- Observatory: EurWORK
- Date of Publication: 27 July 2000
Economic and Monetary Union (EMU) has placed new emphasis on the role of wage policy in the European Union Member States. The EU's Broad Economic Policy Guidelines and the "European employment pact" thus stress the importance of wage developments that are consistent with price stability and non-inflationary economic growth and take into account labour productivity gains. This comparative study assesses the extent to which the national systems of wage determination in the EU Member States (plus Norway) are prepared to meet the new requirements of EMU. The study examines both the outcome and the institutions of wage setting, concluding that overall they seem well prepared for the new environment.
The introduction of EU Economic and Monetary Union (EMU) has created new macroeconomic conditions with significant implications for wage policy. Since EMU deprives the EU Member States concerned of exchange rates and interest rates as a means of adjusting to imbalances in economic performance, wage policy might have to bear the main burden of compensating for such imbalances. Moreover, wage policy has a significant responsibility in ensuring the smooth functioning of EMU. While wages which are "too high" might cause inflationary pressures, wages which are "too low" might lead in the opposite direction, resulting in a deflationary spiral.
Since the start of stage two of EMU in 1994, the European Commission and the European Council have adopted annual "Broad Economic Policy Guidelines (BEPGs)" which include recommendations on what they see as "appropriate wage developments" within the new euro single currency area. According to the Commission's April 2000 Recommendation for the 2000 Broad Guidelines of the Economic Policies of the Member States and the Community (ECFIN/209/00-EN), it is necessary to:
In addition, the European Council meeting held in Cologne on 3-4 June 1999 adopted a Resolution on a European employment pact, which aims at the "coordination of economic policy and improvement of mutually supportive interaction between wage developments and monetary, budgetary and fiscal policy through macroeconomic dialogue aimed at preserving a non-inflationary growth dynamic" (EU9906180N). The pact establishes a new "macroeconomic dialogue" - a joint forum of representatives of Member State governments, the Commission, the European Parliament, the social partners and the European Central Bank (ECB), which should exchange views on the question of how to design macroeconomic policy in order to make full use of the potential for growth and employment.
The aim of this comparative study - based on contributions from the national centres of the European Industrial Relations Observatory (EIRO) - is to assess the extent to which the national systems of wage regulation in the 15 Member States of the EU, plus Norway, are prepared to meet the new requirements for wage regulation under the conditions of EMU. The comparative study deals with both the outcome and the institutions of wage regulation. First, it provides an overview of long-term national wage developments in relation to national macroeconomic performance. Second, the comparative study focuses on the functioning of the national institutions of wage policy by analysing:
- the different bargaining levels (intersectoral, sectoral, company etc) at which wage bargaining is conducted;
- the various country-specific forms of wage coordination across sectors (central-level agreements, "intra-associational" coordination, "pattern bargaining" etc); and
- the use of macroeconomic guidelines and/or criteria for wage policy within collective agreements or as part of social partners' justification of wage claims and wage offers.
Finally, the study pays special attention to the gender aspects of wage policy by providing some data on existing gender wage differentials and by analysing social partners' policies on closing the "gender gap".
Wage developments in the EU and Norway
Within EMU, cross-border comparisons of wages and wage developments are of growing interest for industrial relations practitioners, policy-makers and researchers at both national and at European level. However, meaningful international comparisons in the area of wages are particularly difficult, since they have to deal with different national systems of wage formation, industrial relations, taxation and social security, as well as with the divergent ways in which national statistics are collected and presented (TN0002401U). At European level, there are various statistics covering various wage and labour costs indices provided either by the European Commission, Eurostat or the ECB (see "Workshop on the role of labour cost information in short-term analysis in the context of Monetary Union", Documentation, European Commission and Eurostat, Luxembourg (1999)). In this section, we draw mainly on statistics prepared by the European Commission's Directorate General for Economic and Financial Affairs, since they provide long-term macroeconomic series which allow an analysis of long-term trends in European wage developments.
Nominal wage developments
Figure 1 below gives an overview of the development of average nominal wage growth rates in the EU over the past four decades. It indicates that there was a clear trend of increasing nominal wage growth rates from the 1960s until the mid-1970s. Starting with annual nominal wage increases of around 9% at the end of the 1960s, the average annual increase in nominal wages in the EU reached a peak level of 19% in 1975. Since then, the EU has seen a continuing decline in nominal wage increases to around 3% at the end of the 1990s.
As figure 1 also indicates, nominal wage growth and price increases have developed almost in parallel. Over the past two decades, the differences between the former and the latter have clearly diminished, although the average nominal wage growth has never been below the increase in prices, which means that there has always been at least a small increase in real wages (see below).
As shown by table 1 below, there have always been strong differences in nominal wage developments among the EU Member States and Norway. In the 1970s, for example, average annual increases in nominal wages varied between 8.3% in Germany and over 20% in Spain and Portugal. To a large extent, these variations reflected the differences in national inflation rates. During the 1990s, however, there was a strong convergence in the evolution of national price developments, since most EU Member States succeeded in bringing down their inflation rates in order to fulfil the Maastricht Treaty on European Union's convergence criteria for entering EMU. At the same time, a strong convergence of nominal wages in the Europe can also be observed, with a comparatively low dispersion across countries.
|GDP price deflator||3.7||4.3||2.8||2.8||2.3||1.7||1.6||1.3||1.6||3.8||6.3||3.6||2.5|
|GDP price deflator||3.1||3.7||4.0||2.3||1.5||1.6||1.4||1.7||1.2||3.4||7.1||4.5||2.3|
|GDP price deflator||2.5||2.2||0.5||1.4||1.7||2.0||1.9||2.1||2.3||6.4||9.7||5.9||1.8|
|GDP price deflator||1.6||1.0||1.9||2.0||3.5||0.5||1.6||2.2||1.0||5.9||11.5||7.1||1.7|
|GDP price deflator||3.3||2.1||2.5||1.5||1.6||1.2||1.0||0.8||0.8||4.4||9.8||6.3||1.6|
|GDP price deflator||3.9||5.6||4.0||2.4||2.2||1.0||0.6||0.9||0.9||3.8||5.2||2.8||2.4|
|GDP price deflator||19.8||14.8||14.5||11.2||9.8||7.9||6.9||5.0||3.3||3.0||14.6||19.5||10.4|
|GDP price deflator||1.7||2.4||4.5||1.2||0.5||1.6||2.2||5.0||4.0||5.5||13.8||7.0||2.6|
|GDP price deflator||7.7||4.7||4.4||3.5||5.1||5.0||2.6||2.9||2.1||4.5||15.0||10.6||4.2|
|GDP price deflator||1.5||4.3||0.7||5.3||0.7||0.0||3.5||1.8||1.3||4.1||6.5||4.3||2.1|
|GDP price deflator||2.7||2.3||1.9||2.3||1.8||1.5||2.2||2,2||1.9||5.2||7.6||2.0||2.1|
|GDP price deflator||12.2||10.0||6.7||6.3||5.1||2.8||5.6||3.9||3.3||2.9||16.1||17.5||6.2|
|GDP price deflator||7.1||6.9||4.3||4.0||4.8||3.2||2.0||2.2||2.2||6.5||15.1||9.4||4.1|
|GDP price deflator||7.6||1.0||1.0||2.0||3.5||0.5||1.6||2.2||1.0||4.3||9.6||7.7||2.4|
|GDP price deflator||6.7||4.0||2.8||1.5||2.5||3.3||2.7||2.3||2.6||4.2||14.0||6.4||3.2|
|GDP price deflator||5.5||4.4||3.6||2.6||3.0||2.4||1.8||1.9||1.7||4.4||10.8||6.7||3.0|
Nominal wages = nominal compensation per employee, annual percentage change; prices = GDP price deflator at market prices, annual percentage change; * 1961-91 West Germany.
Source: European Commission, European Economy No. 68 (1999), Statistical Annex; (for Norway: national statistics).
Real wage developments
Average nominal wage developments in Europe have thus mostly been able to compensate for increases in prices since the beginning of the 1960s. In this section, however, we examine the evolution of real wages in the light of overall macroeconomic developments. Figure 2 and table 2 below give an overview of average increases in real wages in comparison with increases in labour productivity in the European Union and Norway over the past four decades. During the 1960s there was almost a parallel development of increases in real wages and in labour productivity. In the first half of the 1970s, real wage growth considerably exceeded increases in labour productivity, reflecting a more expansive wage policy at that time. In the 1980s and 1990s, however, real wage increases were mostly below the growth in labour productivity, with the exception of the years 1980-1 and 1990-2.
Although there are still considerable differences in national wage developments, almost all EU Member States, as well as Norway, have seen substantial wage moderation over the past two decades (see also "Labour costs and wage policy within EMU", Working Paper Economic Affairs Series ECON 111EN, Directorate-General for Research, European Parliament, March 1999). In the 1980s, the increase in real wages was on average one percentage point below the growth in labour productivity; in the 1990s the gap was 0.6 percentage points. Over the past decade, a particularly moderate wage policy has been followed in Ireland, Finland, Italy and Greece, while Portugal, Belgium, the Netherlands and the UK have seen the highest increases in real wages in relation to their national labour productivity growths (see table 2).
The trend towards wage moderation in Europe has been accompanied by a remarkable long-term convergence in both real wages and labour productivity growth rates across the EU Member States. While in the 1960s the scope of national real wage growth varied between 2.5% and 7.1%, in the 1990s it varied only between 0.2% and 2.1%. Similarly, national labour productivity growth rates showed a great divergence in the 1960s, varying between 2.6% and 9.3%, but varied only between 1.2% and 3.2% in the 1990s.
|RW ? LP||0.7||0.5||0.7||-1.8||-0.9||-2.8||-1.7||0.4||0.7||-0.9||-0.5||1.3||0.6||-0.4|
|RW ? LP||2.7||0.1||-0.8||-1.2||-1.3||-0.7||-0.7||-1.0||0.3||-0.5||-0.1||1.5||-1.4||-0.2|
|RW ? LP||-0.6||-0.3||-0.5||-4.2||-0.4||-0.8||1.0||0.4||0.7||-0.8||0.5||0.0||-1.5||-0.5|
|RW ? LP||5.1||-2.9||-6.8||-4.0||-2.4||0.3||-3.1||-1.3||0.4||0.7||-0.7||0.4||-0.1||-1.4|
|RW ? LP||0.4||-0.1||-0.1||-2.2||-0.3||-0.1||-1.1||-0.5||0.0||-1.7||0.0||0.7||-1.0||-0.4|
|RW ? LP||-0.6||1.4||-0.1||-2.0||0.0||-0.4||-1.7||-1.5||-0.2||-1.5||0.4||0.3||-0.9||-0.6|
|RW ? LP||-9.3||-1.9||-1.5||-0.5||1.6||-1.4||1.6||0.5||-0.8||-0.4||-3.0||0.2||-0.4||-1.3|
|RW ? LP||-0.6||-1.8||-0.9||-0.9||-5.2||-2.8||-2.9||-4.6||-1.3||-1.5||-0.1||0.5||-1.7||-1.8|
|RW ? LP||0.5||-0.2||1.6||-3.6||-3.7||0.3||0.2||-4.8||0.3||0.9||-0.3||0.4||-0.6||-1.4|
|RW ? LP||2.8||-1.0||-2.5||-2.8||0.2||0.4||-4.4||-1.6||-0.4||-0.6||-0.4||2.5||-1.1||-0.9|
|RW ? LP||0.8||1.3||0.5||-3.2||-0.8||-0.2||-0.9||-0.4||1.0||0.2||1.2||0.3||-1.4||-0.2|
|RW ? LP||4.9||-1.5||-1.7||-4.0||-1.6||0.8||0.8||-1.3||0.8||0.8||0.4||0.9||-1.6||0.0|
|RW ? LP||-1.1||-1.1||-0.6||-4.0||-2.7||-0.6||-0.5||0.3||-0.6||-0.7||0.4||0.4||-1.5||-0.6|
|RW ? LP||-1.2||-0.3||-1.5||-2.5||-3.0||3.6||-0.6||0.2||2.2||0.7||0.2||0.4||-0.6||-0.3|
|RW ? LP||0.5||-0.7||-2.4||-0.8||-1.1||-1.1||0.0||1.2||2.2||0.2||0.1||0.1||0.0||-0.2|
|RW ? LP||-0.2||-0.3||-0.8||-2.4||-2.3||-0.5||-0,9||-1.0||0.4||-0.7||-0.1||0.3||-1.0||-0.6|
|RW ? LP||-2.4||-1.6||-1.9||-3.1||-2.4||-0.1||-0.5||4.2||1.9||na||na||na||na||-0.6**|
Real wages = real compensation per employee, deflator GDP, annual percentage change; labour productivity = GDP at 1995 market prices per person employed, annual percentage change; RW ? LP = real wages minus labour productivity; * 1961-91 West Germany; ** 1991-9.
Source: European Commission, European Economy No. 68 (1999), Statistical Annex (Norway: national statistics).
The share of wages in Gross Domestic Product (GDP) is another way of looking at real wages. As indicated by figure 3 below, the average adjusted wage share in the EU was relatively constant in the 1960s, showed a sharp increase in the mid-1970s and has declined almost constantly since the early 1980s. There is a close relationship between the development of real wages and the evolution of wage shares. As long as increases in real wages are above labour productivity growth, this leads to a redistribution from profit income to labour income, resulting in a growing wage share. When real wage growth falls behind the growth of labour productivity, the wage share consequently declines, leading to an opposite redistribution effect. As indicated by the abovementioned recent study on behalf of the European Parliament, the development of wage share might therefore be used as an indicator to "reflect the relative political strength of capital and labour".
Comparing the development of wage shares within the EU Member States (see table 3 below), almost all countries have followed the same pattern of growing wage shares in the 1970s and declining wage shares in the 1980s and 1990s. The only exception is the UK, which on average saw a higher wage share in the 1990s than in the previous decade. Nevertheless, strong differences in the level of wage shares continue to exist among the EU countries, reflecting the different national economic structures and different compositions of the national workforce.
Adjusted wage share = percentage of GDP at factor costs; * 1961-91 West Germany.
Source: European Commission, European Economy No. 68 (1999), Statistical Annex.
Levels of wage bargaining
All 16 countries considered here have a multi-level wage bargaining structure including at least some form of wage bargaining at sectoral and at company level (see table 4 below). Six out of these 16 countries also have some wage bargaining (though not necessarily on all occasions) at intersectoral level, covering either the whole economy (Finland and Ireland), the private sector (Belgium and Greece), the private and public sectors separately (Norway), or the industry sector (Denmark).
There are great differences regarding the importance of the different bargaining levels within the various national bargaining structures. There are two countries (Belgium and Ireland) where the intersectoral level is currently the dominant wage bargaining level and two other countries (France and the UK) where it is the company level that predominates. In eight countries (Austria, Germany, Greece, Italy, the Netherlands, Portugal, Spain and Sweden) the sectoral level remains the most important level of wage bargaining, while in four countries there is either no predominant bargaining level (Denmark, Luxembourg) or the dominant level might vary from bargaining round to bargaining round between the intersectoral and the sectoral level (Finland and Norway).
|Intersectoral level||Sectoral level||Company level|
X = existing level of wage bargaining; XX = important, but not dominant level of wage bargaining; XXX = dominant level of wage bargaining.
Although all countries have some form of sectoral wage bargaining, there are great differences in the meaning and scope of sectoral bargaining within the different national contexts. In some countries (such as Ireland and the UK), sectoral bargaining is limited to a very few branches. In other countries (France, the Netherlands, Portugal and Spain, for example), it is in particular small and medium-sized companies which are covered by sectoral wage agreements, while many of the larger companies have a company agreement. There can also be significant differences between the various sectors. The public sector, for example, has in most countries a rather centralised bargaining structure, while in sectors with a predominance of larger firms the company level tends to have a greater influence on wage determination. Moreover, there are also variations in the geographical scope of sectoral agreements. While in most countries sectoral agreements are concluded at national level, in some countries (such as France, Germany and Spain) there are sectoral wage agreements which are valid only in a certain region or province.
Finally, there are also significant differences in the relationship between the different bargaining levels. In many countries there is a supplementary relationship, whereby the sectoral agreement determines a minimum wage which may afterwards be improved upon at company level. Some countries (for example, Denmark and Norway) have a significant "wage drift" of up to 50% between sectoral-level and company-level wage increases. In other countries, the wage drift is rather small and often limited to larger and particularly well-performing companies. By contrast, the intersectoral wage agreements in Belgium and Ireland determine a maximum wage increase which sets the margin for wage negotiations at sectoral and at company level.
Although many countries have seen some tendencies towards a decentralisation of wage determination, there has been only little change in the importance of the principal bargaining levels during the past two decades. The UK is the only country in which the most important level of wage bargaining switched from the sectoral to the company level during the 1980s. In France, a strong decline in sectoral wage bargaining was observed during the 1990s, which did not mark a qualitative change since French sectoral bargaining has been highly fragmented for a long time. In the Netherlands, the breakdown of sectoral bargaining has been limited to certain branches (banking, for example) while other sectors (such as commerce and catering) have tended to centralise wage bargaining. In Sweden, intersectoral wage bargaining disappeared in favour of sectoral bargaining at the beginning of the 1990s. In Italy, a national tripartite agreement concluded in 1993 laid down the rules for the bargaining system, confirming the primacy of sectoral-level bargaining. Finally, in Spain there has been a slow decrease in the importance of company agreements and simultaneously an increase in the importance of sectoral wage settlements. Nevertheless, most countries have showed a remarkable stability in their wage bargaining structure.
Country-specific wage coordination
The coordination of wage increases across sectors
Almost all EU countries have some form of macro-coordination of wage policy across the different sectors of the economy. There are, however, great national differences in the scope and the functioning of the coordination process. Here, we distinguish four main types of wage coordination (see table 5 below):
- "inter-associational" coordination - coordination by national or cross-sectoral agreements;
- "intra-associational" coordination - coordination within the peak employers' and trade union organisations;
- "pattern bargaining" - coordination by a sectoral trend-setter; and
- state-imposed coordination - coordination by a legal pay-indexation mechanism and/or by a statutory minimum wage.
Of the 16 countries covered by this study, 11 have some form of inter-associational coordination based on a national or cross-sectoral agreement (though such agreements are not necessarily reached on all occasions). There are, however, stronger and weaker forms of inter-associational coordination, varying between the national determination of maximum wage increases (as in Belgium, Finland or Ireland) and non-binding central recommendations for wage negotiations at lower level (as for example in Germany - see table 6 below). There are only five EU countries (Austria, France, Luxembourg, Spain and the UK) which have no central-level agreements of any kind dealing with wage policy.
There are eight countries (Denmark, Finland, Germany, Ireland, the Netherlands, Norway, Spain and Sweden) where both the peak employers' association and the trade union confederations provide some form of intra-associational coordination of wage policy. While in some countries, such as Germany, the intra-associational coordination is limited to an exchange of information on wage policy at peak level, in other countries, such as Spain, the peak organisations elaborate guidelines for wage claims and offers at the various bargaining levels.
Another common form of coordination is pattern bargaining, which is reported in seven countries (Austria, Denmark, Finland, Germany, the Netherlands, Norway and Sweden). In cross-sectoral coordination through pattern bargaining, one sector takes on the trend-setting role in wage negotiations and determines the margin for wage increases in other sectors. Usually, the dominant sectors are industrial sectors such as metalworking or chemicals, which are prone to international competition due to their exports. It is also the case that pattern bargaining occurs through large individual firms, as in the Netherlands, where such companies set the trend for wage increases.
Furthermore, nine countries have a statutory minimum wage which can also be seen as a form of coordination, since it functions as an important reference point for the whole wage system. While in Belgium and Greece the minimum wage is set by binding national-level collective agreements, in the other seven countries (France, Ireland [since April 2000], Luxembourg, the Netherlands, Portugal, Spain and the UK) the minimum wage has its basis solely in legislation. Therefore, the latter might be interpreted as a form of state-imposed coordination.
|Country||National- /cross-sectoral agreement||Intra- associational (trade unions)||Intra- associational (employers)||Pattern- bargaining||Pay- indexation mechanism||Statutory- minimum wage|
X = existing level of wage coordination; XX = dominant level of wage coordination.
Finally, there are still EU Member States (Belgium and Luxembourg) which have a pay-indexation mechanism, according to which nominal wage increases are automatically and generally adjusted to inflation. In Luxembourg, all salaries, wages, apprenticeship compensation, incomes and pensions have been automatically indexed to price changes by the means of a system called the "salaries and wages sliding scale" since 1975. The index used since 2000 is the harmonised index of consumer prices (LU9911115F). In Belgium, social partners at the sectoral level determine the index-linking mechanism, ie how wages are to be linked to the "smoothed-out" prices index (the four-month moving average of the so-called "health index", an index of consumer goods without "unhealthy" goods such as cigarettes) (BE9802228F). For example, wages may be adapted proportionally to the health index if it exceeds a certain value, or they may be adjusted at a given date or through a mixed system.
National or cross-sectoral macroeconomic guidelines for wage policy
In the 10 EU countries, plus Norway, that have national or cross-sectoral agreements, in almost all cases these agreements determine more or less detailed macroeconomic guidelines for wage policy - see table 6 below. The meaning of these macroeconomic guidelines takes various different forms across the countries, ranging from rather loose and non-binding recommendations for wage increases to legally binding targets for wage growth rates.
In eight countries (Denmark, Finland, Germany, Greece, Ireland, Italy, Norway and Portugal), national agreements on wage policy have been reached within the framework of so-called "social pacts" - ie tripartite arrangements at national level. In three countries (Belgium, the Netherlands and Sweden) there are cross-sectoral bipartite agreements on wage policy. Almost all of these agreements recommend a policy of wage moderation in order to sustain non-inflationary economic development and to improve national competitiveness. In the 1990s for many countries, in particular in southern Europe, these national commitments on a policy of wage restraint have been an important contribution towards bringing down inflation rates and fulfilling the convergence criteria for EMU and inclusion in the euro single currency, as laid down in the Maastricht Treaty (TN9907201S). In other countries, as for example in Belgium, Denmark or Norway, the policy of wage moderation has focused more on the improvement of national competitiveness by linking national wage growth to the average increases in wages in the main competing countries.
In order to draw up macroeconomic guidelines or even to define concrete national target figures for wage increases, many countries have tripartite or bipartite economic and social councils which provide macroeconomic expertise for the social partners, and sometimes, as for example in Belgium, recommend target figures for national wage increases.
|Country||Agreement||Wage guidelines/macroeconomic criteria|
|Belgium||Cross-sectoral bipartite agreement for the private sector (1998)||The agreement (BE9811252F) defines a maximum wage increase for a period of two years (1999-2000) on the basis of a recommendation made by the Central Economic Council, which is composed of representative of employers' associations and trade unions, plus six independent experts. The Central Economic Council calculates its wage recommendation on the basis of the assumed average wage increases in those countries which are Belgium's main trading partners, namely France, Germany and the Netherlands.|
|Denmark||National tripartite declaration (1987)||In order to increase Denmark's competitiveness, the declaration recommends that the development of labour costs should not exceed the development of labour costs in competing countries.|
|Finland||Agreement of the national tripartite incomes policy commission (1995)||The agreement provides a wage formula for "non-inflationary wage cost development", according to which wages rises should be in line with the total sum of the inflation target of the Bank of Finland (today the ECB) and the growth of productivity in the whole economy.|
|Germany||Statement of the national tripartite "Alliance for Jobs" (2000)||The statement (DE0001232F) provides a non-binding recommendation for an employment-oriented collective bargaining policy, according to which the available margin of distribution for collective agreements should be based on productivity growth and should be used primarily for job-creating agreements.|
|Greece||National bipartite agreements, national tripartite "Confidence Pact" agreement (1997)||National agreements (GR0006175N) set minimum wage rates for private sector. The "Confidence Pact" (GR9711138F) recommends that nominal wages should rise along with inflation, and should also reflect part of the increase in national average productivity of the Greek economy.|
|Ireland||National tripartite agreements (1987,1992, 1997, 2000)||The most recent national agreement, the "Programme for Prosperity and Fairness" (IE0003149F) determines a maximum wage increase for a period of 33 months (2000-2), while referring to various macroeconomic targets such as low inflation, promoting non-inflationary growth, maintaining the budgetary surplus and improving public investment. Furthermore, the agreement explicitly aims to improve competitiveness of the Irish economy within EMU and to fulfil the criteria of the "European stability pact".|
|Italy||National tripartite agreements (1992, 1993, 1998)||The 1992 agreement abolished the sliding-scale mechanism for pay indexation to the inflation rate. The 1993 agreement (IT9709212F) determined that sectoral wage developments should be in line with the planned inflation rate, while company-level wage bargaining should recognise the company's overall performance. The 1998 agreement (IT9901335F) confirms this system but also provides that, when the government fixes the planned inflation rate, it should also take into account the average European inflation rate.|
|Netherlands||National bipartite agreements within the Labour Foundation (1982, 1993, 1999)||The agreements recommend moderate wage increases in order to improve the overall competitiveness of the Dutch economy.|
|Norway||National tripartite incomes policy agreements (1992 and 1999)||The agreements (NO9903120F) provide recommendations for wage increases which are calculated on the basis of an evaluation of the competitiveness of Norwegian industry and wage developments in Norway's main trading partners. The agreements follow the principle that those parts of the industrial sector which are mostly affected by international competition should form the basis for the national wage growth rate.|
|Portugal||National tripartite agreement (1996)||The social partners who signed the 1996-9 Strategic Concertation Pact (PT9808190F) committed themselves to promote guidelines for annual wage developments which should take into account expected inflation and expected increases in productivity. The Standing Commission for Social Concertation of the Economic and Social Council held regularly meetings to discuss wage developments.|
|Sweden||Bipartite agreement for the industry sector (1997)||The agreement (SE9703110N) provides for the establishment of a special bipartite industry committee which appoints an economic council consisting of four independent economists, who should elaborate recommendations for wage developments. The economic council has recommended a "European norm" according to which Swedish wages should not rise faster than the EU average.|
Social partners' macroeconomic justification of wage claims and offers
Factors influencing trade union demands
Throughout Europe, trade unions apply a variety of criteria and use these as indicators for determining their wage claims in the bargaining process. The contributions from the EIRO national centres underline that two main economic variables are most crucial for the unions' wage claims, namely the (estimated) inflation rate and the economic situation, considered in the form of either economic growth or productivity. Productivity may be considered at the level of the overall economy or of the individual sector. Trade unions in most countries follow the development of these variables closely when drawing up their wage claims. It can be stated that inflation plus a share for workers of growth/productivity gains in the economy represents the dominant trade union strategy.
Furthermore, some other aspects also appear to be considered in the wage bargaining process from the unions' perspective, though to a much lesser extent than the two main issues. The maintenance and improvement of workers' purchasing power, the explicit development of real wages and also redistributional aspects are taken into account in some countries. Some unions also consider closely the development of the employment/unemployment situation in their country, in order to balance their wage claims according to the unemployment-pay relationship.
The findings of this EIRO comparative study are largely confirmed by a recent study from the European Trade Union Institute (ETUI) ("Wage formation in the European Union. A comparative study", Emmanuel Mermet, ETUI, October 1999). The ETUI study compared various indicators taken into account by the trade unions in the EU Member States. As seen in table 7 below, the (anticipated) inflation rate and the general economic situation and productivity developments are widely considered by the unions when drawing up their wage claims. Table 7 also gives a systematic view of the relative importance of individual factors.
|Country||Economic situation||Inflation||Productivity||Enterprises' profits|
|Austria||Determinant factor||Factor of the economic situation||Factor of the economic situation||No reference|
|Belgium||General indication||Determinant factor: increasing purchasing power||No reference||No reference|
|Denmark||Determinant factor||Factor of the economic situation||Factor of the economic situation||Determinant factor|
|Finland||No reference||Determinant factor||Determinant factor||No reference|
|France||General indication||Determinant factor, with minimum wage trend||No reference||Determinant factor for firm level negotiation|
|Germany||General indication||Determinant factor||Determinant factor, with redistribution||Redistribution in favour of workers rather than capital|
|Greece||Determinant in the general agreement||Determinant factor with purchasing power||No reference||Complementary factor|
|Ireland||Determinant factor for national partnership||Factor of the economic situation||No reference||More importance as profits rise|
|Italy||Determinant factor for national guidelines||Determinant factor||Determinant factor||Redistribution is promoted|
|Netherlands||Determinant factor||Contributing to the general arguments||Contributing to the general arguments||Contributing to the general arguments|
|Portugal||No reference||Determinant factor: anticipated rate||Determinant factor||No reference|
|Spain||Determinant factor||Determinant factor: anticipated rate||Determinant factor||More importance as profits rise|
|Sweden||No reference||Determinant factor: European rates||No reference||No reference|
|UK||General indication||Determinant factor: anticipated and actual rates||No reference||No reference, but local bargaining may be influenced|
Source: "Wage formation in the European Union. A comparative study", Emmanuel Mermet, ETUI, October 1999 .
Wage formulae used by unions
According to the EIRO national reports, in five EU Member States trade unions use some form of more or less explicit "wage formula" in determining their demands (Austria, Finland, Germany, Ireland and the Netherlands). In Germany, some sectoral trade unions explicitly justify their wage claims with a special wage formula, which traditionally includes three elements:
- increase in consumer prices;
- increases in national productivity; and
- a "redistribution component" (Umverteilungskomponente)
The third element was traditionally seen as the unions' contribution towards a more fair distribution between labour income and capital income. In recent years, the "redistribution component" has played only a minor role, since unions have not been able to achieve a wage increase equivalent to the sum of inflation and productivity growth.
In Finland, both trade unions and employers recognise "inflation productivity = collective agreed increase wage drift" as a basic formula for wage negotiations. This formula, which was adopted in a tripartite accord in 1995 (see table 6 above), defines the scope for wage cost increases as the sum of the inflation target and the average increase in the productivity in the whole economy. However, it does not define the scope for nominal increases in actual wages, as factors such as wage drift or increases in employers' social security contributions may increase overall wage costs.
The wage formula applied by Irish trade unions is inflation plus productivity increases. A similar formula is used by the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV), which takes into consideration the increase in labour productivity plus the development of producer prices. Finally, in Austria there is an informal consensus between the social partners to accept inflation and productivity as the main indicators for wage bargaining.
Unions' use of European and cross-border references
At the European level, two notable agreements have been reached whereby trade unions pursue a more common approach to pay bargaining. In the 1998 "Doorn declaration", trade unions from Germany and the Benelux countries agreed that it should be their "aim to achieve collective bargaining settlements that correspond to the sum total of the evolution of prices and the increase in labour productivity" (DE9810278F). The Doorn declaration seeks improved coordination on wage policy in order to prevent possible downward competition.
At sectoral level, the European Metalworker's Federation (EMF) adopted a new "European coordination rule" for national bargaining at its collective bargaining conference in December 1998, according to which national collective agreements should seek at least to offset the rate of inflation and ensure that employees' incomes reflect a balanced participation in productivity gains (DE9812283F). The introduction of this collective bargaining guideline in the metalworking industry has taken place in direct response to EMU: it is stated explicitly that the introduction of a common currency necessitates further improvement and coordination of the goals and strategies of wage policy at European level. Other European sectoral trade union organisations have since adopted similar bargaining guidelines (TN9907201S).
In southern European countries, debates on collective bargaining policy are often influenced by the question of a possible European harmonisation of wage and working conditions standards. In Spain, for instance, trade unions use European references, stressing the need to improve pay and conditions to correspond with European averages. The same applies for Portugal, where unions often demand an improvement of wages and working conditions in order to move towards the European average. In Greece, unions place a particular emphasise on wage comparisons with other southern European countries.
From the employers' perspective, inflation is essentially the most important factor in determining their wage offers. According to the reports of the EIRO national centres, most employers' organisations follow the development of the consumer prices index closely when drawing up their offers. Other dominant factors are labour costs and real wages, which are often used for comparative purposes. Indicators related to the economic situation (growth and productivity) are also widely used by employers, with sectoral performance as well as the profits of individual companies also playing a major role in some countries. However, none of the national employers' associations in the countries covered by this study use an explicit wage formula for justifying their wage offers.
The use of cross-country or European comparisons in wage developments are widespread among employers in almost all European countries. With the aim of maintaining competitiveness, these comparisons are carried out at national, sectoral and company level (TN9907201S). However, employers are generally interested in membership of European employers' organisations in order to exchange information and strategies for resolving problems, but are less interested in explicit coordination efforts.
Wage policy and gender aspects
Wage differentials between men and women
A breakdown of earnings by gender shows clear evidence of considerable wage differentials between men and women in all EU countries. According to the latest available data provided on a harmonised basis by Eurostat, on average women earn a quarter less than men in the EU - see table 8 below. There are, however, considerable differences in the extent of gender wage differentials among the EU Member States, with women earning between 68% and 90% of men's wages. The least unequal wage differentials in terms of gross hourly wages can be found in the Germany's new eastern federal states (Länder) (89.9%), Denmark (88.1%) and Sweden (87.0%), while Greece (68.0%), the Netherlands (70.6%) and Portugal (71.7%) have the highest wage differentials.
|Germany (old Länder)||76.9 %||Spain||74.0%|
|Germany (new Länder)||89.9 %||Sweden||87.0%|
* Data are for 1995 except for France (1994), Austria and Norway (1996); full-time earnings, bonuses excluded; calculations are based on full-time employees in all economic activities except agriculture, education, health, personal services and administration; ** industry only;
Source: Eurostat earnings survey (Norway: national statistics).
The existing gender wage gap reflects to a large extent structural differences in the characteristics of working women and men regarding age, education and occupation. There are still only relatively few women in the better paid jobs (eg managers) while female employees are concentrated to a large extent in certain type of jobs and industries with relatively low pay. However, the Eurostat earnings survey states that, even when trying to apply male structures to women's average earnings, the gap is reduced but remains at around 15%. This could partly be explained by gender differences in working age and qualifications. Finally, some active wage discrimination against female employees persists.
Wage guidelines for reducing gender wage differentials
Despite the statistical evidence of considerable gender wage differentials, neither trade unions nor employers' organisations appear to follow explicit guidelines during wage bargaining in order to reduce the gender gap. However, there are a number of national policy guidelines which aim to reduce wage differentials between women and men in general, above and beyond the fact that all countries (as required by EU law) have introduced legislation which forbids sex discrimination and requires equal pay. These policies are implemented either in form of legal regulations (as in Sweden), via the National Action Plan (NAP) on employment in response to the EU Employment Guidelines (notably in Portugal, though all NAPs are required by the Guidelines to "initiate positive steps to promote equal pay for equal work or work of equal value and to diminish differentials in incomes between women and men") or through some form of bipartite accord. For example, in Denmark employers' and trade union organisations have agreed to initiate a fact-finding and monitoring project on equal treatment and non-discrimination, with the aim of underpinning efforts to promote development towards avoiding any form of discrimination on the labour market. The Danish social partners have also agreed to promote equal opportunities for all employees, irrespective of gender and other factors, in terms of education/training, promotion and other terms of employment.
However, equal pay legislation or guidelines for wage bargaining have a rather limited impact on actual pay, since it is not legal regulations or collective agreements, but different job rankings, career opportunities and employment levels in specific sectors that are the prime cause of the persistent wage differentials. Hence, policymakers and especially trade unions direct their efforts towards "equal opportunities policies" in areas such as promotion and education/training, thus reacting to the specific situation of women in the economy. Accordingly, a variety of steps have been taken in order to reduce the gender wage differential and improve the working conditions of women throughout Europe. These measures include the introduction of specific clauses in collective agreements - such as a requirement that women should make up 40% of the staff in public sector departments in Austria, or provisions - with concrete guarantees - on equality in wages, promotion, training and so on in Spain.
A more advanced strategy is pursued in Sweden, where the Act on Equal Opportunities requires a wage policy which is favourable for both men and women, which cannot be altered in collective agreements in respect of the principle of equal pay for work of equal value. An Equal Opportunities Ombudsman enforces the Act and the equal opportunity plans which many employers, and especially public sector employers, are obliged to draw up. Some 73% of public employers and 22% of private employers had such a plan in place in 1999. Generally speaking, there is an observable tendency for gender issues to receive more attention in the public sector than the private sector, and for pay to be more standardised.
Social partners' wage policy and the gender gap
Evaluating the positions of wage negotiators, it can clearly be seen that trade unions place more emphasis on the gender aspects of pay than employers' organisations. According to the national reports, however, trade unions in few countries explicitly take into account gender aspects when drawing up their wage claims (with Ireland, the Netherlands, Norway and Spain being the exceptions). Instead, union representatives usually focus rather more on alternative strategies for coping with discrimination in pay. This is also due to the fact that all countries already require employers to pay equal wages in some form, and that the differentials emerge in actual pay. Hence, wage guidelines or bargaining strategies appear to be a less adequate tool for equalising payments.
Employers usually do not recognise the gender gap when they make their wage offers, since they see the existing gender wage differentials as being mainly a result of structural factors in the labour market which cannot be solved through wage bargaining. There is evidence, however, that some employers have started to recognise the goal of equal pay as an issue for collective bargaining. In Austria and Finland, for example, agreements provide for the possibility of additional payments for women. In Austrian industry, sectoral collective agreements contain a "distribution option" (Verteilungsoption), which entitles the bargaining parties at local level to conclude agreements on additional 0.5% wage increases to be given especially to low-paid groups of workers - thus favouring female employees. In Finland, employers have accepted some extra payments for women in centralised incomes policy agreements.
Considering average wage developments in the European Union and Norway over the past two decades, there has been significant convergence towards a policy of wage moderation, including a strong trend of declining nominal wage growth rates and of average increases in real wages clearly below the increases in labour productivity. While there has been strong convergence regarding the outcome of wage policy, there has at the same time been remarkable stability in most national wage bargaining systems. Thus, the EU continues to have a great variety of national models of wage regulation, though multi-employer bargaining at sectoral or even intersectoral level remains the most important form of wage bargaining across the EU as a whole.
In addition, most EU countries, as well as Norway, have some form of macro-coordination of wage policy across the different sectors of the economy. Wage coordination takes place either through national or cross-sectoral agreements, through intra-associational coordination within the peak employers' and trade union organisations, through pattern bargaining or through state-imposed coordination by legal pay-indexation mechanisms or statutory minimum wages. Since the beginning of the 1990s, the EU has seen in particular a reinforcement of national bipartite or tripartite arrangements which often conclude agreements providing macroeconomic guidelines or criteria for wage policy. These guidelines usually support a policy of wage restraint in order to sustain non-inflationary economic development and to improve national competitiveness. Analysis of the social partners' justifications of wage claims and offers further confirms that in most European countries both bargaining parties take into account national macroeconomic circumstances - and in particular the development of prices and labour productivity - when setting their wage policy.
Against this background, wage policy in the EU countries and Norway seems to be well prepared to meet the new requirements of EMU. Wage developments since the 1980s have almost always been rather moderate and would have had no problems in fulfilling at least the first two main criteria for "appropriate wage developments within EMU" set in the European Commission and Council's Broad Economic Policy Guidelines. If the current trend in wage policy continues in the EU, the return of inflationary pressures arising from wage developments does not seem very likely.
On the contrary, what might be a risk is the opposite scenario - wage developments which promote deflationary tendencies. If more and more European countries follow a competition-driven wage policy and real wage increases continue to fall far below increases in labour productivity, this would not only lead to a further redistribution from labour income to capital income but might also undermine price stability in a deflationary direction. In order to prevent both the inflationary and the deflationary scenario, what might be needed is a more transnational or even a European approach to wage coordination.
Last but not least, the recent Broad Economic Policy Guidelines have emphasised the need not only for a stability-oriented wage policy but also a wage policy which tries to overcome wage discrimination against women. Since on average women still earn a quarter less than men in the EU, it is somewhat unfortunate that ? as found in this EIRO study - the social partners in many EU countries give relatively little importance to the gender gap in their wage policy. (Thorsten Schulten, WSI, and Angelika Stueckler, University of Vienna)