Collective Bargaining and the Eurozone Crisis

Since the beginning of the Eurozone crisis in 2008, most attention has been focused on the recurring and persistent struggles against ‘austerity’. Austerity, in this sense, refers to the politics of cutting public spending – primarily in the areas of social programs like unemployment benefits, disability benefits, ‘public goods’ such as legal aid programs, public housing, etc. – in order to bring down the deficit and service any outstanding debts. Insofar as the politics of austerity has been the product of elite dominated parties putting the squeeze on the public in order to pay for the socialization of private risk – that is, bailing out overleveraged banks that engaged in reckless lending prior to 2007 – this attention is understandable and important.

However, focusing exclusively on the politics of austerity – and the often spectacular forms of resistance to austerity – can detract attention from an equally important and perhaps longer standing phenomenon that is also a part of – even though it precedes – the Eurozone crisis: the sustained attack on organized labour as a means of restoring ‘competitiveness’ through the increased productivity of labour. In all advanced capitalist economies, organized labour has been on the receiving end of a sustained and aggressive employers offensive that began with the ‘neo-liberal’ shift in the mid- to late- nineteen seventies. Recent developments suggest that the Eurozone crisis is being used as a pretense for governments and employers to accelerate their struggle against organized labour.

In May 2014, Eurofound – the European Foundation for the Improvement of Living and Working Conditions – published a report called Changes to Wage-Setting Mechanisms in the context of the crisis and the EU’s new economic governance regime. The report charts out developments in six key areas of wage oriented collective bargaining. First, it looks at developments in the main levels of collective bargaining. In particular, it provides data on the extent to which collective bargaining takes place at either the national or ‘sectoral’ level between peak associations or ‘social partners’ (i.e., business federations and trade union confederations), or the enterprise level between union locals and firm managers. Secondly, it examines changes in the horizontal relations of coordination between various bargaining units (unions) within each country. Thirdly, it looks at changes in the relations between sectoral level bargaining and firm level bargaining in order to assess which level of collective bargaining takes precedence over the other. Fourthly, the report examines developments in the reach and continuity of collective bargaining, including the extension of sectoral provisions to other sectors and other levels of bargaining. Fifthly, it provides data on developments in minimum wage determination and mechanisms of wage-indexation. Lastly, the report examines the ‘parametric’ outcomes of the changes wrought by the crisis, including the number of collective agreements concluded during the crisis period and the regulations pertaining to their duration.

Examining data from all 28 EU states plus Norway, the report paints a rather grim picture of organized labour in Europe. Perhaps not surprisingly, the most effected countries are those hardest hit by the Eurozone crisis: Greece, Portugal, Ireland and Spain (with Italy not too far behind). In general, the report finds that the crisis ‘has triggered substantial changes in wage bargaining regimes in a number of countries and further extended the existing trajectory towards decentralisation in others.’

A number of developments are worth highlighting. In the hardest hit countries (the so-called PIIGS), collective bargaining has undergone an accelerated process of decentralization from sectoral bargaining by social partners to enterprise level bargaining by individual unions and their employers. While this in itself does not necessarily reflect a defeat by the labour movement in and of itself – some scholars have argued that social partnerships result from a perceived inability on the part of either ‘social partner’ to impose its interests on their opponent – in the context of the Eurozone crisis, this clearly demonstrates the weakness of the labour movement.

Part of this process of decentralization includes ‘derogation’. In most European countries (with the exception of Ireland and the UK), sectoral agreements established the standards below which firm level agreements could not fall. In this regard, centralized bargaining could act as a mechanism that would protect labour from employers’ attempts to aggressively push down wages and labour standards. ‘Derogation’ is a term that signifies the ability of employers to bargain – at the firm level – below the standards set at the national or sectoral level by claiming some degree of ‘economic hardship’.

In Italy, a 2011 cross-sector agreement ‘introduced the possibility of derogation from the wage standards specified in sector agreements on the grounds of economic hardship.’ The criteria for derogation was subsequently broadened by unilateral legislative action by the government. In Spain, a 2010 law ‘enabled the wage provisions of sector or provincial agreements to be modified by company agreements on grounds of economic difficulties.’ As in Italy, the legitimate grounds on which derogation could be achieved was broadened by government legislation, introducing further criteria such as technical and organisational change, under which company derogations could be invoked.’ In Greece, a 2011 law inverts the favourability clause, thereby privileging the firm level, until 2015. This law ‘specifies that the standards specified in company agreements cannot be set below those of the general, cross-sector agreement. The latter, however, has had its competence to negotiate and set minimum wages removed.’ Lastly, in Portugal, the 2012 Labour Code ‘enables sector agreements to delegate the regulation of some issues, including wages, to other bargaining levels including company level.’

Capital has also taken advantage of the crisis in order to affect the reach and continuity of collective bargaining, resulting in a general decline in the number of workers covered by national and sectoral collective agreements. In Italy, the practice of labour courts extending wage and working time provisions from sector agreements to firm level agreements has been increasingly called into question. As the report points out, this confirms the ‘validity of the new plant-level agreements unilaterally imposed by Fiat during 2011.’ Similar to the problems posed by derogation, these unilateral plant level agreements fall far short of the provisions and standards specified in the metalworking sector agreement.

In Ireland, the courts have recently decided that Employment Regulation Orders (EROs) and Registered Employment Agreements (REAs), which ‘give binding effect to wage-setting mechanisms in some sectors’ are unconstitutional because the Industrial Relations Act of 1946 ‘did not provide ‘principles and policies’ to guide the Labour Court and Joint Labour Committees on how to exercise their power.’ Workers in construction and electrical engineering are no longer covered by wage setting mechanisms. In Portugal, the government introduced stricter criteria for extension procedures limiting extension ‘to sectors where the employers’ organisation’s member companies account for more than 50% of the workforce.’ Finally, in Greece, a law passed in 2011 exempts companies that are not members of any of the major employers’ associations from implementing the provisions in sector agreements until at least 2015. As the report points out, small business has taken advantage of this new law in order to negotiate company level agreements with ‘less favourable provisions than those of the relevant sector agreement.’

Extension procedures effecting the implementation of existing agreements past their expiration in the event of prolonged negotiations have also been shortened, putting more pressure on workers in the bargaining process. In Portugal, legislation was introduced in 2009 which limited the continuation of agreements beyond expiry to 18 months. In Spain, a law passed in 2012 imposes a 12 month limit beyond which agreements will no longer have binding effect. As a result, increasing numbers of workers will effectively be without collective agreements during the process of renegotiations. Most drastic is the case of Greece, where a three month limit was set by a 2012 law.

Existing wage indexation mechanisms that protected workers’ wages from being undermined by inflation have been eroded during the crisis. In Italy, the scala mobile, which institutionalized relatively egalitarian wage increases was abolished in the early 1990s; since then, wage indexation has trailed the rise of inflation. A cross-sector agreement reached in 2009 set out new reference points for cost-of-living wage adjustments, but the agreement was not signed by Italy’s largest and most militant union confederation, the CGIL.

Spain has seen a significant decline in ‘wage revision clauses’ that act as de facto wage indexation mechanisms. Prior to 2009, social partners agreed to pay raise guidelines based on official inflation projections. Wage revision clauses compensate in the event that actual inflation outstrips the official projections. Since 2010, pay guideline no longer incorporate official inflation forecasts. As the report points out, ‘the proportion of the workforce covered by collective bargaining which were protected by wage revision clauses fell from two thirds in 2007, prior to the onset of the crisis, to an estimated one third in 2012.’

Minimum wage rates, and the processes by which minimum wages are set, have also been negatively affected by the crisis. In 2010, a minimum wage cut for Irish workers was demanded by the Troika. While the cut was restored two years later, the Joint Labour Committees that set minimum wage rates in the sectors where collective bargaining coverage is low (and where pay tends to be low), have been instructed by the government to take into account ‘competitiveness’ and ‘labour market criteria’ when determining new rates. Since 2011, the Spanish government has ceased its usual practice of consulting the social partners when determining minimum wage rates, preferring instead to now act unilaterally. In Portugal, the troika (IMF, ECB and EU) has imposed restrictions on the criteria for increases in the statutory minimum wage and now dictate that any increase in the minimum wage must be agreed with by the troika. In 2012, the Greek government cut minimum wages by over 20% and froze wages until 2016. As in Spain, minimum wage rates will be unilaterally determined by government beginning in 2016, as opposed to the previous practice of being set by sectoral bargaining.

All of this is being done in order to increase the productivity of labour, not by investing in productive capacity, but rather, by pushing down wages as a means of lowering labour costs vis-a-vis output. After all, the real problem facing the Eurozone is not so much government spending – as the case of Ireland attests to – but rather, the ‘competitiveness’ of these peripheral economies. And increased competitiveness always comes at the expense of workers.

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