New collective agreement reached after tough bargaining in metal sector

The Metal Trade Union Association demanded a 7% wage increase in the sectoral collective bargaining round for 2008. Employers in the mechanical engineering industry refused this request, offering only a 3.5% wage rise. As a result, the trade unions threatened to take strike action. After much negotiation, the employers agreed to increase basic wage tariffs by 6.5% from 1 April 2008, in return for more flexible use of some employment contracts and organisation of working time.

Employers refuse wage demand of trade unions

During the sectoral collective bargaining for 2008, the Metal Trade Union Association (Odborový zväz KOVO, OZ KOVO) requested a 7% wage increase for workers in the sector. In the view of the OZ KOVO representative, Stanislav Tarnovský, the good performance of the Slovak economy allows for such a rise in wages. According to statistics, the average nominal gross monthly wage in the economy amounted to SKK 19,514 (about €604 as at 11 April 2008) in the third quarter of 2007. Average wages rose by 6.8% in comparison with the same period of 2006. It is expected that nominal wages should also rise by a similar rate in 2008.

Representatives of the Federation of Mechanical Engineering of the Slovak Republic (Zväz strojárskeho priemyslu Slovenskej republiky, ZSP SR) were prepared to negotiate for an increase in wages; however, the federation considered the demand put forward by OZ KOVO as unrealistic. ZSP SR argued that an excessively fast rise in wages could increase the inflation rate, and thus decrease the real wages of employees. Employers were willing to agree only to a 3.5% wage increase in 2008, as such a wage rise would reflect the expected rise in labour productivity in the sector. Furthermore, the employers also argued that they did not want to conclude any agreement that could endanger, by increasing inflation, the adoption of the euro in Slovakia, which is planned for 1 January 2009.

Trade unions threaten strike action

OZ KOVO covers employees in the mechanical engineering, electrical and metalworking industries. The companies operating in these economic sectors are developing and running their business successfully. In light of this favourable economic climate, the trade unions believed that the rise in wages they demanded for the companies in the mechanical engineering sector was reasonable. However, the employers have been arguing that competition is already high when it comes to the sector’s human resources: the companies compete among themselves to attract qualified staff from competitors by offering them higher wages. As a consequence, the wages in the sector usually rise above the levels agreed in collective agreements.

OZ KOVO negotiators attended several bargaining rounds without reaching any agreement on wage increases in 2008 with the ZSP SR representatives. Therefore, in January 2008, OZ KOVO announced its intention to call for strike action in order to push through their wage demand. The companies operating in the mechanical engineering industry include renowned multinational car manufacturers like Volkswagen Slovakia, KIA Motors Slovakia, PSA Peugeot Citroën and dozens of their subcontractors. The monthly sales revenue of these companies amounts to several tens of billions Slovak koruna (SKK), and a prospective strike would cause serious losses in these companies and have an overall serious impact on the Slovak economy. Although it seemed that neither party was willing to abandon their initial position, the representatives of OZ KOVO and ZSP SR continued the negotiations with the aim of concluding a sectoral collective agreement for 2008.

Agreement to increase wage tariffs

After several bargaining rounds, the negotiators from OZ KOVO and ZSP SR have finally reached an agreement, bringing this serious labour dispute to a close. By the end of February 2008, the social partners agreed that, according to the sectoral collective agreement for 2008, the basic wage tariffs in the mechanical engineering industry would increase by 6.5% from 1 April 2008. According to the President of OZ KOVO, Emil Machyna, this bargaining round has been the most difficult in the history of OZ KOVO since 1989.

Higher wage tariffs agreed in the sectoral collective agreement can be even increased further in company-level collective agreements. The decreasing unemployment rate in some regions of the country and the lack of qualified labour, especially in mechanical engineering and in the electrical industry, are factors improving the bargaining position of the trade unions. In recent times, OZ KOVO supported a protest action of employees working for a foreign company producing wire harnesses for the automotive industry. According to an article in the Daily Pravda newspaper on 29 February 2008 (V Kolárove hrozí ostrý štrajk), employees protested against the rigorous performance standards and rules for the provision of bonuses, which negatively impacted on staff remuneration.

Employers want wages linked to productivity

Currently, the average gross nominal monthly wage in the mechanical engineering industry amounts to about SKK 21,000 (€650). The tariff wages make up about 60% of this amount. According to the sectoral collective agreement for 2008, the average monthly wage could increase by about SKK 1,000 (€31) to SKK 2,000 (€62) in the sector, while any particular increase in wages should be agreed at company level. Nonetheless, the negotiator for the employers associated with ZSP SR, Juraj Borgula, highlighted that although the concluded collective agreement allows for such a wage increase, it does not guarantee this increase automatically. Employers can increase the tariff wages according to the rate agreed in the collective agreement, but at the same time they can decrease the amount of bonuses previously paid to their employees. Thus, the total increase in wages can be below the rate that the trade unions negotiated in the collective agreement.

Employers consider the increase of 6.5% in tariff wages as the maximum possible wage growth, and argue that they will not be able to sustain such wage growth in the future. Overall, labour productivity has increased in the mechanical engineering industry by about 14% in 2007. If employers want to maintain the existing wage/productivity gap, productivity in the industry should increase by at least 13% in 2008. In the view of the President of ZSP SR, Milan Cagala, the agreed increase in wages can be accepted now, at a time when the industry is flourishing. However, such high wage growth is risky regarding the future development of mechanical engineering in the country. The agreed rise in wage tariffs for 2008 could be problematic particularly for small and medium-sized enterprises (SMEs) operating in the industry. Excessive wage growth can decrease the competitiveness of some enterprises, and contribute to a higher inflation rate in the economy. In addition, according to some analysts, such a wage rise is not sustainable in the Slovak economy, and the gap between wages and productivity should be maintained as much as possible.

Commentary

Initially, the concluded sectoral collective agreement for 2008 seems a trade union success. Although the employers were not willing to accept the extent of the trade unions’ wage demand, they agreed on almost the same rise in tariff wages. Furthermore, the employers promised that trade union representatives could participate in the preparation of the sectoral catalogue for ranking the staff in salary categories. On the other hand, the employers have also gained some advantages during the collective bargaining process. In this regard, it seems that the trade unions have agreed that employers could use particular forms of employment contracts and organise working time in a more flexible way to suit their business needs. As a result, the employers will be permitted more flexible use of fixed-term employment contracts, overtime work and irregular working time schedules. For example, standard annual working time can also be worked seasonally – during less than a 12-month period.

Ludovít Cziria, Institute for Labour and Family Research

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