Abstract
Income inequalities within countries have increased substantially over the past half century, and the IMF can be quoted referring to probable harmful effects on economic growth (p. 1). Prominent among the ‘root causes’, according to this collection of 12 studies of EU Member States backed by a summarising chapter presenting further statistical evidence, are ‘mechanisms in the world of work’ (p. 1). The focus is on pay inequalities and the role of collective bargaining and social dialogue. Inequality is interpreted more broadly than usual, encompassing themes such as working time and access to training, albeit with pay the most consistent theme.
The individual chapters provide detailed up-to-date information on the state and results of collective bargaining in individual countries and sound discussion of important themes within that. They broadly confirm that bargaining limits the rise in inequality, especially at the bottom end of the range, but not at the highest levels where substantial increases have been widening pay and hence income differentials. However, a number of important issues are not addressed across all countries and emerge only in individual chapters. An example is the place of collective bargaining and social dialogue relative to other causes of pay inequality. The authors of the chapter on France conclude that the complexity of separating out causes makes it possible to present only a descriptive account of how some policy changes affect some aspects of inequality, without attempting any estimate of their effects on overall inequality (p. 169). A number of others implicitly take the same view. The contribution of pay to household income inequality is addressed only for the Netherlands, with a demonstration that low earners in precarious jobs are frequently part of high-income households.
Setting the reduction of inequality as the sole central issue, without reference to employment and unemployment levels, also carries dangers. In some cases, after the 2008 crisis, earnings inequality fell as the lowest earners were among the first to become unemployed, meaning also that they suffered a further drop in their incomes. On a related theme, a representative of German employers defends that country’s past labour market reforms, arguing that they were not aimed at reducing inequality but at allowing the emergence of a low-wage sector so as to tackle the issue of long-term unemployment (p. xviii). The possible trade-off between jobs and equality is an issue that emerges in several chapters, but without a comprehensive assessment. The quest for ‘flexibility’ also emerges across contributions with varying interpretations of the term, which at least in some cases appears to be no more than management speak for lower wages and less job security.
The individual country chapters leave little doubt that collective bargaining is primarily about giving power to employees’ representatives. Many employers accept it, and some welcome it, but hardly any ever advocate its establishment or extension. A corollary is that the outcomes of bargaining reflect the two sides’ power resources, with the best outcomes for employees and for those on the lowest earnings clearly linked to greater trade union power.
Indeed, a simple, initial observation, backed by solid empirical evidence (p. 4), is that more collective bargaining and more coordination between its levels is associated with more earnings equality. This applies between countries and also often within countries. In only a few cases may some specific differentials be reduced by weakening collective bargaining, that being true for a time after 2010 in Greece when the more unionised and better paid public sector was hit first by austerity. The result was an apparent reduction in one measure of inequality, but in the context of rapidly increasing poverty.
For comparing individual countries, Sweden can serve as a benchmark at one end of the spectrum with very high bargaining coverage, social partners involved in many policy spheres, including active labour market policies, and low overall earnings inequality. Even in Sweden there has been some increase in inequality, partly explicable by a decline in bargaining coverage and also by rising earnings at the very top of the scale. This latter appears to be a universal phenomenon, more extreme in some countries than others. In no case is there a cap on top pay levels, these being decided outside any kind of collective bargaining framework.
Slovenia, measuring low in terms of inequality, is an example of a country where bargaining coverage has declined somewhat from a near-universal level, but trade unions nevertheless retain considerable power resources. They have been able to counter unilateral government efforts to increase ‘flexibility’, meaning a reduction in the security of permanent employees, by using their mobilisation power and ensuring the proposals’ defeat in referendums. The end result was a compromise over ‘flexicurity’ reached with the involvement of social partners in 2013.
This term had already shifted from its earlier meaning of relatively simple processes for redundancy in exchange for high unemployment benefits and active support to find new employment, although that still remained broadly the interpretation in Sweden. For Slovenia, and indeed it seems other countries too, ‘flexicurity’ has meant reduced security for those on standard contracts, with no compensation for them, alongside some improvements in security for the growing numbers of increasingly precarious employees on non-standard contracts. At least in Slovenia legal protections for more precarious employees could be ensured in workplaces where there was a strong union presence.
This does not apply across all countries, and notably not for the Baltic States which appear at the other extreme of the spectrum from Sweden. Inequality measures show fluctuations sometimes to relatively very high levels that cannot be related to changes in collective bargaining. Indeed, these countries serve to ‘highlight problems related to lack of social dialogue’ (p. 68). Low union membership and bargaining coverage mean that unions cannot always enforce what is agreed and do not discernibly raise pay levels. In Estonia unions were able to negotiate over a flexicurity package in 2008, but could do nothing when the government decided to implement only the flexibility part (p. 80).
The information in some chapters can contribute to an assessment of the implications of collective bargaining and greater equality for job creation and employment levels. A first issue here is the minimum wage, set sometimes at the national level, often with direct involvement of social partners, and sometimes negotiated at sectoral level. The latter method, as in Italy, leaves more of the growing number of those on non-standard contracts unprotected, thereby increasing inequality. A further difference visible in these case studies is that a nationally agreed minimum wage level raises pay scales more generally only when there is collective bargaining for lower-paid employees. In other cases, such as Estonia, it only raises the very lowest pay levels with little impact on those above the legal minimum. In no case is there evidence of beneficial employment effects when minimum wage levels are cut or when, as in Greece in 2012, a lower rate for those under 25 years of age is introduced.
There has been a common trend, starting from the 1980s, towards allowing non-standard employment forms, presented as a means to promote job creation. Italy serves as a good example of fixed-term contracts, strongly associated with lower unionisation and lower pay levels, spreading to become the employers’ default position for new employees, but with no discernible effects on the employment level (p. 320). Part-time contracts represent a slightly different picture as they do open up employment possibilities for some who otherwise remain outside the labour market, but they too have often been exploited by employers as a substitute for standard contracts. A number of sectors, supermarkets in the Netherlands and Slovenia are explicitly mentioned in this context, have built their business models on the availability of cheap, part-time labour, very often students. These therefore appear in the lengthening tail of low-paid employees.
The book leaves some questions unanswered. The authors of the chapter on Belgium show that strong social dialogue and a very good record on preventing increasing inequality and limiting low pay coincides with low employment rates among the young and among the over-55 age group. This might suggest that more use of non-standard contracts could increase employment, but a more complete comparison of the same themes across other countries would be needed. This would include Sweden where employment levels are consistently high and unemployment is held back by retraining and active labour market policies.
The general conclusion, supported across all the countries investigated in this book, is that collective bargaining can contribute to reducing inequality, above all by holding up pay levels towards the bottom of the scale. It is much harder to assess the importance of collective bargaining relative to that of other factors, including laws guaranteeing minimum standards that may themselves in part be the result of social dialogue and trade unions’ use of their power resources.