Slovenia: Seventh public sector pay agreement signed

The Slovenian government and public sector trade unions have agreed seven public sector pay agreements since the start of the economic crisis in 2008 in an effort to protect public sector employment by limiting the wage bill. Despite good economic growth in 2015, the seventh agreement, signed in December, prolongs several of the wage austerity measures.

Seventh agreement in brief

The Slovenian government and public sector trade unions signed their seventh consecutive public sector pay agreement on 6 November 2015, bringing some improvements in pay and allowances. However, some austerity measures will be extended for another year: no wage indexation; no regular performance bonuses; lower payments for increased workload; and lower premiums for the Collective Supplementary Pension Insurance (KDPZ) for civil servants. As a result, an overall year-on-year increase of 3.5% in the public sector wage bill is expected in 2016.

Overview of recent pay agreements

The government and social partners concluded seven pay agreements between 2009 and 2015, with the aim of restricting the public sector wage bill to respond to the severe constraints on public finances. The first two pay agreements were adopted in 2009, and there was a further agreement each year between 2010 and 2015, with the exception of 2011. Over this period, the average annual growth rate of gross earnings in the general government sector has been -0.6%. Austerity measures have abolished most supplement mechanisms and mainly focused on limiting wage levels rather than cutting jobs.

Figure 1: Public sector pay agreements and durations, 2009–2016

 

The first public sector wage agreement was adopted in February 2009 because public sector wage increases agreed before the financial crisis risked worsening the macroeconomic situation. It included three main measures:

  • postponing payment of the third instalment of the funds earmarked to eliminate wage disparities from September 2009 to January 2010;
  • abolishing the regular wage adjustment in 2009;
  • suspending, temporarily, the payment of regular performance bonuses (from April until December 2009).

Despite the February agreement, public sector wage growth in 2010 posed a major risk to fiscal stability. This led to a new agreement being signed in October 2009. It again postponed paying the third instalment of money earmarked to eliminate wage disparities (to October 2010), and this time it also postponed the fourth and last instalment (from March 2010 to October 2011). Wage adjustment in July 2010 was also halved, and the suspension of performance bonuses was extended until November 2011.

Both of these agreements managed to curb wage growth significantly in 2009 and 2010, but the fiscal situation continued to deteriorate. In November 2010, the third pay agreement (for 2011 and 2012) was signed. The payment of the remaining two instalments of the funds to eliminate wage disparities was postponed to a period when real GDP growth exceeded 2.5%. In addition, the agreement tightened the wage adjustment mechanism for 2011, while the wage adjustment for 2012 was to be agreed in 2011. The agreement also stipulated that there would be no promotions in 2011, and any decisions about promotions in 2012 would be taken in 2011. The period during which there would be no performance bonuses and limited payments for increased workload was extended until November 2012.

In May 2012, the fourth agreement on pay was signed, together with the Fiscal Balance Act, to support further restrictions on wage policy for 2012–2013. In the middle of 2012, public servants were paid the remaining two instalments of the funds to eliminate wage disparities (their wages consequently rose by 5% on average), but at the same time, their basic wages were cut by 8%. Holiday allowances were also selectively allocated, and some other remunerations were lowered (such as travel expenses to and from work, food and daily allowances, long-service benefits, retirement allowances, pay for work abroad, and mileage claims for use of personal vehicles for business purposes). The date for the start of application of suspended promotions (for 2011 and 2012) was postponed to June 2013, and the period of no promotions, no performance bonuses and limited payments for increased workload was extended to the end of 2013. It was also agreed that, until then, salaries would not be indexed to inflation.

The fifth pay agreement, concluded in May 2013, imposed further restrictions on public sector wage policy:

  • further cuts were imposed on the basic salaries of all employees (partly in a linear and partly in a progressive manner, by around 1.3% on average, although it was agreed that wages would be returned to the level before this cut in January 2015);
  • women’s increased seniority bonus for each completed year of service over 25 years was abolished;
  • allowances for specialisations, masters’ and doctoral qualifications were cut by half;
  • sickness benefits were lowered.

The last three of these measures were to be permanent. In addition, the application of suspended promotions was again postponed (to April 2014), while the period of no new promotions, no performance bonuses and limited payments for increased workload was extended until the end of 2014. It was also agreed that, until the end of 2014, salaries would not be linked to inflation. The agreement also specified that in 2014 KDPZ premiums would be lowered, and holiday allowances would be selectively allocated for a second year in a row.

After long and tough negotiations, the sixth agreement between the government and public sector unions was reached in December 2014, extending most of the austerity measures for another year, However, it was agreed that deferred promotions would be applied retrospectively (from December 2015 onwards for 2015, and December 2016 onwards for 2016). By the end of 2015 the following measures were extended:

  • the existing pay scale, set in mid-2013;
  • non-indexation of wages;
  • non-payment of performance bonuses;
  • limited payments for increased workload;
  • the selective allocation of holiday allowance;
  • reduced KDPZ premiums.

Sharp disagreement during 2015 negotiations

Despite statistics released in August 2015 showing relatively high growth of gross domestic product (GDP) in 2014 (3%), the government wanted to further consolidate public finances. It sought a mix of policies on expenditure and public sector wage bill restrictions in response to the deterioration of Slovenia’s public finances, which had been among the most severe in Europe. The government was determined to prolong most of the public sector wage austerity measures for yet another year (2016). However, unions insisted that the contribution of public servants to resolving the crisis should be recognised and that Slovenia’s fiscal position, especially due to its economic recovery, was at least sufficient to cope with an end to austerity measures. The negotiations were consequently very tough. Nevertheless, in November 2015, the seventh agreement on wages and labour costs was concluded. It was a hard-won compromise, at the upper limits of Slovenia’s fiscal capabilities. It sets out that in 2016 there will be:

  • payment of promotions (which had been agreed in 2014);
  • partial release of holiday allowances;
  • somewhat higher basic wages from September (on average by 1.3%).

At the same time, some austerity measures will be extended for another year (payments for increased workload and pensions will stay at a lowered level, and there will be no performance bonuses or wage indexation). The Ministry of Public Administration estimates that in 2016 the public sector wage bill will be 3.5% (€148 million) higher year-on-year.

Slovenian wage austerity policy, 2008–2015

During the crisis, the government’s wage policies were affected by changes in the wage system and later mainly by the austerity measures. The beginning of the crisis coincided with the implementation of a long-planned wage reform – aimed at eliminating wage disparities among individual occupational groups in the sector – which resulted in a relatively high wage growth in 2008 and 2009. In 2009, wage growth was already slightly lower, since the first austerity measures were put in place, partially restraining growth before bringing it to a complete halt in 2010 and 2011. After even more severe austerity measures were imposed due to the deteriorating fiscal situation, the average gross wage in the government sector dropped in 2012 and 2013 in nominal terms. In 2014 and 2015, it grew slightly again, mostly due to promotions, while the majority of austerity measures were extended.

Table 1: Growth of gross wage per employee, Slovenia, 2008–2015 (%)

Years

Nominal growth of gross wage per employee (%)

Real growth of gross wage per employee (%)

Total

Private sector

Public sector

- within that, general government

Total

Private sector

Public sector

- within that, general government

2008

8.3

7.8

9.7

10.2

2.5

2.0

3.8

4.3

2009

3.4

1.6

5.3

7.0

2.5

0.7

4.4

6.0

2010

3.9

5.6

0.8

0.0

2.1

3.7

-1.0

-1.8

2011

2.0

2.6

1.0

0.0

0.2

0.8

-0.8

-1.8

2012

0.1

0.5

-0.9

-2.2

-2.4

-2.0

-3.4

-4.7

2013

-0.2

0.6

-1.3

-2.5

-2.0

-1.2

-3.0

-4.2

2014

1.1

1.4

0.9

0.6

0.9

1.2

0.7

0.4

2015

0.7

0.5

1.2

1.0

1.2

1.0

1.7

1.5

Source: Statistical Office of the Republic of Slovenia

In 2015, the average gross wage was therefore 3.5% higher than in 2008 in nominal terms (but in the private sector it was 13.5% higher, with more than half of the growth being a result of changes in the employment structure and the increase in the minimum wage).

Figure 2: Wage bill movements in general government sector, Slovenia, 2008–2015 (%)

Source: Statistical Office of the Republic of Slovenia

 

During the crisis, the government’s austerity measures in relation to wages mainly focused on limiting wage levels rather than affecting employment. Employment is an important factor in determining the wage bill, as indicated by the job cuts in the private sector. The decline in the private sector’s employment levels during the crisis led to a significant drop in the wage bill; in 2015, it was just 2.1% higher in nominal terms compared with 2008, while in the general government sector, it was 10.2% higher, mostly due to higher employment.

Commentary

Wage austerity measures, which were introduced in Slovenia's government sector during the crisis, abolished most of the supplement mechanisms of the wage system. The measures were mainly focused on limiting wage levels, which had a strong demotivating effect on employees. The payment of performance bonuses was suspended from April 2009, and the funds for increased workload limited. Moreover, between 2011 and 2014, public employees were not entitled to promotions. in mid-2013, a compression of the wage scale was achieved, meaning that higher wages fell more, proportionately, than lower wages. All these measures reduced the differences in earnings between employees but also reduced motivation. The challenge for the near future is therefore to reward employees for individual achievement and productivity, and to adequately adjust wages and the wage bill to reflect current economic conditions.

 

 

 

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