Labour cost reductions pose new challenges to industrial relations in banking

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Over the past few months, the Governor of the Bank of Italy, Antonio Fazio, and the Abi banking employers' association have urged the Government to start negotiations with employers' associations and trade unions in order to deal with the problems linked to the low profitability of the Italian banking sector. High labour costs and redundancy are the main themes of debate. On 8 April 1997, a first meeting took place between an Abi delegation and a ministerial group, which represented the official opening of negotiations that will also involve the trade unions in the near future.

The context

The Italian banking system has for some time been considered incapable of dealing competitively with the international market. In particular, the cost of labour per employee is estimated as the highest in Europe: according to figures from Assicredito in 1996 it amounted to ITL 106.8 million per year in Italian banks, against ITL 76.2 million in Germany, ITL 84.5 million in France and ITL 69.9 million in the UK.

The conditions under which the Italian banking system has traditionally developed can be summarised as follows:

• high fragmentation - the size of even the largest Italian banks is inadequate to deal with international competition;
• low competition;
• demand for traditional products which are rather unsophisticated and unprofitable;
• low internationalisation; and
• a high percentage of publicly-owned or publicly-controlled banks.

Generally speaking, the Italian credit market is very static. Being highly fragmented and not very competitive, this market guaranteed each bank a profit margin even in the absence of high levels of operating efficiency or aggressive business strategies. In the 1990s, however, there was a partial change in market conditions. Increased competition drove Italian banks to pursue the following objectives:

• growth in size by means of mergers;
• opening of new outlets and expansion of the branch network;
• product innovation; and
• innovation in human resource management policies.

After several years of attempted adjustment to new market conditions, however, the overall situation in the banking sector has not undergone a recovery; this is why the employers' associations have urged a more profound and radical restructuring. In view of the severity of the interventions required for restructuring the sector, the social partners believe that negotiations should proceed under government guidance.

The results of the April meeting

The meeting on 8 April 1997 between the representatives of the Abi(Associazione Bancaria Italiana) and the secretary to the Prime Minister, Enrico Micheli, the Minister of Labour, Tiziano Treu, and the Minister of the Treasury, Carlo Azeglio Ciampi, dealt with the most urgent of the subjects under discussion - redundancy. Abi estimates that around 30,000 redundancies will be necessary - almost 10% of the 330,000 employees in the banking sector (as reported in La Repubblica, 23 March 1997).

In response, Abi representatives propose having recourse to early retirement. The costs of this operation would not weigh upon public finances - as has happened in other industries - but would be directly borne by the banks. This proposed solution, to which the Government has agreed, is made possible by an implementing measure connected to the budget law of 1997, which allows for the extension of "social shock absorbers" - ie, the Wages Guarantee Fund (CIG), which makes payments to workers who have been laid off - to sectors, such as banking, which currently have no such schemes. The solution would be to give employees closest to the age required to qualify for a "seniority pension" (currently 57 for women and 62 for men) a payment equal to 50%-60% of their previous wages, paid through a central fund, until reaching that age, as well as making social security contributions on their behalf over this period.

In addition to redundancies, the employers' associations maintain that an improvement of the economic conditions of the sector is only possible by means of a radical revision of the national industry collective agreement which expires at the end of 1997. In particular, Abi maintains that wage increases should not be established by the national contract (as is the case today) but by company-level agreements, and only if the economic situation of individual banks allows for this. Indeed, according to the banks, the automatic wage adjustments made possible by the national contract have produced an increase in labour costs that is not in line with the parameters established by the July 1993 central tripartite agreement on incomes policy. This is perhaps the most problematic aspect of the strategies aimed at restructuring the banking sector, and the unions have stated that they are not prepared to bargain over wages at the company level only. However, the Government has not taken a stance on these points, deferring the question to the bilateral meetings between the employers' associations and the trade unions which should take place over the coming weeks. The unions met with the Government on 15 April, stating their availability to deal with redundancies and labour costs, while asserting that these are not the only problems to be faced in order to carry out a radical restructuring of the banking sector.

Commentary

From a comparative perspective, employment relations in Italian banks have long been characterised by incremental and non-dramatic change. This has been due to the sluggishness of the processes of privatisation and deregulation, but also to the relative weakness with which market pressures have manifested themselves in banks. The Italian banking sector has long been a sheltered industry, with an oligopolistic structure and a traditional division of the market among types of bank, with little if any foreign competition, and without any serious challenge from an underdeveloped financial market. Under these conditions, Italian banks have shown rather low cost-consciousness. Moreover, the coalition of interests against change has been powerful. Top managers whose performance was scarcely evaluated in terms of bank profitability; employees enjoying wage privileges well above the average of the Italian economy; rather traditional unions with a high membership rate and a high level of recognition: all these actors have, at least implicitly, conspired against major transformations in employment relations as required by the rapidly changing markets and technology, and as carried on in most other European countries.

Adjustment to changing market conditions in the last decade has, therefore, been slow and inadequate. This has accumulated a series of problems, especially reflected in high labour costs and low productivity, which must now be faced, at a time, however, when traditional solutions (the provision of "social shock absorbers" paid for out of public finances) are no longer viable. Hence, labour relations in banks are likely to go through a period of either heightened conflict or experimentation with radically innovative practices. To avoid the former outcome, both social partners seem to rely on a practice of industry-level concertation led by the Government. It remains to be seen whether this will yield the results hoped for. (Simonetta Carpo and Marino Regini, IRES Lombardia)