National wage deals under social partnership held down private sector pay

A study by the Economic and Social Research Institute (ESRI) has found that the centralised wage agreements negotiated by government, employers and unions under the social partnership system allowed Irish companies to set wages at levels below what would have been the case had bargaining been undertaken by trade unions at local level. As such, there were large gains under social partnership in terms of competitiveness for multinational companies located in Ireland.

About the study

Three researchers (Seamus McGuinness, Elish Kelly and Philip O’Connell) from the Economic and Social Research Institute (ESRI) have assessed the impact of institutional wage bargaining arrangements on average labour costs in the private sector in Ireland. The results of their study were published in the October 2010 edition of Industrial Relations in a paper entitled, The impact of wage bargaining regime on firm-level competitiveness and wage inequality: the case of Ireland. The study analysed data from 6,500 private sector companies drawn from the 2003 National Employment Survey (1.79Mb PDF) of the Central Statistics Office (CSO).

Main findings

The study found that average labour costs were higher in companies implementing individual and business-level bargaining than in those implementing the terms of the national wage agreement (NWA). According to the authors, this suggests ‘that social partnership constrains the pay demands of all forms of collective bargaining below that of the non-covered sector’.

Multinational companies (MNCs) implementing the NWA were found to ‘enjoy a labour cost advantage that exceeds that of other multinationals and indigenous firms’. The authors commented that:

MNCs adopting the NWA, which is designed to protect employment in indigenous companies with lower productivity levels, are able to set wages at levels well below what would normally be the case than if bargaining was undertaken by trade unions at the business-level or where individuals negotiated directly with their employer.

Centralised wage bargaining

The authors point out that ‘since 1987, wage bargaining in Ireland has been centralised at the national level, through a process known as Social Partnership’. This involves voluntary negotiations among government, employer bodies and unions, and ‘was introduced by the government in response to a bleak economic situation’. They state that, in order to support economic growth, a principal objective of the process was to achieve moderate pay rises in wages in exchange for reductions in income tax to boost take home pay.

Three categories of collective bargaining are defined as follows:

  • individual-level contracts;
  • company-level agreements;
  • industry-level agreements;

Individual-level contracts represent a situation where the worker negotiates directly with management. Company and industry-level agreements represent bargaining by trade unions on behalf of all workers within the company or industry, respectively. The NWA describes the pay determination that arises directly as a result of the social partnership process.

It was found that 43% of companies in Ireland in 2003 held to an individual-level bargaining strategy. The NWA was next most common, adopted by 28% of companies, while business-level and industry-level agreements were implemented in 7% of companies. In some 15% of companies, no single type of agreement dominated.

When looking at company size, the study found individual-level bargaining to be more heavily implemented by smaller companies, while ‘collective bargaining arrangements, in particular the NWA are, on average, more heavily implemented by firms employing more than 50 workers’.

Interestingly, the findings suggest that MNCs in Ireland are ‘somewhat less likely to implement individual-level bargaining’ and are ‘more likely to adopt the NWA and business-level agreements relative to indigenous firms’. This is despite ‘the generally accepted view’ which suggests that MNCs are more likely to adopt individual-level bargaining and are less inclined towards collective forms of wage determination.

Commentary

The findings back up one of the core arguments of proponents of national wage agreements, namely that such deals not only allow for modest wage rises, but more importantly perhaps, provide cost certainty over a given period (usually three years). The findings also give credence to the view that the agreements help to achieve one of the original core objectives of social partnership, that is, the creation of employment on a sustainable basis. But in stating that wage levels in unionised companies would have risen faster without national wage agreements, the study points to what may be seen as a shortcoming in national wage agreements for private sector union members. This will add to the debate in union circles about whether trade unions should look to the perceived longer-term national interest (that is, competitiveness and jobs) or press for the direct benefits of paying trade union members at local level.

Roisin Farrelly, IRN Publishing

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