Last-minute agreement on annual wage recommendation for 2007

As a consequence of the austerity package introduced by the government last year, this year’s national-level wage bargaining round was extremely protracted, with an agreement only being concluded at the end of January 2007. A series of eight sessions of the National Interest Reconciliation Council on the wage negotiations took place before an agreement was finally reached.

Background

A central element of the Hungarian industrial relations system is the annual negotiation at the National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) on minimum wages and wage recommendations for the following year, which also provides a recommendation for wage increases to lower-level bargaining parties. The atmosphere of the wage negotiations for 2007 was influenced by the austerity measures introduced by the government in the course of the summer of 2006, and their expected implications for 2007 (HU0607059I).

Another important factor in the negotiations was that, on 25 November 2005, a three-year agreement was concluded in relation to the national minimum wage and wage rates for skilled workers and those with a university degree (HU0512104F). As a result of this, the minimum wage did not have to be set this time around. However, after the government’s decision to increase taxes, employer organisations considered terminating the agreement (HU0607049I). It should be noted that, in theory, the 2005 agreement made it possible to go below the minimum wage levels set by law, although only in the case of sectoral collective agreements. Although this had not been applied before, its possibility also influenced the proceedings relating to this year’s national wage negotiations.

Series of negotiation rounds

A total of four rounds of negotiations were held at OÉT from 26 October to 1 December 2006 and four more rounds followed in January 2007 before any wage agreement was reached. The government initially proposed a 6%–6.5% pay increase for the business sector with a view to achieving the following macroeconomic conditions: a 2.2% increase in gross national product (GNP); a continuation of the current employment level in general and a small boost in employment in the business sector; as well as an increase of 6.2% in the consumer price index. The proposal was unacceptable to the employee representatives, however, as was the proposed pay increase for the public sector. They refused to accept the claim that a low wage level was required to maintain competitiveness; therefore, they called for a real wage increase proportionate to productivity improvements. Employers did not present a unified standpoint on the government proposal.

At the 13 November session, trade union representatives urged that an agreement should be reached without further delay and proposed a gross wage increase of 13%–15%, which would have implied the stagnation, or a slight increase, of real wages. The government suggested that the sectoral social dialogue committees should begin negotiations on minimum wages; it also stated that it would support any bilateral agreement between employers and employees which does not imply additional budget expenditure and requires only the modification of government legislation. Employer representatives complained about extensive tax increases, including higher corporate income taxes and healthcare contributions, which they estimated would add an additional financial burden of HUF 770 billion (about €3.1 billion as at 11 May 2007) on companies, thus making it extremely difficult for entire sectors and regions to meet the minimum wage during 2007.

Negotiations continued at the 22 November OÉT session, where the social partners discussed the legislative modifications necessary for laying the grounds for the following year’s budget. On this occasion, employer organisations proposed a wage increase of 3.5%–6% in the business sector and suggested that the minimum wage for skilled workers should be fixed at the current level. Employee representatives rejected this offer as they considered it to be unrealistic. The government suggested that negotiations should begin on the sectoral level minimum wages set in 2005 in the sectoral social dialogue committees.

At the 1 December meeting, employee representatives emphasised that the position of employees has significantly worsened as a result of tax increases, including value added tax (VAT), and therefore urged the government to take a more active role in the negotiations. They reiterated their dissatisfaction with the recommendations from the government and employers alike, which they deemed unrealistic. However, the employers maintained their recommendation for a 3.5%–6% wage increase and called for sectoral-level negotiations.

New wage agreement reached

After four more rounds of negotiations in January 2007, a new wage agreement was finally concluded on 30 January 2007. The OÉT recommended increasing nominal wages in the business sector by 5.5%–8% in 2007, which had been proposed to the social partners engaged in collective wage bargaining. Despite earlier suggestions to revisit it, no recommendations were made for modifications to the minimum wage agreement set for 2006–2008, which had been concluded as part of the 2005 negotiations.

Commentary

At the end of 2006, it seemed that no wage agreement would be reached for the following year. Employers recommended a wage level lower than the government’s recommendation, and even a revision of the three-year agreement was suggested. Trade unions demanded a double-digit wage recommendation, while the government had limited scope for movement due to its efforts to curb spending. It could be concluded that the agreement was a symbolic gesture of the social partners; by accepting OÉT’s help, they tried to maintain the legitimacy of that body.

In 2006, the wage agreement did not refer to the minimum wage level that had already been set in the three-year agreement concluded at the end of 2005. Last year, a ‘wage recommendation’ was the only focus of the negotiations between the social partners and the government. Nonetheless, data reveal that the OÉT’s wage recommendations have increasingly less influence on actual wages as a result of sectoral and company-level wage bargaining.

In recent years, less than 200 wage agreements have been registered by the Hungarian Ministry of Social Affairs and Labour (Szociális és Munkaügyi Minisztérium, SZMM). Another reason for the diminishing importance of company-level wage agreements is that, with the considerable increase in the minimum wage and the setting of a minimum wage for skilled workers in 2005, the ‘automatic’ pay increments, at least in low-wage industries, resulted in higher actual wage increases than the trade unions would otherwise have been able to reach in the course of collective bargaining. Therefore, maintaining negotiations at national level has been more important for trade unions than the actual figures attained through the negotiations.

The only year that a national wage agreement was not concluded was in 1995, when wide-ranging austerity measures (‘the Bokros austerity package’) were introduced by the Finance Minister in office at the time, Lajos Bokros. The measures introduced by the current government would have provided sufficient reason for not accomplishing wage agreements in 2006 either.

At the same time, the government’s reform plans, if not the austerity measures, provided an opportunity for the social partners and the government to reach a western European style social pact, which would have been far more significant than the usual wage agreements. However, such a pact was not concluded. From this point of view, 2006 was a year of missed opportunity for OÉT. On the one hand, the government failed to initiate a real social pact, which would have helped to deter the opposition parties from questioning the government’s legitimacy. On the other hand, trade unions and employer representatives failed to assert their influence in strategic matters.

Instead, a wage agreement was concluded, which was still a small success for the government amid political tensions. Trade unions at least were able to fend off attempts to terminate the minimum wage agreement. As for employers, they succeeded in reaching an agreement for the first time in years which does not affect competitiveness and which can also contribute to the success of the convergence programme and thus to a positive assessment of the Hungarian economy abroad. Reaching an agreement must have proven to be important for both sides in a situation where the President of Hungary, László Sólyom, questioned the representativeness of the social partners and the basic functions of OÉT (HU0701039I). From this point of view, the social partners may have considered wage agreements as a reacquisition of their prestige and as a means to highlight the importance of OÉT.

László Neumann and András Tóth, Institute for Political Science, Hungarian Academy of Sciences