WAGES, SOCIAL DIALOGUE AND COLLECTIVE BARGAINING 30th January, 2017 Youcef Ghellab and Sarah Doyle Head, Social Dialogue and Tripartism Unit Technical Officer, Social Dialogue and Tripartism Unit Governance and Tripartism Department ILO Geneva

Overview

1. Why do (must) wages represent an important issue on the social dialogue agenda?

2. Key social dialogue instruments and wages 2.1 Tripartite consultation 2.2 Bipartite social dialogue/collective bargaianing

3. Social dialogue, collective bargaining and wage outcomes

4. Concluding remarks

1. Why do (must) wages represent an important issue in the social dialogue agenda?

Workers and their organisations • Main/unique source of

income; • its has implications for

pensions and other payments (pensions, other SS benefits)

• Return on investment in education and training

• Indicator of positioning in the social ladder

Employers and their

organisations • Important component of

the production cost/firm competitiveness

• Important element of HR policy: attract and keep skilled workers ; etc..

• Factor of productivity improvement

Government • As employer: important

component of public expenditures; element of HR policy

• As executive power and guarantor of macro economic and social stability: an important source of income for State budget and social security institutions; influences economic aggregates such as growth, price formation, employment, income distribution, competitiveness, etc..

2. Key social social dialogue mechanisms and wages - 2.1 Tripartite consultation - 2.2 Bipartite social dialogue and collective bargaining

2.1. Tripartite consultation

Tripartism Participation of workers’ and employers’ representatives

alongside the representatives of government on “equal footing” in decision-making.

Involves all sorts of dealings (exchange of information, consultation, negotiation) between the government (or other public authority) and social partners. It takes place mainly at national central level (e.g. through Labour Advisory Council, Economic and Social Council)

2.1. Tripartite consultation Relevant ILO standards

Specific standards:

• Tripartite Consultation (International Labour Standards) Convention, 1976 (No. 144) • Consultation (Industrial and National Levels) Recommendation, 1960 (No. 113) • Consultation (Activities of the International Labour Organisation) Recommendation, 1976

(No. 152)

Standards of general scope: • Minimum Wage Fixing Convention, 1970 (No. 131) • Labour Administration Convention, 1978 (No. 150)

2.1. Tripartite consultation Key mechanisms and trends a) Social Pacts/national tripartite agreements b) Wage guidelines/recommendations c) Minimum wage fixing, through:

• Tripartite negotiation • Government decision following consultation with social partners • Recommendation by a specialized body

a) Social Pacts/national tripartite agreements • Peak level deals over integrated public policy packages negotiated between

the government and social partners • Express the government willingness:

• to share its policy making prerogatives with social partners • To secure their support for its policies meant to boost national competitiveness

• In general they are resorted to in response to external shocks: globalisation, economic and financial crises and the like.

• There is no standard form: vary in contents, format and scope.

a) Social Pacts/national tripartite agreements • Wages are part of a wider deal involving welfare reforms, LM policies,

measures to boost growth and competitiveness, to lower inflation and the like. • Impact on wage dynamic depends on several factors including trade unions

strength, situation in the labour market, pressure on competitiveness, etc.

a) Social Pacts/national tripartite agreements A major feature of industrial relations in Europe over the last 20 to 25 years, as shown by the examples of: • National agreements in Ireland (1987, 1991, 1994, 1997, 2000, 2005, 2008) • Social agreements/pacts in Slovenia (1994, 1995, 1999, 2003, 2007)

• These proved an important tool during the financial crisis for reducing

industrial action and maintaining wage competiveness • Public sector wage agreements in Ireland (2010, 2013, 2015) • Social agreement in Slovenia (2015) • Inter-confederal Agreement on Employment and Collective Bargaining in Spain (2014)

Other regions followed suit:

• Asia – Korea (2015), Indonesia (2009) • Africa – Tunisia (2015), Senegal • Latin America – Chile

b) Wage Guidelines/Recommendations • Benchmarks agreed upon by tripartite actors to guide lower levels negotiations

(sector, enterprise) in the private and public sectors • Issued before the negotiation cycles start • Take into consideration key economic indicators such as GDP growth,

inflation, unemployment, productivity growth • Guidelines or Recommendations could be:

• Binding: Belgium, Mauritius • Not binding: Singapore

• In some countries tripartite institutions for social dialogue are mobilised to issue wage guidelines to guide lower level negotiations and to ensure a certain coordination of wage bargaining.

Mauritius: The National Pay Council • Formalised and reconstituted in 2007 • Tripartite body (5*3), chaired by an independent person • Mandate: undertake annual review of salary compensation and make

recommendations for adjustments • Public sector: builds on the 5 years reviews of salaries made by the pay and research

bureau • Private sector: recommends annual percentage increases in salaries and wages

• Recommendations are made by consensus and take into consideration level

of employment/unemployment; productivity

Singapore: the National Wage Council • Established in 1972 • Tripartite composition, chaired by an independent (neutral) person • Mandate: to formulate general guidelines on wage policy; adjust the wage

structure; advice on an inventive system that promotes productivity and efficiency

• Deliberations are confidential and decisions are based on consensus • Guidelines are not binding to allow for flexibility • Takes into consideration key economic and LM indicators: GDP growth,

inflation, productivity, employment, etc. • Collective bargaining commences after the NWC guidelines are issued • Non unionized companies use the NWC Guidelines as reference in

determining wage increases for their employees.

c) Minimum wage fixing: C131 - Minimum Wage Fixing Convention, 1970 (No. 131)

Article 4 2. Provision shall be made, in connection with the establishment, operation and modification of (minimum wage) machinery, for full consultation with representative organisations of employers and workers concerned or, where no such organisations exist, representatives of employers and workers concerned. 3. Wherever it is appropriate to the nature of the minimum wage fixing machinery, provision shall also be made for the direct participation in its operation of— (a) representatives of organisations of employers and workers concerned or, where no such organisations exist, representatives of employers and workers concerned, on a basis of equality; (b) persons having recognised competence for representing the general interests of the country and appointed after full consultation with representative organisations of employers and workers concerned…

Minimum wage fixing by region, 2012

Source: ILO. 2013. Working conditions laws report 2012: A global review (International Labour Office: Geneva)

0%

20%

40%

60%

80%

100%

All regions Africa Asia and the Pacific Europe and CIS America and Caribbean Middle East (Arab States)

Government alone Government upon consultation of the social partners

Government following the recommendation/ consultation of a specialized body Specialized body

Collective bargaining/social partners No minimum wage

Argentina: The National Council for Employment, Productivity and the Adjustable Minimum Living Wage

Argentina

• The National Council is a permanent tripartite institution of social dialogue which involves the participation of government and the social partners.

• It determines the adjustable minimum wage - adopted by a majority of 2/3 of the

members (48 representatives). • The National Council also fulfils other functions including reassessment of the minimum

and maximum amount of unemployment compensation, the formulation of recommendations in order to create policies and job programmes and professional training as well as the proposal of measures aimed at increasing production and productivity.

Minimum wage fixing: Recommendation by a specialized body

United Kingdom In the UK, the Low Pay

Commission (LPC) is an independent body set up under the National Minimum Wage Act 1998 to advise government on

the national minimum wage. The consultative body is comprised

of 9 Commissioners with backgrounds from trade unions, employers and academia - who serve in an individual capacity.

Ireland In Ireland a new Low Pay Commission was set up in

2015, to make recommendations to the

Minister on the appropriate level of the national minimum wage and related matters. It has one Chair and 8 other members. As a result the first rise in Ireland's NMW above its 2007 level was

implemented on 1 January 2016.

Korea In Korea the since the

government introduced the minimum wage in 1988, the Minimum Wage Council has

set the minimum wage through a vote. It is

comprised of 9 councillors each representing workers,

employers and public interest. The wage goes into effect if it

is approved by a majority vote, based on more than half

of members attending.

Recent comments made by the ILO Committee of Experts on the Application of Conventions and Recommendations (CEACR) – Convention No. 131

Bosnia and Herzegovina (1993) Brazil (1983) Zambia (1972) While noting the Government’s indication that no collective agreement fixing the minimum wage has as yet been signed in the Brcko District, the Committee reiterates its request for: (i) clarifications on the role of Economic-Social Council in the process of minimum wage-fixing in the Republika Srpska and copies of any legislative or administrative instruments concerning the mandate and function of the Council; and (ii) full particulars on the system of establishing and reviewing minimum wage rates in the Brcko District, especially with regard to the direct participation and full consultations with the social partners (Direct request, 2011).

According comments made by the International Organisation of Employers (IOE) and the National Confederation of Industry (CNI), over 40,000 collective agreements have been concluded containing clauses on the readjustment of wages for nearly all workers in the private sector. However, they say, by fixing the thresholds for economic categories in the private sector, which are determined by a political act of the governors and approved by the legislative assembly but without the participation of the social partners, the Government is indirectly obstructing collective bargaining by creating inequalities. In its reply to the comments, the Government indicates that issues related to the minimum wage and collective bargaining are addressed on a tripartite basis in the framework of several bodies, such as the Labour Relations Council. The Government also specifies that representatives of employers’ organizations have participated in many tripartite forums in which the minimum wage was discussed. The Committee asks the Government to provide further information on the mechanism and content of the consultations held with employers’ and workers’ organizations to set the wages thresholds for the economic categories in the private sector to which the IOE and the CNI refer (Observation, 2013).

The Zambia Federation of Employers (ZFE) and the IOE expressed their deep concern about the fact that the Government increased the minimum wage for general workers and domestic workers by over 50% without consulting the stakeholders. They also indicated that the business community through the ZFE took the Government to court, which ruled that the Government needed to consult stakeholders before implementing the minimum wage. In response the Government indicates that in order to set up a more inclusive and sustainable wage-fixing mechanism, the establishment of a sector-based minimum wage system is currently being considered. The Committee accordingly asks the Government to ensure that representative organizations of employers and workers are fully consulted on the ongoing law reform process and that, once adopted, the new minimum wage legislation will make clear provision for full consultations with and the direct participation of, employers’ and workers’ organizations in the process of determination and periodical adjustment of minimum wage rates (Observation, 2013).

G20 Labour and Employment Ministers Meeting Declaration

Beijing, China, July 13, 2016

“Promoting decent work remains a key G20 priority. We are committed to ensuring full respect for the fundamental principles and rights at work and recognize the important

role of social dialogue as a key component of decent work….

The earnings workers receive are key determinants of their well-being. By sustaining consumption, they also constitute an important source of aggregate demand for economic growth. We are committed to sustainable wage growth, including through promoting social dialogue and partnership, minimum wages and

collective bargaining adapted to national conditions, to better align wage growth to productivity growth and reduce wage gaps”.

2.2 Bipartite social dialogue/Collective bargaining (CB) a) What is collective bargaining? b) Why bargain collectively on wages? c) Key mechanisms and trends

a) What is collective bargaining? Negotiations between an employer, a group of employers or one or more

employers' organisations, on the one hand, and one or more workers' organisations, on the other, with the purpose of: • determining working conditions and terms of employment; and/or • regulating relations between employers and workers; and/or their organisations.

The role of the State • To provide an enabling environment:

• Legal framework: rights and obligations of parties, good faith bargaining, recognition, settle representativity issues

• Incentives to negotiate: training, fiscal policy • Extension of collective agreements • Provision of conciliation and mediation services • Registration of collective agreements • Enforcement institutions (labour inspection and court system)

International Labour Standards The Right to Organise and Collective Bargaining Convention, 1949 (No.

98); The Labour Relations (Public Service) Convention, 1978 (No. 151); The Labour Relations (Public Service) Recommendation, 1978 (No.

159); The Collective Bargaining Convention, 1981 (No. 154); The Collective Bargaining Recommendation, 1981 (No. 163); The Collective Agreements Recommendation, 1951 (No. 91); The Voluntary Conciliation and Arbitration Recommendation, 1951 (No.

92).

b) Why bargain collectively? Addresses imbalance of power in employment relations Address problem of wage competition between firms in product

markets Enables tailoring of wage policies to industry / enterprise Form of self-regulation, reducing onus on State to regulate

wages and other working conditions Provides insurance against wage risk

c) Key mechanisms and trends • Bargaining structure • Coverage by collective agreements • Collective bargaining and minimum wage

Bargaining structure

National level

Industry or sectoral level

Enterprise level

Decentralization

Coverage of collective bargaining • It varies across countries and over time • It is correlated with trade union density and the extension mechanisms. • Depends on the availability of effective law enforcement institutions (courts,

labour inspection, arbitration mechanisms).

Collective bargaining coverage, developed countries (2009 and 2013)

0

20

40

60

80

100

120

20092013

Per

cent

age

Collective bargaining coverage, developing countries (circa 2009)

0%

20%

40%

60%

80%

100%

Collective bargaining coverage rate

Collective bargaining and minimum wage fixing • Only 10% of countries with a minimum

wage rely exclusively on CB. Many of these countries are Nordic European countries.

• Belgium also sets its national minimum

wage through inter-sectoral agreement adopted by the National Labour Council.

• CB can provide protection of minimum

standards. However in most countries the coverage of collective bargaining is insufficient to provide protection of minimum standards to a broad majority of workers.

• Thus many countries adopt minimum

statutory wages in addition to the minima set though CB.

Source: ILO Minimum Wage Policy Guide, 2016

Proportion of countries with collective bargaining as the only means for minimum wage fixing

10%

90%

Collective bargainingminimum wages only

Statutory minimum wagesonly, or in combination withcollectively bargained minima

Strengthening minimum wage across the globe • Several countries have turned towards new or stronger minimum wage setting mechanisms –

this has been accelerated by the recent crisis and the longer-running trend of rising inequality (ILO Global Wage Report, 2016)

In Europe..

• The United Kingdom introduced a statutory minimum wage with national coverage in 1999 and a higher national “living wage” in 2016;

• Germany adopted its first statutory minimum wage in 2015.

Many developing and emerging economies have also established or strengthened

minimum wages…

• South Africa established a system of sectoral minimum wages after the end of apartheid in 1997, and is evaluating the possibility of introducing a national minimum wage;

• Malaysia adopted a national minimum wage in 2013, followed by Myanmar and the Lao People’s Democratic Republic in 2015, and Macau (China) in 2016;

• In Africa, the country to introduce a national minimum wage most recently was Cabo Verde in 2014.

3. Social dialogue, collective bargaining and wage outcomes Micro level: Collective bargaining associated with:

• Higher relative wages in organized sector • Compressed wage structures and lower dispersion • Lower voluntary turnover and longer job tenure

Macro level: Tripartite consultation and bargaining coordination associated with:

• faster response to economic shocks, • Lower wage inequality and narrow gender pay gap • better labour market performance (unemployment), and a more stable wage share in

national income. Where tripartite consultation and bargaining coordination associated with

significant wage restraint, this may reduce wage share in national income over time.

4. Concluding remarks • Wages must be at the forefront of the social dialogue agenda:

• Involvement of the social partners allows the concerns and priorities of those most directly affected by MW policy to be taken into account more effectively;

• The presence of national tripartite social dialogue institutions (NSDIs) and

other specialized bodies provide the space to ensure regular consultations take place among the social partners;

• Collective bargaining provides protection of minimum standards and has the

power to reduce inequality within and between enterprises • This relies on effective law enforcement institutions and monitoring of collective agreements.