Study examines impact of collective agreements on wages

The Luxembourg Central Service for Statistics and Economic Studies (STATEC) has recently published a study on the impact of collective agreements on wages. Based on the results of a survey on wage structure, the study by STATEC shows that less variation in wages emerges among those covered by an agreement. Moreover, the impact is different depending on the sector, while collective agreements tend to reduce the difference in wages between men and women.

Survey methodology

A recent study (in French, 355Kb PDF) by the Luxembourg Central Service for Statistics and Economic Studies (Service central de la statistique et des études économiques, STATEC) is based on the results of the 2002 survey on salary structures (in French, 275Kb PDF), which is a four-yearly survey carried out in all EU Member States. In Luxembourg, some 1,328 companies with 10 or more employees from various sectors of the economy were analysed. However, due to the small workforce in companies operating in the mining and energy industries, these companies have not been taken into account in the study. This reduces the size of the sample to 1,318 companies.

The survey included two questions relating to collective agreements – one pertaining to companies and the other to employees. In the first question, companies were asked if more than 50% of their employees are covered by a wage agreement and, if so, whether this agreement is at sectoral, interprofessional or company level for blue-collar and white-collar workers. The responding company was then asked to indicate whether the employee included in the sample is covered by an agreement. This data allowed for a more in-depth analysis of the situation, considering that the few existing studies on collective agreements in Luxembourg are based solely on the content of such agreements that are considered to constitute a general obligation. Consequently, previous studies only covered a few economic sectors and did not take into account data relating to agreements signed at individual company level.

Wage agreements

Sectoral distribution

In total, 749 companies (57%) have no collective agreement for 50% or more of their employees. This disparity can be explained by the high number of companies in the retail and repair of vehicles and domestic goods sector and in the real estate, renting and business activities sector; few companies in these sectors have a collective agreement for the majority of their workers – only 30% in the former case and 10% in the latter case.

In the hotels and restaurants sector, only one company out of the 96 in the sample had the majority of employees working under a wage agreement. The sectors in which agreements were most prevalent were construction, transport, storage and communications, and financial intermediation, due to the existence of collective agreements that have been declared a general obligation.

Distribution by company size

The data reveal that the likelihood of employees being covered by a wage agreement increases with company size. Overall, 35% of small companies with 10–49 employees have a collective agreement covering more than half of their employees. This percentage is higher for companies with 50 or more employees. Finally, for companies with more than 250 employees, about 70% have a collective agreement covering the majority of their employees.

Distribution by qualification

The percentage of employees covered by a collective agreement is inversely proportional to professional classification. For unqualified employees, more than 60% are covered by a collective agreement, while the coverage rate is lower than 30% among senior executives. In the intermediary professions – such as those of technicians, administrative employees and sales representatives – the coverage rates vary between 42.2% and 51.9%. The highest coverage rate is found for employees who belong to the category of operators of installations and machines – that is, assembly workers.

Impact on wages

Disparity in wages

In 2002, the average gross monthly salary on an hourly basis paid to employees working full time was €15.02. This represented the gross annual remuneration paid by the employer, before social security contributions and tax were deducted, divided by 12 and then divided by the average number of hours worked in a month. This includes payments relating to overtime and night and weekend work, as well as periodic premiums and premiums for productivity and performance such as thirteenth or fourteenth month bonuses, holiday pay, profit sharing or compensatory payments for holidays not taken.

While this wage level may seem high, it is explained by the high proportion (30%) of financial intermediation companies in the sample, and by the fact that it includes all types of premiums and bonuses. If financial intermediation is excluded from the sample, the average gross monthly salary on an hourly basis amounts to €13.51.

Analysing the data according to whether a collective agreement exists shows that the distribution of wages is more restricted for employees covered by a collective agreement. More than 25% of employees who are not covered by an agreement earn less than €11 an hour, compared with only 20% of employees covered by an agreement.

In terms of high salary earners, almost 16% of employees in the sample who are not working under an agreement have an hourly salary of more than €31, while just over 6% of those working under an agreement have a salary at this level.

Distribution by age

Average hourly pay for employees who are not working under an agreement increases with age. For workers aged between 55 and 59 years, the wages are almost double (€19.88) the level of those received by young people aged between 20 and 24 years (€10.25).

When looking at the same age groups among employees who are covered by a collective agreement, a lower wage difference emerges. In this case, average hourly pay is €14.54 for those aged 55–59 years and €10.91 for those aged 20–24 years, representing a difference of 33%. This increase arises in particular between the first and second age groups, with only very small changes in pay for subsequent age groups.

For workers under the age of 30 years, collective agreements tend to slightly increase their salary – by 6.4% for those aged 20–24 years. For older employees, collective agreements reduce their wages significantly, by between 12% and 17%. This reduction in salary can amount to 27% for those aged 55–59 years. This can be explained by the fact that careers progress as people get older, and that collective agreements rarely relate to senior executives.

Distribution by level of education and profession

When considering the level of educational achievement, the study found that for those with no university education, the existence of a collective agreement has a mildly positive effect on wages. For university graduates, working under an agreement reduces their salary by 7.3% on average. Top-level jobs are mostly held by employees who are university graduates, and who are not paid under the terms of a collective agreement.

Collective agreements increase wages for all types of professions, except for senior executives where they decrease wages by 5%. The highest salary boost is found among technicians and intermediary jobs. The average pay for a worker not covered a collective agreement is €20.16 an hour, while employees covered by a collective agreement earn €23.50 an hour, representing a wage difference of almost 17%.

When comparing the wages of the two extremes – that is, those of unskilled blue-collar and white-collar workers and those of senior executives – it emerges that the difference in salary among those not covered by an agreement is 126%, compared with a difference of 101% for employees covered by a collective agreement.

The study also reveals a wage gap between white-collar workers (€19.48) and blue-collar workers (€11.38) of almost 70%, regardless of whether a collective agreement exists. The salary earned by less than 25% of white-collar workers is earned by about 75% of blue-collar workers. The existence of a collective agreement increases blue-collar workers’ wages by some 16%.

Distribution by sector, company size and density

Salaries are particularly high in the financial intermediation sector. Employees who are not working under an agreement in this sector earn more than double the pay received by those in any other sector, regardless of whether this is under a collective agreement. The hotel, restaurant and catering industry has few collective agreements in place; wages vary by only €0.02 between those who are covered by a collective agreement and those who are not.

In many sectors, lower average hourly pay is found in situations where the majority of employees are covered by a collective agreement. This difference is most pronounced in the financial intermediation sector, and the real estate, renting and business activities sector – at nearly 32% in both cases. However, a more in-depth analysis, taking into account employees’ characteristics, shows that collective agreements increase the level of hourly pay in the manufacturing, transport, storage and communications, and construction sectors.

Collective agreements have a major influence on average hourly pay in companies with more than 500 employees. Average hourly pay in these companies amounts to €24.01 for those who are not working under an agreement, compared with €13.63 for employees who are covered by a collective agreement. This represents a difference of 43%. For companies with between 50 and 499 employees, the difference is 7.5%.

On the other hand, in companies with between 10 and 49 employees, being covered by a collective agreement increases average hourly pay by 2.5%.

In general, in a company where more than 50% of the employees are covered by an agreement, pay is also higher, regardless of whether the individual employee is covered by an agreement. It emerges from the analysis that the difference between employees who are working under an agreement and those who are not is more marked in companies where more than 50% of the staff are working under an agreement. The wage difference in this case is €5.30 (28%) compared with €1.50 (11%) for companies where the rate of coverage is less than 50%.

Gender distribution

The difference in wages between men and women is lower for those covered by a collective agreement. This reduction in the wage gap can mainly be attributed to the fact that a collective agreement makes the employee’s personal characteristics – such as professional experience or type of profession – less important, and that it therefore makes pay conditions more uniform.

Hence, for the group of employees not covered by an agreement, 63.3% of the wage gap between men and women can be explained by the type of profession, or their professional experience. The remaining 36.7% can be regarded as gender discrimination. For employees who are covered by a collective agreement, the proportion of the gap that is explained by ‘sociodemographic’ characteristics decreases to 41.4%, while the proportion due to discrimination amounts to 58.6%.

Reference

Pauly, B., ‘Impact des conventions collectives sur le niveau des salaires’, Économie et statistiques, STATEC Working Paper No. 25, December 2008.

Odette Wlodarski, Prevent