Gerhard Bosch

Institute for Work, Skills and Training, University of Duisburg-Essen

Strengthening and re-building collective bargaining

Gerhard Bosch, Institute for Work, Skills and Training, University of Duisburg-Essen

During the last several decades, income inequality in most OECD countries has increased significantly and the trend shows no sign of reversing. Such high levels of inequality are not incompatible with widely held norms of social justice and equality of opportunity.

It will be shown that the level of inclusiveness of the wage-setting system is the main factor in explaining inequality of market incomes for dependent employees, under and above the median wage level. By contrast, inclusive systems allow wage negotiations to be managed collectively by employees with varying degrees of bargaining power. The agreed terms are then made universal for all employees working in that particular company or industry or for the overall economy. If these agreements are to achieve macroeconomic distributional effects, they have to be implemented at an industry-wide or national level. In exclusive wage-setting systems, employees with strong bargaining power negotiate only the terms of their own wages and social security benefits, which means that the outcomes of their negotiations have no bearing on the wages and benefits of those employees with fewer bargaining powers, thus fuelling the social divide between well-paid and poorly paid employees. It is therefore unsurprising that the only systems that actually reduce income inequality are coordinated wage-setting systems with a high coverage by collective agreements.

In this contribution it will be firstly shown that a high coverage by collective agreement reduces the share of low-wage workers to a much greater extent than minimum wages. This is hardly surprising, since the pay scales negotiated by collective bargaining are generally higher than the minimum wage and extend into the intermediate or even higher pay brackets.  By comparing the distribution of hourly wage (in so called “wage curves”) of selected EU countries with a high and low coverage of collective bargaining it will secondly be shown that in countries with a low coverage the peak of the wage curve is near the minimum wage with low ripple effects on higher wages while in countries with a high coverage the peak is in the middle income group and similar to a normal (Gauss) distribution. This supports the hypothesis that the middle income classes are stabilized through inclusive collective bargaining.

Thirdly there will be presented a typology of an interaction between minimum wages and collective bargaining to understand the architecture and building stones of inclusive wage systems in Europe. Ripple effects of minimum wages depend on the overall architecture of the wage system. In the isolated minimum wage type (UK, Baltic states), in which the minimum wage is not combined with inclusive collective agreements, the ripple effects depend on decisions taken by firms and are instable and low.  In the direct interaction type (France), policymakers and trade unions concentrate on raising the minimum wage, which impacts on the entire pay structure through the mechanism of generally binding collective agreements. In the distanced coexistence type (Belgium, Netherlands), the interconnection is not so close, since collectively agreed rates of pay are higher than the minimum wage in many industries. In the independent collective bargaining type (Denmark, Sweden), there is no statutory minimum wage. The high level of collective agreement coverage means that the social partners are able to set effective lower limits on pay and require no state assistance because of their organisational strength. In the extensive minimum wage type (Hungary), there is an absence of adequate independent wage bargaining and the state tries to establish pay differentials in the labour market by introducing minimum wages graded by skill or qualification level. In the mixed models (Germany), the absence of one dominant model means that various models are combined within the same economy.

Fourthly there will be discuss possibilities to strengthen collective bargaining and rebuilding institutions for sectoral collective bargaining which has nearly disappeared in many countries.  The main focus will be on three instruments for institution building. The first is the strengthening of procedural rights (Sengenberger 1994) like codetermination which helps unions to organize members and thereby their bargaining power. The second is the extension of collective agreements. Often the criterion are too restrictive in an increasingly fragmented economy with high shares of SME’s and low wage industries with high turnover.  The traditional criterion of 50% coverage needs to be replaced by a “public interest” criterion. A high share of low wage earners or/and high turnover rates could be indicators of such a public interest in reintroducing collective bargaining to avoid poverty and high levels of in-work-benefits. The third instrument helps to build up collective bargaining in industries where it does not exist. Here it is crucial to avoid stalemates between employers and unions in the bargaining process. In Uruguay collective bargaining coverage was increased from less than 20 to over 90% with the establishment of “wage councils” with equal representation of employers and unions and an independent arbitrator in all industries. In “A Manifesto for Labour Law” a group of British labour lawyers proposed a similar model with „sectoral employment commissions“ and a public arbitrator (Ewing / Hendy / Jones 2016).

The conclusion that for reducing the inequality of market incomes it is not sufficient to raise the minimum wages. Fair wages rewarding skills, hard working conditions, and management tasks require differentiated wage grids which have to negotiated by the social partners.

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