

– One month waiting period to receive unemployment benefit abolished– Staff at public employment services increased

Spain (July): Negotiations continue (and continue to fail)

• Government proposes:– Cut in employer’s social security contributions between 0,5 and

2– New unemployment benefit of 420 euro for those unemployed

not covered at the moment– Relax restrictions on temporary agency work in construction,

chemicals (health and safety risks) and public services

• Employers not satisfied • Trade unions reject major cuts in employer social

security contributions as well as easier dismissal in the current climate of massive job losses

Spain: Wage bargaining outcomes

• Collective bargaining in first five months of the year

• From a 3,5% wage increase in same period in 2008…

• …to a 2,68% increase in 2009

Germany : Sector bargaining agreements

• Wage increase actually paid in 2009 because of collective agreements concluded in 2009 and before: 3% (with inflation running at 0,5% and less)

• From 1,2% in retail to 3,5% in machinery and 4% in chemicals

• Wage increase agreed in (sector) bargaining agreements in first half of 2009: 2,8% (West: 2,6%/ East: 3,6%).Average duration of these new agreements: 23 months.

Germany: Deficits in figures of sector collective bargaining

• Previous statistics do not take into account:– Companies outside the agreement (with less or even

negative wage increases)– Opening clauses in companies adhering to the sector

agreement (see later)– Cuts in productivity or profit related bonuses– Cuts in working hours (‘Kurzarbeit’ or drawing down

overtime from time saving accounts)– So, ‘negative wage drift’ expected to continue in 2009

and effective (paid) wage increases lower than 3%.

Germany: What news from the sectors ?

• Mid April Metal agreement in Baden Würtemmberg allows company level deviations from existing sector agreement. Applies until end 2010

• Existing arrangement: Employers top up state benefit to 80% of wages in case of ‘Kurzarbeit’

• Alternative option (1):93% of earnings with annual bonuses cut in return

• Alternative option (2): 97% of pay for a 10% cut in hours up to 82% of pay for 80% reduction in working hours. Cuts in bonuses in return.

Baden Würtemmberg agreement: ’Precarious work’ dilemma

• Notice to introduce short time work cut from three weeks to one day (Works council still has to agree)

• Opting out of national law on fixed term work :Fixed term contracts now possible up to 4 years instead of the legal period of 2 years. Background : Keep on recently hired fixed term staff instead of letting them go.

Germany: More news from the sectors

• Insurance (ver.di): Early renewal of agreement, running from Autumn 2009 to March 2011 with 2,5% in April 2010. Background: Avoiding concessions on working conditions (Saturday work, fixed term contracts).

• Metal: Recall 4 to 5% sector agreement of Autumn 2008. Possibility to postpone 2,1% agreed increase of May 2009 used in half of cases. Discussion on withholding the 2,1% of February. IG Metall: Only willing to consider this if wage cut is converted into shares for workers.

• Textiles (new, March 2009): 1,5% wage increase but companies in difficulties can cancel agreed pay rise if there’s an agreement with the works council and if there’s an agreement on employment security

• General problem with concession bargaining: The ‘job security’ clause from previous concession bargaining can’t be deliverd (unless workers make further concessions)

Germany: News from past statistics

• Ver.di: ‘Aufschwung der schlechten Jobs’: Past economic recovery has been one of bad jobs : Average real wage has been stagnating since 2000, but wages at the bottom of the wage scale fell by 10%

• DIW study : Workers without a collective bargaining agreement worse of in terms of pay rises (pay cuts) compared to workers covered by collective bargaining agreement.

Poland : Succesful social dialogue

• Agreement between employers and trade unions in March 2009….– Introduction of short time work and greater working time flexibility in

return for avoiding mass lay offs.– Up to 50% reduction in working time with benefits worth 70% of national

minimum wage– Moreover, variation in 40 hour working week (working less hours now to

work longer working weeks without overtime pay premium later• …leads to a governmental proposal (‘anti crisis’ package) in July

2009:– If company sales fall by at least 30%,working time can be reduced up to

50%.– Reference period for 40 hour week extended from 4 to 12 months

(‘annualisation’).– New limits on duration of fixed term contracts, aiming to increase

stability – Public money for companies to organise training– However, major raise in minimum wage postponed

France : Tri partite dialogue continues to rule

• July: National tri partite agreement (without CGT?):– Maintain contractual link between workers and their company:

• Short time work budget from 800 to 1000 hours• Short time work expanded to shops and services and easier access

for SME’s• Employee leasing agreements: To outsource temporarily workers

from companies without orders to companies with lack of staff (collective agreement sending company must be respected, aquired rights as well unless the employee consents?)

– Protect the most vulnerable from the crisis• Extension of ‘contrats de transition’ from 25 to 40 areas : 80% of

benefit during one year for worker stepping in and out of training and (short term) jobs.

• Mentoring of young workers by older colleagues going on part time early retirement

Italy

• Demans for a wage increase in metal between 113 and 130 euros plus creation of fund to support workers that have lost their job

• Similar formulaes as German ‘Kurzarbeit’:– Casa Integratione– Solidarity agreements (60% of pay, up to 2 or

3 years (South of Italy), no redundancies allowed). Confindustria suggests to increase benefit from 60 to 80% of lost pay.

Benelux

• Belgium: National cross sectoral agreement for 2009 and 2010 :– No real pay increase agreed (except for 125 and 250 euro for,

respectively, 2009 and 2010)– However, automatic indexation plus early retirement from 56

years maintained.– But: with inflation turning negative, automatic indexation would

turn into automatic cuts in wages

• Netherlands:– TNT agreement: 15% cut in wages because of liberalisation in

postal sector (In Germany, TNT is questioning the postal minimum wage).

– Short time work schemes evolving into a part time work scheme, with major discussions between trade unions and government

Ireland

• Massive consolidation effort : 7% levy on public sector wages

• Foreign investors and finance minister pushing for pay cuts up to 15% in subsidiaries of multinational investors, in the national minimum wage and in wages set by joint labour committees.

The Baltics (and others):The IMF takes over again

Some action or intentions to act on managers’ pay

• France: Some clear rules (‘golden parachutes’ limited to two years and deleted if manager himself decides to leave) but only in companies receiving state aid

• Germany: General principles with members of ‘supervisory board’ being held accountable for the good implementation of these principles

Macro data: Wages per head picture

Macro Data from the Commission Spring Forecast : EU 27

-1,5-1

-0,50

0,51

1,52

2,53

3,54

Wages Inflation Productivity

2008

2009

2010

Macro Data for the Euro Area

-1,5-1

-0,50

0,51

1,52

2,53

3,5

Wages InflationProductivity

2008

2009

2010

Unit labour costs around 2%?

0

0,5

1

1,5

2

2,5

3

3,5

4

2007 2008 2009 2010

Euro area

EU 27

Will wages resist on average?

Wage dynamics and output gaps

-6

-4

-2

0

2

4

6

8

10

92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10

years

% o

f G

DP

Output gap

Wages per head

What about the backlog in productivity?

On the eve of deflation ? Striking similarities between Japan mid

nineties…..

…and Europe at this moment

…and Europe at this moment

Key issues to reflect upon

• How to deal with the phallacy of composition concerning wage formation in Europe ?– On the one hand, perfectly understandable that

workers willing to give up on wages to save their jobs– On the other hand, it’s exactly this attitude that will

destroy jobs if this becomes the general reaction to the crisis

– European dimension is obvious: • Employer benchmarking : The ‘wage freeze’ agreement of

one country will lead to the ‘wage cut’ agreement of another country…

• False temptation that this might actually work by ‘begging the neighbour’ in the internal European market.

Consequences for coordination of wage bargaining?

• Do we stick to the existing formulae (inflation plus trend productivity)? Despite or because of the pressure to moderate wages?

• Do we maintain the reference to effective inflation? In doing so, we will consolidate ‘too low’ inflation? Do we take price stabilility inflation of 2% instead of effecive inflation into account?

• Would it be wise to think about a second (internal) line of defense ? Simply asking for ‘some’ real wage increase (with inflation at 1%, this may mean asking 1,5% wage)

Consequences for coordination of wage bargaining ?

• Or,alternatively, should we accept the possible reality of concessional bargaining ?

– Wage freezes/wage cuts, only and only in return for (collectively bargained of

course) operations of ‘job redistribution of labour and jobs’ with links to skills upgrading’

– …and not to ‘steal’ jobs from other regions/companies or to cut prices– Background: Mass unemployment (11 to 12%) and excess supply of labour– Possibly implies diverse formulaes from shorter working hours to part time early

retirement– Should we think of European principles to coordinate and steer ‘concession

bargaining’ in this way?– Another variation : Wage freezes/wage cuts only in return for shares for

worker/worker participation/abolishment CEO bonuses and ‘golden parachutes’ ?

• Or (And ?) simply be content if we can strenghten the exchange of information on bargained agreements at this moment of high downwards pressure on wages ? How to do so?

But what about the ‘New Social Deal’?

• Strenghten wage formation and collective bargaing as a sustaianble engine of demand and growth instead of financial bubbles

• European policy coordination on:– Insuring minimum levels of wages exist in all

labour markets– Enlarging the coverage rate of collectively

bargained wages

• How to deal with the phallacy of composition concerning ‘good work’ and stable labour contracts ?– On the one hand, it’s perfectly understandable that companies

are now very hesitating to (re)hire workers on a permanent basis (Will the recovery be sustained enough to hire on a permanent basis?)

– On the other hand, this is a self fulfillling prophecy: If precarious work relationships become the rule (instead of being the exception), then the recovery will not feed on itself (and the liquidity created by central banks will almost certainly go and feed into new speculative bubbles).

– Should we add this dimension to our coordination ‘work’? Monitor and (internally) discuss social pacts and collective agreements with the aim of avoiding reforms which have the potential of switching good/stable jobs into bad/precarious ones.

Key issues to reflect upon

So what do we do?

• Discussion up to you

Coordination on wages?

• Sticking to the formulae ? Even though inflation would