United Kingdom: Changes to wage-setting mechanisms in the context of the crisis and the EU’s new economic governance regime

  • Observatory: EurWORK
  • Topic:
  • Agreements,
  • Collective bargaining,
  • Pay and income,
  • Working conditions,
  • Industrial relations,
  • Published on: 16 June 2014



About
Country:
United Kingdom
Author:
Helen Newell
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

There have been no marked changes to private sector wage-setting mechanisms in the UK since the onset of the crisis in mid-2008. Collective bargaining in the private sector is decentralised, mainly occurring on a single-employer basis. This has been the case since the early 1990s. Multi-employer bargaining arrangements are confined to just a few sectors, and these have not seen major changes since 2008. The main change is a decline in the incidence of long-term wage agreements, of two or more years’ duration, largely due to continuing uncertainty over the level of economic activity and over-inflation.

Section 1: Mapping changes in wage setting mechanisms in the private sector

For each aspect of wage setting mechanisms indicated below, please indicate:

1.1. whether there has been any recent change (since mid-2008). If there have been changes in many sectors, report the most prominent examples. 1.2. in which year any such change(s) occurred. Report for the most prominent examples if there have been changes in many sectors. 1.3. If any changes, briefly summarise the change(s) which have taken place and illustrate with prominent examples.

a) main level(s) of collective bargaining over wages (collective wage setting), where a main level under single-tier bargaining is one that accounts for at least one-fifth of employees covered by collective bargaining or under multi-tier bargaining is a level that accounts for a non-trivial element of collectively agreed pay

No changes.

b) mechanisms governing coordination between different levels of collective wage setting, under 2- or multi-tier arrangements (for example, rules implementing the ‘favourability principle’ under which lower levels can only improve on wage standards agreed at higher levels, or rules governing the respective of competence of levels on different aspects of wage setting)

N/A

c) formal and informal practices of coordination across bargaining units at the same level, such as pattern setting arrangements and/or which settlement sets the pattern, either between sectors (under multi-employer bargaining) or between companies (under single-employer bargaining)

No changes. In manufacturing, the major automotive companies continue to be regarded as pacesetters.

d) the relationship between wage setting in the private and public sectors, for example over which (if any) sector establishes a pattern or benchmark for the other

The public sector pay freeze which has been in place since 2010 has precluded the introduction of any comparisons with the private sector into public sector wage bargaining or determination under the Pay Review Bodies.

e) extension mechanisms

N/A

f) number and nature of opening clauses in sector and multi-sector agreements

N/A

g) opt-out clauses in sector and multi-sector agreements

N/A

h) duration of agreements

Whilst there are no data available on the average duration of agreements, the incidence of long-term agreements has fallen since the onset of the crisis in 2008. LRD’s Payline database reported that 34%, 38% and 34% of all the agreements it surveyed were long-term deals (2 years or more) in 2006-07, 2007-08 and 2008-09 respectively. In 2009-10 this fell to 30%, with figures for the following years being 32% (2010-11), 27% (2011-12) and 30% (2012-13). Consistent with this, Incomes Data Services indicate a substantial decline in the incidence of long-term deals: in 2013, 54 of the settlements that it regularly monitors were long-term deals in their final year whereas just 27 new long-term deals had been concluded during 2013 (and 28 during 2012).

The declining incidence of long-term deals would seem to reflect continued uncertainty amongst negotiators about the economic outlook, including levels of activity and inflation.

i) number of agreements

No data are available. There has been no noticeable change in the number of agreements recorded in LRD’s Payline database.

j) continuation of collective agreements beyond expiry

N/A

k) extending bargaining competence beyond trade unions to other types of workforce representative

No

l) indexation mechanisms

N/A

m) minimum pay setting arrangements, including the relationship between, and respective roles of, collective bargaining and statutory mechanisms in setting minimum wages

No

n) reconfiguration of existing sector agreements, establishment of new sector agreements, termination of existing sector agreements

No

0) other aspects of wage setting, for example integration of agreements covering blue- and white-collar workers in the same sector

Single-table bargaining arrangements were already widely established prior to the onset of the crisis.

There have not been marked changes to wage setting mechanisms since the onset of the crisis in mid-2008. Collective bargaining in the private sector is decentralised, mainly occurring on a single-employer basis. This has been the case since the early 1990s. Multi-employer bargaining arrangements are confined to just a few sectors, including construction, engineering construction and printing. These remaining sector agreements have not seen major changes since the onset of the crisis. Under the intense pressures of the sharp downturn in activity through 2009 and 2010, collective bargaining arrangements in the UK demonstrated a capacity to support the retention of jobs and skills in exchange for reductions in working time and/or freezes, or even in some cases, reductions in pay, particularly in manufacturing UK1203019Q).

Movement towards more decentralised bargaining arrangements has been a feature of some parts of the public services both before and after 2008, particularly amongst the growing number of quasi-independent agencies within the civil service. There is also now pressure from the Government to introduce a regional dimension to pay setting arrangements in the public sector (UK1204029I).

Other features which characterise collective bargaining arrangements in a number of other Member States, and which have become the focus of reform proposals and measures, have not been a feature of collective bargaining in the UK. These include legal extension arrangements, legally-underpinned arrangements to extend agreements beyond their formal expiry and statutory indexation mechanisms.

Section 2: Sources of change to wage setting mechanisms

For each type of change that has occurred (except c) d) i) o)), please indicate the main source(s) of the change. Note that more than one of the following sources may have been influential to a change. Please provide brief details in the relevant rows in the table below.

2.1. externally imposed or required (e.g. by the European Commission, ECB and/or IMF)2.2. externally influenced (e.g. via Country Specific Recommendations under the EU’s new Economic Semester governance arrangement) 2.3. imposed by national government 2.4. negotiated/concerted between cross-sector social partners, with or without government involvement2.5. negotiated between social partners at sector level 2.6. other (please specify)

Type of Change to wage setting mechanisms

Type of change to wage setting mechanisms

Externally imposed

Externally influenced

Imposed by national govt

Negotiated / concerted by cross-sector social partners

Negotiated by sector social partners

Other (please specify)

a) main levels of wage bargaining

           

b) mechanisms of coordination between levels

           

c) formal/informal coordination between bargaining units

.

Not applicable

d) relationship between public and private sectors

Not applicable

e) extension mechanisms

           

f) opening clauses in sector / multi-sector agreements

           

g) opt-out clauses in sector / multi-sector agreements

           

h) duration of agreements

         

X – negotiated at company level

i) number of agreements

Not applicable

j) continuation of agreements beyond expiry

           

k) extending bargaining competence to non-union reps

           

l) indexation mechanisms

           

m) minimum pay setting arrangements

           

n) reconfiguration, establishing new, terminat-ing agreements

           

o) other aspects of wage setting

Not applicable

Section 3: Factors influencing changes in wage setting mechanisms

For each type of change identified in Section 1 (except i) and o)), please indicate the main factors or rationales which have been influential. Please provide brief details in the relevant rows in the table below.

3.1. Macro-economic, e.g. wage moderation, uncertain economic outlook 3.2. Micro-economic, e.g. increased variability in competitive circumstances of companies, financial hardship, business restructuring 3.3. Economic organization, e.g. emergence of new business activities which increase diversity within existing sectors and/or blur boundaries between sectors and/or create new sectors; and/or growing recourse to outsourcing, which blurs boundaries between sectors and creates structural tensions according to position in the supply chain within sectors 3.4 state policies and/or requirements from the European Commission, ECB and/or IMF involving weakening or strengthening of state supports for collective bargaining, e.g. changes to extension mechanisms, changes to indexation mechanisms, changes to the favourability principle, authorising workforce representatives other than trade unions to conclude agreements, changes to the boundary between statutory determination and collective bargaining

Type of change to wage setting mechanisms

Type of change to wage setting mechanisms

Macro-economic

Micro-economic

Economic organization

State policies / requirements of EC, ECB, IMF

a) main levels of wage bargaining

       

b) mechanisms of coordination between levels

       

c) formal/informal coordination between bargaining units

       

d) relationship between public and private sectors

       

e) extension mechanisms

       

f) opening clauses in sector / multi-sector agreements

       

g) opt-out clauses in sector / multi-sector agreements

       

h) duration of agreements

X

X

   

i) number of agreements

Not applicable

j) continuation of agreements beyond expiry

       

k) extending bargaining competence to non-union reps

       

l) indexation mechanisms

       

m) minimum pay setting arrangements

       

n) reconfiguration, establishing new, terminat-ing agreements

       

o) other aspects of wage setting

Not applicable

Section 4: Influence of the EU’s new economic governance regime

Have any aspects of a) wage setting arrangements b) other features of industrial relations been the subject of country specific recommendations under the European Semester system which took effect as from 2011 i.e. in 2011, 2012 or 2013?

4.1 Please check the Table summarising country specific recommendations attached to the questionnaire, and indicate any changes or amendments that are needed.

Table checked – no amendments.

4.2. If Yes, specify any changes to a) wage setting arrangements b) other feature of industrial relations that have been implemented following the recommendation(s)

N/A

4.3. If Yes and changes, were these required by the European authorities, required by the IMF or recommended but not required?

N/A

4.4. Have there been changes in any formal or informal mechanisms aimed at cross-border coordination of wage setting, for instance in response to the new economic governance regime?

If yes, please provide brief details.

Trade unions in the UK have tended not to be closely engaged in the European, cross-border coordination initiatives of the European Trade Union Federations in manufacturing sectors such as metalworking, chemicals and textiles and clothing. There has been no recent change in this respect.

Section 5: Perspectives of the social partners

What are the views of employers’ organizations and trade unions on:

5.1 The desirability of the changes to wage setting arrangements introduced

In the period since 2008, neither employers’ organisations nor trade unions have called for changes to wage setting arrangements in the private sector. Both employers and trade unions underlined the capacity of current collective bargaining arrangements to respond in innovative ways to the challenging conditions which arose as a result of the onset of the crisis, particularly the sharp decline in levels of economic activity in 2009 and 2010. The agreements, which particularly featured in manufacturing, to limit job losses and preserve skills in exchange for short-time working and/or pay freezes (and reductions), where innovative as compared with previous recessions, in the early 1990s and early 1980s. On both these previous occasions, agreements of this kind did not feature and recourse to redundancy was more prominent.

The main change in private sector wage setting arrangements has been movement away from longer-term agreements, which accounted for an estimated 35% of agreements in the years leading up to 2008, in favour of annual ones. This can be explained by continuing uncertainty of levels of economic activity and over inflation. It is a movement which could well be reversed should economic conditions change.

In the public sector, trade unions have vigorously opposed Government proposals to include a regional dimension to wage bargaining arrangements, including in education, and to wage setting arrangements through the Pay Review Bodies which apply in parts of the public sector, including the National Health Service. Employer positions on these proposals differ between parts of the sector. Employers in education, which increasingly are individual schools rather than municipal-based local education authorities, have tended to favour the proposed introduction of a regional dimension to pay. In contrast, the NHS employers’ confederation has been cautious not to endorse the Government’s proposals because of concerns about the potential effects on the labour market for professional health occupations which are national in scope.

5.2 The effects / impact of the changes to wage setting arrangements introduced

See 5.1 on changes to duration of agreements.

5.3 The main factors or rationales influencing changes to wage setting arrangements

See 5.1 on changes to duration of agreements.

Table: Commitments and recommendations over wage policy in the EU Member States, 2011 - 2014

Country

Euro plus Pact Commitments in 2011

European semester recommendations for 2011/2012

European semester recommendations for 2012/2013

European semester recommendations for 2013/2014

Financial assistance programmes

Austria

-

-

-

-

No

Belgium

Wage setting mechanisms

Reform wage bargaining and wage indexation

Reform wage setting system including indexation

Reform wage setting system including indexation

No

Bulgaria

Wage setting mechanisms

Link wage growth to productivity

-

-

No

Cyprus

Wage setting mechanisms

Reform wage setting and wage indexation

Reform of the system of wage indexation

Implement commitments under financial assistance programmes

Reform of the wage setting framework

Czech Republic

N/A

-

-

-

No

Denmark

-

-

-

-

No

Estonia

-

-

-

-

No

Finland

-

-

Continue to align wage and productivity developments

Support alignment of real wage and productivity

No

France

-

Ensure development in the minimum wage is supportive of job creation

Minimum wage supportive of job creation and competitiveness

Lower cost of labour; ensure minimum wage supportive of job creation and competitiveness

No

Germany

-

-

Wages in line with productivity

Wage growth to support domestic demand

No

Greece

Wage setting mechanisms

Implement commitments under financial assistance programmes

Implement commitments under financial assistance programmes

Implement commitments under financial assistance programmes

Reform annual update mechanism of minimum wage

Hungary

-

-

-

-

No

Ireland

Wage setting mechanisms

Implement commitments under financial assistance programmes

Implement commitments under financial assistance programmes

Implement commitments under financial assistance programmes

Wages not directly addressed

Italy

Wage setting mechanisms

Ensure wage growth better reflects productivity developments

Monitor and if needed reinforce the implementation of the new

wage setting framework

Ensure effective implementation of (…) wage setting reforms

No

Latvia

Wage setting mechanisms

Implement commitments under Memorandum of Understanding of 20 January 2009

-

-

No

Lithuania

Public sector wage developments

-

-

-

No

Luxembourg

Wage setting mechanisms

Reform wage setting and wage indexation

Reform wage bargaining and wage indexation

Reform wage setting and wage indexation

No

Malta

-

Reform wage setting and wage indexation

Reform wage bargaining and wage indexation

Monitor wage indexation mechanism and stand ready to reform (in the background considerations)

No

Netherlands

-

-

-

-

No

Poland

Public sector wage developments

-

-

-

No

Portugal

Wage setting mechanisms

Implement commitments under Memorandum of Understanding of 17 May 2011

Implement commitments under Memorandum of Understanding of 17 May 2011

Implement commitments under Memorandum of Understanding of 17 May 2011

Freeze wages in the government sector (nominal) 2012-2013;

promote wage adjustments in line with productivity at the firm level

Romania

Wage setting mechanisms

Public sector wage developments

Implement commitments under Memoranda of understanding (June 2009 and June 2011)

Implement commitments under Memoranda of understanding (June 2009 and June 2011)

Complete the EU/IMF financial assistance programme

Wages not directly addressed

Slovakia

-

-

-

-

No

Slovenia

Wage setting mechanisms

-

Ensure wage growth supports competitiveness and job creation

Ensure wage growth supports competitiveness and job creation

No

Spain

Wage setting mechanisms

Comprehensive reform of the collective bargaining process and the wage indexation system

-

-

No

Sweden

N/A

-

-

-

No

United Kingdom

N/A

-

-

-

No

Sources: Euro plus Pact Commitments in 2011 - Background on the Euro Plus Pact, European Commission; European Semester recommendations – European Commission, 2011a, 2012, 2013.

Helen Newell, IRRU, University of Warwick

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