Reframing public service employment relations: The impact of economic crisis and the new EU economic governance

Abstract

This article introduces six national studies covering 11 countries of the EU-15, analysing the impact of government austerity measures on the working conditions of public employees and on public sector employment relations. It stresses how international financial markets and supranational actors have altered the dynamics of employment relations in a sector traditionally considered sheltered from external forces. Nevertheless, public sector employment relations remain distinctive compared to the private sector. There has been increased government unilateralism in the determination of pay and conditions, and public sector trade unions face obvious difficulties.

Keywords

Economic crisis employment relations European Union public sector

Public service employment relations reform has been a preoccupation in most OECD countries since the 1980s, with the rise of the ‘new public management’ (NPM) agenda (Hood, 1991; OECD, 1995). With the economic crisis of 2007–2008, public sector employment and working conditions became a prime target of government responses. How has the crisis affected the regulatory framework that emerged from the previous cycle of NPM-inspired reforms? Is there a continuity with, or a reversal of, previous trends? Does the public sector remain a distinctive employer? Beyond the immediate shock of austerity measures, what are the longer-term consequences for the parties and institutions of public sector employment relations? And what are the theoretical implications?

These questions were the subject of a special symposium on ‘Public Service Employment Relations in an Era of Austerity’ at the ILERA World Congress in July 2012. The contributions have been substantially rewritten for this special issue of the European Journal of Industrial Relations. The country cases considered (with varying degrees of depth) include all the largest Southern European economies (Portugal, Spain, Italy and Greece – Bordogna and Pedersini, Ioannou, Stoleroff), three continental European countries (France, Germany and Austria – Bordogna and Pedersini, Keller), Denmark, with consideration of the other Nordic countries (Hansen and Mailand) and the UK and Ireland (Bach and Stroleny). We do not cover the distinctive experience in Central and Eastern Europe (Kahancová, 2013; Vaughan-Whitehead, 2013), but we examine a wide spectrum of cases with different legal, institutional and socio-economic characteristics, typical of the main models utilized in the industrial relations, comparative political economy, welfare state and public administration literatures (Crouch, 1993; Esping-Andersen, 1990; Hall and Soskice, 2001; Pollitt and Bouckaert, 2011). These countries were affected by the crisis to markedly different degrees, from the dramatic experience of many Southern European countries, but also of Ireland, to the much shallower recession in the Nordic countries, Germany and Austria. All except the UK, Denmark, Norway and Sweden belong to the eurozone.

The public sector – still a distinctive employer?

The legacy: A sheltered sector

The industrial relations literature has traditionally emphasized that public sector employment relations have been predominantly a political rather than an economic process, in contrast to collective bargaining in the private sector (Beaumont, 1992). A feature of this context has been the shelter it has provided from international market pressures, the main influences stemming from domestic political dynamics with a prominent role for country-specific legal, institutional and administrative traditions (Ferner, 1992). Within this relatively closed environment, mostly shaped by the regulatory power of the state, market pressures were expected to exercise only indirect influence, for example through budgetary constraints or the use of comparability criteria in wage-setting processes. Path dependency has been emphasized, inhibiting convergence between the public sector in different countries (Bach, 1999).

Removing these differences was a key goal of the NPM approach (Barzelay, 2001; Hood, 1991), which assumed that private sector techniques and values would improve the efficiency and effectiveness of the public sector, irrespective of national context. After more than two decades of NPM-inspired reforms, convergence between public and private sector employment relations has been more limited than expected. There have been moves in this direction, not only in the anglophone countries, but substantial differences remain in incentive structures, administrative rules and managerial motives (Bordogna, 2008; Rouban, 2013). The assumption that a dual process of convergence would occur: between public and private sectors within each country and between public sectors across countries has proved elusive. The distinctive role of the state as an employer endured (Bach and Bordogna, 2011; Pollitt and Bouckaert, 2011).

As is evident by the articles that follow, this picture of public sector employment relations as sheltered from external pressures and dominated by national actors has been severely challenged by the economic crisis. External forces, especially international financial markets, and supranational actors – the EU, ECB and IMF (the ‘Troika’) – have moved centre stage, coming to play a crucial role in constraining government responses. The main drivers of change stem from the interaction between external pressures, EU rules and the domestic economic and political conditions of each country, in particular its financial vulnerability (Lodge and Hood, 2012). The role of external and international forces has strengthened governments in their relations with trade unions.

The traditional sequence linking private and public sector industrial relations processes and outcomes appears to be reversed. With regard to wage determination, for instance, while traditional comparability criteria implied that wage and salary increases in the public sector would follow the private sector, currently the opposite occurs. Governments have used their unique regulatory power in public sector employment relations to influence the private sector, as has occurred in some Southern European countries such as Portugal but also partly in the UK with regard to the groups under the pay review bodies system.

Financial vulnerability and the new economic governance

Cross-national variations in financial vulnerability help explain the diversity in government responses to the economic crisis and their varying impact on public sector working conditions and employment relations. A key influence is the new system of EU economic governance, in particular the provisions of the 2011 ‘Euro Plus Pact’ and the 2012 ‘Fiscal Compact’, which reinforced the constraints on fiscal policy in member states (European Commission, 2012a).

To measure financial vulnerability we have refined the procedure used by Lodge and Hood (2012), who classified countries according to levels of public deficit and public debt; we have applied the EU fiscal criteria and also taken into account GDP growth. Other criteria could be considered, for example the proportion of public employment in total employment, or the percentage of public expenditure in GDP. It would be erroneous, however, to associate a relatively high share of public employment or of public expenditure, as in the Nordic countries, with financial vulnerability. Conversely, a relatively low employment share (such as in Italy or Spain) cannot be equated with sound public finances. We have specified five categories of vulnerability (as against the three defined by Lodge and Hood). Each criterion is rated on a three-point scale: real GDP growth over 2.5 percent = 1, from 0.1 to 2.5 percent = 2, zero or negative = 3; deficit below 3 percent of GDP = 1, between 3 and 6 percent = 2, above 6 percent = 3; debt below 60 percent of GDP = 1, between 60 and 90 percent = 2, above 90 percent = 3. An overall index comprises the sum of the three ratings, and the results are presented in Table 1.

Table 1.

Financial vulnerability.

	2007	2008	2009	2010	2011	2012
High (8/9)		EL	EU27, EU17, EL, FR, IE, IT, PT, UK	EL, ES, IE, PT	EL, IE, PT	EU17, EL, ES, FR, IE, IT, PT,
Medium–high (7)	EL	FR, IE, IT, PT	AT, DE, ES	EU27, EU17, FR, IT, UK	ES, IT	EU27, UK
Medium (6)	IT, PT	UK		AT	EU27, EU17, FR, UK	DK
Medium–low (5)	FR	EU27, EU17, AT, DE, DK, ES, SE	DK, SE	DE		AT, DE
Low (3/4)	EU27, EU17, AT, DE, DK, ES, IE, SE, UK			DK, SE	AT, DE, DK, SE	SE

Source: Eurostat.

We are grateful to Alexandra Stroleny for her help in preparing the table.

It is evident that EU countries differ markedly in terms of financial vulnerability, but that during the crisis there has been a marked general deterioration. In 2007, seven out of the 11 countries in our sample had low vulnerability, while in 2012 only Sweden remained in this group. There is a close relationship between the level of financial vulnerability and the severity of austerity measures; countries in the high category (Greece, Ireland, Italy, Portugal and Spain) have implemented the largest paybill cuts. An exclusive focus on economic factors, however, would not fully capture national dynamics. France is in the high category but has been reticent in pursuing vigorous austerity measures (although under sustained EU pressure this may not continue), reflecting a longstanding citizen commitment to a distinctive social model. Conversely, while the UK is categorized as medium–high, its government ideologically committed to shrinking the state has implemented deep austerity cuts.

Public sector pay and conditions in hard times

Despite wide variation in the severity of the crisis, the majority of governments in our sample have turned to paybill reductions to address their financial vulnerabilities. Depending on the gravity of such vulnerabilities, they have utilized a number of measures such as pay and employment cuts, extension of working hours and pension reform. These are summarized in Table 2.

Table 2.

Austerity measures affecting public sector pay and employment, 2008–2013.

	Pay cuts and freezes	Employment cuts and freezes	Other changes in working practices	Unilateral imposition
AT	Pay pause for federal employees for 2013No pay cuts, moderate pay increases	Growth in education and health, planned cut of 3000 federal employees by 2014; 50% replacement rate for retirees in central government		No
DE	6.3% pay increase between 2012–2014Reduction of annual bonus	Long-term decline but slight increase in consecutive years since 2009	PRP up to 8% of total pay bill; new lower pay scale	No
DK	No real pay increase in 2010; pay frozen 2011Seniority bonuses removed 2011	Net job loss of 2.9% 2012, slight increase 2013		No
EL	Pay freeze (those on €2000+ per month) in 2009Ongoing cuts in bonuses; overtime ceiling consecutively reduced; 10% pay cuts (excluding low paid); pay caps set and later reduced; cuts in performance allowances; 12% average cuts in ‘special wage regimes’Elimination of 13th and 14th month salary25% ceiling on total pay cut since 2010 with further changes resulting from a new pay system	20% target by 2015, modified to 26%,2010: hiring freezes; cuts in temporary and fixed-term contracts; abolition of service contracts; overall: 7.2% cut 2009–2011‘Labour reserve’: involuntary redundancies through preretirement, later ‘mobility scheme’ in effort to restructure central public admin.	2011: weekly working time increasedShift to incentive payWeakening of special status	Yes
ES	Pay freeze (2011 and 2012)5% pay cut in 2010; –10% real pay cut in 2010–2011	18,000 in public administration 2010No new recruitment in 2012	Increased working hours 2012	Yes
FR	Pay scales frozen for two years; no increase in index point, only basic pay increases; limited to lower end of the scale (2010 and 2011)	Cuts mainly concentrated in 2011Projected 150,000 job cuts in central government by 2012 (1.5% per year since 2008)Replacement of 50% staff that leave	Internal mobility; temporary staff; unified premium based on function and on performance	Yes
IE	Pay freeze (2010–2014), after agreed pay increase cancelled (2009);Pay cuts: 5–15% linked to earnings (2009); 5–10% for new recruits; 4.7% on average (2010)Caps on maximum pay levels; lengthening of timing of pay increments	No replacement of retirees and no renewal of many temporary contracts5.2% in 2009–2011; 8% in 2008–2013	Increases in standard weekly working time of approximately two hours	No
IT	Pay and bargaining freeze (2010–2012 and 2013–2014), freeze on seniority increments for public employees not covered by collective bargainingPay cuts of 5% and 10% on higher earnings, repealed 2012 following Constitutional Court ruling	Replacements cut (2009); turnover freeze, prolonged in 2010, 2011, 2012 and 20132007–2011: cuts in permanent (4.3%) and flexible contracts (26%)	Cut in personnel trainingStricter performance assessment systemsCuts in financial transfers to local governments	Yes
PT	Two-year pay freeze 2011–20132.5% real pay cut in public administration 2010; further 3.5–10% cut 2011Removal of 13th and 14th month pay 2012 (except low paid), despite a challenge in Constitutional Court; cessation of bonuses	5.1% in public administration 2011–2012; 50% cut in fixed-term contracts, further cuts 2013Non-renewal of temporary contractsHiring freeze (2011) and promotion freeze‘1 for 2 rule’ for replacements	Flexible work schedules and overtime; voluntary severance; increase in non-compensated geographical mobility for transfers in service	Yes
SE	Real pay increase approx.. 1 % 2010Pay increases 2.6–4.2% agreed 2012	Cuts through continuous privatization (9% state employees; 5% regional and municipal employees); cuts in fixed-term contracts		No
UK	Pay freeze 2010–2012, some exemptions for lower paid, followed by 1% cap on pay rises for three yearsCuts in premium payments and allowances	More than 10% (2010–2015); greatly exceeded in 2010–2011 (6.1%); also recruitment freezes	Service-based progression linked to more explicit performance criteria	Yes

Sources: Articles in this special issue; Bach and Pedersini (2013); Grimshaw et al. (2012); OECD (2012a, 2012b); Vaughan-Whitehead (2013).

We are grateful to Alexandra Stroleny for her help in preparing the table.

Pay cuts and freezes

Since 2008, seven of the 11 countries have imposed pay cuts and freezes, often on more than one occasion, although with significant differences in the level of cuts and the forms used to bring about paybill reductions. The dominant pattern has been for ‘horizontal’ cuts across the public sector, but in countries such as Ireland, Portugal and, initially, Italy the largest nominal cuts have been targeted at higher earners. Pay has been reduced most severely in Greece, Ireland, Portugal and Spain; in Italy it has been frozen since 2010 to the end of 2014. These countries have been subject either to Troika assistance programmes (Greece, Ireland, Portugal, and Spain for the banking sector), or in the case of Italy to strong bond market pressures to cut the deficit, highlighting the importance of new supranational actors and forces discussed earlier. By contrast, countries less affected by the crisis have avoided pay freezes and wage reductions, although experiencing some difficulties in bargaining rounds and wage increases, as in Denmark. In other cases, notably Germany and Sweden, the shock to the public sector emerged almost two decades ago, with German unification and the Swedish economic crisis of the early 1990s, bringing about substantial employment reductions. These cases in particular indicate the importance of the prior legacy of reform and adjustment in making sense of responses to the crisis (Vaughan-Whitehead, 2013).

Although often presented as ‘one-off’ crisis measures, the trend has been to extend and deepen them over time, indicating a continuing attempt to reduce public sector wages. This is most evident in the programme countries; but in the UK also, a public sector pay freeze was announced in 2010 and has been followed by a one percent cap on pay until at least 2015, and in Italy pay freezes, initially decided for 2010–2012, were extended to 2013 and 2014. Other components of the public sector reward package have also been altered, especially pension systems that were already under pressure from demographic trends before the crisis (Broughton, 2013; European Commission, 2012b).

Employment reductions and flexible labour utilization

Public sector employment has been the other main target of government crisis measures. The scope to reduce employment is linked to the specific employment statutes that cover public employees, often granting high levels of job security. The crisis is being used as an opportunity to alter labour codes, in particular in relation to dismissal or redundancy procedures.

In many countries there is no tradition of collective dismissal of public sector workers, Greece, Spain and Italy being typical. Before the crisis, substantial numbers of temporary employees were often used to provide additional flexibility. The trend, however, has been reversed in countries such as Italy with the employment of temporary workers restricted by austerity measures. These trends might also reflect trade union attempts to mitigate the impact of austerity measures by directing the largest burden of adjustment onto labour market outsiders. By contrast, a climate of retrenchment has been significant in encouraging the increased use of temporary labour in countries such as France, Germany and Sweden (Keller, this issue; Vaughan-Whitehead, 2013). In the UK, where there is no separate public sector employment statute, employees can be made redundant relatively easily, and this has facilitated unprecedented cuts in public sector employment as well as reducing incentives to employ large numbers of temporary workers.

Employment reductions have usually been brought about indirectly by hiring freezes or strict replacement ratios rather than through voluntary or mandatory redundancies. In general, countries with a sovereign employer tradition of state unilateralism (France, Greece, Spain, but also Italy until the mid-1990s) have made greater recourse to prescriptive hiring ratios than those such as Denmark, Ireland and the UK. In these latter cases, with a ‘model employer’ tradition underpinned by collective bargaining, employers have had more discretion to decide on employment reductions within prescribed budgetary allocations. Another mechanism, partly reflecting the difficulties of dismissing public sector workers, has been to transfer employees into a labour reserve, usually accompanied by wage reductions; if alternative employment is not available after a set period, individual dismissal follows. This policy, certainly in the case of Greece, has not worked as intended, with plans to move 30,000 employees to reserve status during 2011 but only 767 being placed on reserve (Zahariadis, 2013). This brought a stricter IMF-devised mobility scheme for 2013 and 2014 (IMF, 2013: 119), stressing again the extent of detailed external intervention in the programme countries.

In some cases, employment reductions have also been targeted at specific categories, in particular managerial and administrative staff, as part of broader strategies to rationalize public service delivery by merging or restructuring administrative units and using shared services for finance and HRM (Van Thiel et al., 2012). Finally, in some countries, like Greece, Ireland and Spain, working hours linked to flexible labour deployment have been increased in part to meet a rising demand for employment and social security services caused by high unemployment.

Unilateralism, collective bargaining and the limits to social dialogue

The detrimental effects and adverse gender impact of these policies for the public sector workforce are widely recognized (Rubery, 2013). There has been less consideration of the consequences for wage determination. Three formally different wage setting systems can be found in the public sector: unilateral determination by the government or public authorities, through laws or administrative acts; free collective bargaining, along the lines of wage-setting in the private sector; and mixed or hybrid arrangements. This latter approach is exemplified by UK experience of pay review bodies that take account of employer and trade union evidence but do not involve direct negotiations between the parties (Bordogna and Pedersini, 2013).

In the two decades before the crisis there were two related trends in public sector collective bargaining and wage determination in many countries, albeit with important exceptions and qualifications. These comprised decentralization of pay negotiations (European Commission, 2011) and the (partial) replacement of automatic, collective, seniority-based pay and career systems by more selective and discretionary systems, often based on performance or merit criteria, encouraging greater differentiation in careers and employment conditions. These trends often represented a significant break with ‘sovereign employer’ traditions of centralized, nationally uniform procedures and terms and conditions. Where decentralization occurred, an important difference was whether this took place within or outside of a centrally coordinated framework (Traxler, 1995).

In some countries, as in Germany, these changes were linked to the federal form of the state; in many others to broader NPM-style reforms stressing institutional decentralization, increased managerial autonomy and devolution to lower levels of government or external agencies, as in Austria, Ireland, Italy, Portugal, Spain, UK and the Nordic countries. The main employment relations objective was to enhance flexibility of pay and conditions in response to local or sectoral labour market conditions and organizational needs. An additional reason was to provide workforce incentives by performance-related pay and other bonus schemes. Despite the unexpected and often perverse effects of these reforms, mostly based on agency theory (Bordogna, 2008), the dominant overall trajectory before the crisis was towards a gradual erosion of the regulatory features that differentiated public sector employment relations from those prevailing in the private sector.

Impact of the crisis

In contrast to this trajectory, a dominant effect of the crisis has been towards recentralization and unilateralism. This represents a return to patterns of public sector industrial relations that preceded the recognition of collective bargaining in previous decades. This has also affected countries that previously adopted the NPM reform agenda and where collective bargaining rights and practices are well established. As the national cases detail, austerity packages affecting public sector salaries, employment levels and pension systems have been adopted by many governments without negotiation, and often not even consultation, with trade unions. In addition to employment, salaries and pensions, the tradition of free collective bargaining – or of a broader social dialogue, where it existed – has also been a victim of government policies in response to the crisis.

Governments often acted in haste because of pressure from the Troika and the financial markets, and implemented waves of austerity measures, often in a reactive way, with little time for negotiation or consultation with the social partners and no resources to facilitate trade-offs and compromises. The need to implement austerity measures quickly has made governments more hesitant about negotiations and dialogue, because of the difficulties in reaching agreement on complex and contentious issues in a timely manner. These restrictive tendencies in relation to social partner involvement, quite widespread at national level, can however be mitigated at sectoral and workplace level, where there is more evidence of concession bargaining accompanied by the resilience and reconfiguration of the institutions and practices of social dialogue (Bach and Stroleny, 2013, this issue).

This absence of social partner engagement, with the partial exception of Ireland and Portugal, contrasts with the period of adjustment during the establishment of Economic and Monetary Union, in which social pacts on incomes, employment and social security reforms were widespread (Natali and Pochet, 2009). But, as has been noted, a context of economic crisis is a poor predictor of concerted joint action, other political and institutional conditions being necessary to this purpose (Avdagic et al., 2011; Hamann and Kelly, 2007).

The dearth of such agreements highlights three features of the evolving role of the state as an employer. First, despite continuous NPM reforms and the expansion of public sector collective bargaining, the state remains a unique employer with the power not only to determine pay and conditions of employees unilaterally but also to restructure the public organizations that employ them. As Howell (2005) has argued in his account of the reconstruction of British industrial relations, the state, especially during periods of crisis, has the ability to enforce and systematize institutional change, defining a particular view of a problem and encouraging specific reforms. An important component of state strategies has been to respond to external pressure from the Troika and the financial markets by establishing institutions and mechanisms at national level that assist countries meet these external requirements. Many governments have adopted emergency budgets and put in place revised fiscal frameworks, strengthening finance ministries, to enhance budgetary discipline and ensure the implementation of austerity measures. In 2012, the Spanish government introduced measures to enhance control over the budgets of the autonomous regions, which control a major component of public expenditure. In Italy, following the Euro-Plus Pact and the Fiscal Compact, the government revised the Constitution to embed the principle of balanced budgets, a measure taken by Germany as well. In the UK, the government established an Office of Budgetary Responsibility to provide independent forecasts and monitor adherence to new fiscal rules. These measures not only seek to reassure investors and increase transparency; they also attempt to redefine political decisions in relation to austerity as technocratic imperatives that are beyond the realm of political choice and representative democracy, as well as sheltered from social dialogue practices.

Second, increased state unilateralism is inexorably linked to the shift in decision-making power to the EU level and the limited scope for independent state action in relation to austerity, especially, but not only, in the programme countries. This limited discretion has reinforced unilateralism in relation to the social partners, especially trade unions (but also local governments); the trade union power resources (Korpi, 1983) that led to the expansion of public services have been drastically curtailed. Unions have limited scope to influence key decision-making processes at EU level, where European social dialogue has generated few concrete results. Equally importantly, unions have little veto power at national level, as governments are in general less preoccupied with trade union mobilization than in the past and have less incentive to reach political accords with them, because they are doubtful that unions have the authority to assist in legitimizing austerity measures. Government blame avoidance and blame diffusion strategies (Pierson, 2001) have shifted to the perceived source of austerity measures – the EU – reflected in a sharp decline in public trust in the EU from 57 to 31 percent from spring 2007 to spring 2013 (European Commission, 2013: 9).

A third issue raised by this shift to unilateralism is whether it is likely to prove temporary or a more permanent feature of public sector employment relations. Despite the ILO recommendation that periods of suspension of collective agreements should not extend beyond three years (2013: 124), our national studies show that differences between countries can be anticipated also in this case, linked to their diverse financial vulnerability, with the restoration of customary wage-setting behaviour emerging first in countries least affected by the crisis.

The ambivalent relationship with new public management

From the 1980s, discussion of public sector employer approaches has been framed by the emergence of NPM, based on the new institutional economics and some version of business-type managerialism. This agenda included the break-up of monolithic public services into their constituent business units; outsourcing services and strengthening the power of public managers by increasing their discretion over pay and performance (Hood, 1991). About two decades later, however, concerted criticism of NPM emerged, stressing the unintended and perverse effects arising from some of its theoretical assumptions, especially agency theory (Bordogna, 2008; Rexed et al., 2007; Van Thiel et al., 2012). Negative effects include: high transaction costs and collusive behaviour between the parties, linked to the decentralization of pay bargaining without institutional arrangements to compensate for the absence of market constraints; coherence problems and organizational rigidities, linked to the unbundling of organizational structures and the break-up of previously unified conditions of employment in locally-based systems; a low-trust management culture and erosion of staff commitment and the public sector ethos, linked to the emphasis on strong incentive structures with a focus on short-term targets.

The crisis has reinforced these concerns, with additional constraints placed on the implementation of NPM recipes and managerial autonomy. First, with reference to macro-organizational design, a new problem of balance between autonomy and control emerged. The crisis revealed the limitations of the separation of policy development from managerial implementation, as the fragmentation of the state contributed to coordination and regulatory problems, undermining its capacity to manage risk, most obviously in relation to the financial services industry. These failures also suggest that the concentration of managerial and professional expertise in arms-length agencies has seriously weakened the capacity of the centre to develop effective policies informed by front-line expertise. An example is the health sector in the UK, where regulatory failures resulting in disastrous patient outcomes have been linked to the presence of multiple regulators with diffuse responsibilities (Department of Health, 2013).

Second, with regard to managerial roles and HRM, the number of managers and their scope to act autonomously is being reduced. Senior managers, viewed as leaders of change by NPM proponents, are themselves highly vulnerable to staffing cuts as layers of management are removed by austerity measures. There is scepticism at the suggestion that cuts are creating an optimal staffing balance and the right mixture of skills; ‘slash-and-burn’ is a more accurate descriptor (OECD, 2012a: 43). Moreover, managerial autonomy at decentralized level is substantially reduced by the unilateral imposition from the centre of prescriptive rules and budgetary constraints. Public managers have fewer resources to invest in HRM, but are under pressure to meet fiscal targets. Strategies that have empowered managers in the past, such as the use of individual performance-related pay, are more difficult to operate in a context of wage freezes and cuts. Nonetheless, even as resources are squeezed, pressure on managers to enhance staff performance is unrelenting; hence tighter control of individual performance with the stick of job loss rather than the carrot of performance pay has been reinforced by the crisis.

Third, NPM has been strongly associated with the marketization and outsourcing of services, but a more questioning attitude towards market solutions has emerged since the crisis. The OECD, formerly an advocate, has stated that ‘outsourcing of intermediate production to the market has led to decrease of service quality and higher costs’ (2011: 7). Although in some countries public service outsourcing continues as a means to evade public sector regulations (Italy) or as a cost-cutting measure (UK), there are also strong tendencies in sectors such as local government to return services in house, a return to municipalization that is occurring in France and Germany (Grimshaw et al., 2012).

Finally, with regard to employment relations and collective bargaining, as already noted, there has been a strong revival of unilateralism and a return to centralization in pay-setting systems and the determination of terms and conditions of employment, although at times still a desire by government to impose private sector HRM practices.

Trade union responses

It is customary, since Clegg’s classic analysis (1976), to stress that union density in the public sector is systematically higher than in the private. This still holds true, and public sector unions remain in most cases the stronghold of national trade union movements, despite a declining trend in several countries (Bordogna and Pedersini, 2013; Visser, 2006, 2011). The current economic crisis has not substantially altered this picture but has highlighted some vulnerabilities of public sector unions in the new context dominated by international forces and supranational actors.

As already noted, unions have both limited scope to influence key decision-making processes at EU level, and weaker veto powers at national level than in the sheltered environment of the past. Their position relative to national governments and national regulators has overall weakened, with possibly some variation in relation to decentralized, local level public employers. This does not mean that mobilization has not occurred, especially, but not only, in the programme countries (Bach and Pedersini, 2013: Table 4.9). But in several cases these processes have been spontaneous social protests and mass demonstrations against political elites allegedly unable to combat social exclusion and inequality, and even against representative democracy (Freeman, 2013), rather than strike actions initiated by trade unions (Bordogna, 2010). The indignados movement in Spain is an example, but also many episodes of riots and street violence in Greece and other countries. On the whole, trade unions took a defensive, reactive position towards government austerity policies, with little capacity to influence or change them. A clear example was their very mild protests against the radical pension reform approved in Italy by the Monti government at the end of 2011, especially if compared to the massive manifestations promoted on previous occasions. There are relatively few cases in which strikes represent a traditional part of the bargaining process to try to gain improved pay offers from employers. Instead, most protests are highly defensive attempts to limit the scale of concessions extracted from the workforce and to prevent privatization and other forms of restructuring.

The problem for trade unions is that ‘backlash resistance’ (Bohle, 2011: 102) has produced limited results. In several countries, aspects of austerity programmes have been modified or delayed, as in proposals to increase working hours, but these outcomes have been relatively sparse compared to previous mobilizations, as the recent experience of France illustrates (Rouban, 2013). Bohle (2011) argues that the bigger failure of the trade unions has been the inability to develop a larger narrative of political ideas that extends beyond the specific problems of public sector workers. In many ways public sector unions face an ideological crisis because they have suffered from the loss of legitimacy of political institutions, including public services, that has affected European governments. Trade unions are in a way ‘in and against the state’, but a defensive strategy of trying to maintain the interests of public sector insiders whilst conceding worse terms and conditions for labour market outsiders weakens their social legitimacy. The risk is that such defensive strategies have little appeal to outsiders (Hyman and Gumbrell-McCormick, 2010: 328) and allow governments to label public sector unions as simply a narrow sectional interest group.

Conclusions

Government responses to the economic crisis have adversely affected employment levels, salaries and pension benefits of public employees, and have also strained the traditional public sector regulatory system prevailing in each country. This second outcome has been far less addressed in the literature on the impact of the crisis. Returning to our initial questions, we emphasize the following features.

First, and perhaps most important because it influences all the other features, the crisis challenged the traditional configuration of public sector employment relations as sheltered from international market pressures, operating in a relatively closed environment mostly shaped by the regulatory power of the state and other domestic actors. External forces, especially international financial markets and supranational actors – in this case, the Troika – have moved centre stage, playing a key role in constraining government responses to the crisis, with major consequences for public sector employment relations. Of crucial importance has been the interaction between external pressures, EU rules and the domestic economic and political conditions of each country, in particular its financial vulnerability. Cross-national variations in vulnerability also help explain the differential severity of government responses to the crisis and their impact on public sector working conditions and employment relations institutions and practices. The effect of this greater role of external and international forces is to strengthen governments in their relations with trade unions.

Second, there has been a general revival of unilateralism, with very few exceptions. In many countries, measures affecting public employees and public service employment relations have been adopted relatively urgently without negotiations with trade unions, and sometimes even without consultation. Where powers of unilateral determination formally existed, they have been widely utilized (as in France, in Germany for Beamte, often in the programme countries); where collective bargaining or forms of social dialogue were allowed and practised, these have been suspended or sidelined (as in Italy, in Ireland, partly in the UK). In general, given also time constraints, national governments have not felt the need for social dialogue to legitimize austerity measures. Some variations in the revival of unilateralism are observable, partly connected with the financial vulnerability of the different countries. But even where collective bargaining processes have not been suspended, as in Denmark, they have met greater difficulties than in the past, with unions in a notably weaker bargaining position.

Third, we have seen a process of recentralization of wage determination in many countries, as a consequence of centrally defined, inflexible, horizontal measures applied in a generalized and undifferentiated way to all services and all employees – although in some cases the break-up of centralized systems has opened the way to processes of decentralization and differentiation of procedures and terms and conditions (as in Germany and the UK).

The fourth point regards the traditional issue of the distinctiveness of public service employment relations compared to the private sector. The removal of this feature was a crucial target of the NPM approach, within a programme pursuing a leaner and less distinctive public sector. In this respect, recent measures adopted in response to the economic crisis seem to have ambivalent effects. On the one hand, the revival of unilateralism and centralization represents a break with the cycle of NPM-inspired reforms, a reversal of previous trends rather than continuity. What is probably the main distinctive feature of public sector employment relations, namely the power of public employers to determine terms and conditions of public employees unilaterally, has been reaffirmed and possibly further strengthened by the crisis, also influencing the dynamics related to public employees under private contract and to private sector employees. On the other hand, these peculiar prerogatives have often been used to achieve a leaner public sector (significant cuts in employment have been pursued almost everywhere) and accelerate the introduction into the public sector of HRM practices and managerial techniques customary in the private sector.

The final feature concerns public sector trade unions. While they remain the stronghold of national trade union movements almost everywhere, their power has generally weakened in the new context dominated by international forces and supranational actors. They have both a smaller capacity to influence key decision-making processes at EU level, and weaker veto powers to combat government and employer policies at national level, than in the closed and sheltered environment of the past – with possibly some variation in relation to decentralized, local public employers. Also their capacity to mobilize protest faces limits, as a strong defence of the interests of public sector ‘insiders’ may undermine their social legitimacy, allowing governments and broader public opinion to depict them as a narrow, conservative sectional interest group. On the whole, public sector unions are stuck in a defensive, reactive position.

Whether these trends are temporary or are likely to endure is an open question. But it may well be that the changes in the previously sheltered and relatively closed context in which public sector employment relations used to operate are not easily reversible and are bound to survive in the near-medium term. International market forces and the EU macroeconomic governance rules are likely to remain a key influence for the foreseeable future. Their impact will still heavily constrain government policies and consequent developments in public sector employment relations institutions and practices, with possible variations depending on the relative financial vulnerability of each country.

Footnotes

Funding

This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.

Author biographies

Stephen Bach is Professor of Employment Relations at the Department of Management, King’s College London, UK.

Lorenzo Bordogna is Professor of Economic Sociology, Department of Social and Political Sciences, Università degli Studi di Milano, Italy.

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