Unions demand pay increases above productivity levels

Between October and December 2007, when putting forward demands regarding the renewal of collective labour agreements at sectoral and company levels, the two biggest trade union organisations decided to seek wage increases that would outstrip productivity. However, such a demand runs counter to the official position of both employers and the government.

General framework

Although neither employers nor workers follow a strictly determined formula when calculating wage demands for collective bargaining purposes, this nevertheless falls into two basic areas: labour productivity and implementation of the system of pay indexation (see Cypriot contribution (43.5Kb MS Word doc)).

When formulating demands for the renewal of the collective labour agreements that were due to expire in late 2007 or early 2008 – totalling 178 agreements covering around 42,000 workers – the Pancyprian Federation of Labour (Παγκύπρια Εργατική Ομοσπονδία, PΕΟ) and the Cyprus Workers’ Confederation (Συνομοσπονδία Εργαζομένων Κύπρου, SΕΚ) decided to demand increases that would outstrip productivity. While also taking the overall situation of the Cyprus economy into account, the trade unions have essentially abandoned their moderate stance of recent years in relation to wage demands.

In the context of achieving the macroeconomic convergence criteria for Cyprus’s successful integration into the European Economic and Monetary Union (EMU), over the last five years one feature of collective bargaining affecting wage setting has been wage moderation. Some characteristic examples of such wage moderations include: the framework agreement on setting wage increases in the broader public sector (CY0502104F), the wage increases granted in the hotels industry (CY0609019I), and the wage increases agreed in the construction industry (CY0607029I). In the economy as a whole, wage increases lagged behind increases in labour productivity, so that, in the 1996–2006 period, real unit labour costs throughout the economy underwent a cumulative decrease of 1.6% in the EU25 and 6.2% in Cyprus. In other words, whereas labour became somewhat cheaper on average in the EU25, enterprises operating in Cyprus benefited substantially from these lower labour costs.

Trade union position

According to SEK, which submitted its demands on 17 October 2007, distribution of national income has been alarmingly unfair. In particular, SEK cited several reasons for demanding wage increases that outstrip productivity:

  • the robust situation of the Cypriot economy, which is characterised by an adequate growth rate;
  • unemployment, which has remained under control at low levels;
  • controlled inflation, despite the recent upsurge in inflationary pressures.

As regards inflation, SEK rejects every rationale whereby workers would bear the full cost of inflation; instead, it is calling on the government to find ways to keep down high prices and restrict profiteering – trends that it reports have been thriving in recent years.

PEO’s demands, publicised on 3 December 2007, fall within the same context. More specifically, apart from the satisfactory growth rate of the Cypriot economy and the evolution of the distribution of national income at the expense of workers, PEO also highlights the need for the convergence of wages in Cyprus with wage levels in the more advanced countries of the former EU15.

Opposing views

The demand for wage increases that would outstrip productivity runs counter to both the employers’ and government’s official position. The Governor of the Central Bank of Cyprus, Athanasios Orphanides, referred indirectly to the need to reform the system of wage indexation, and stressed that indexation is a means of transferring higher inflation onto wages. In the same context, in a letter issued on 27 November 2007, the Employers and Industrialists’ Federation (Ομοσπονδία Εργοδοτών και Βιομηχάνων, ΟΕΒ) welcomed with particular satisfaction the relevant statements of Mr Orphanides. OEB pointed out that the best way to maintain and improve the standard of living in Cyprus is to make a meaningful commitment to the principles of fiscal self-restraint and avoid measures with a sole purpose of meeting only temporary demands.

Both the Democratic Labour Federation of Cyprus (Δημοκρατική Εργατική Ομοσπονδία Κύπρου, DΕΟΚ) and PEO were quick to express their opposition to and disappointment with the content of the governor’s statement. In the context of the demands it submitted on the renewal of the agreements, PEO referred to Mr Orphanides’ statement as an intervention prejudicial to the workers’ positions and social demands, which among other things affects the necessary equilibrium required for tripartite cooperation and social dialogue. As regards the system of indexation, PEO considers that indexation protects workers’ wages from inflationary pressures that erode their purchasing power, but does not itself cause inflation; moreover, PEO emphasises that, over a period of time, wage indexation has contributed to the cohesion of Cypriot society and helped maintain industrial peace in difficult conditions.

Eva Soumeli, Cyprus Institute of Labour (INEK/PEO)

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