5 March 2015
By Thorsten Schulten, collective bargaining expert at the Institute of Economic and Social Research (WSI).
Real pay and collective bargaining coverage are falling dramatically and industry-level agreements are being destroyed. These are the results of the policies of the European Central Bank, the European Commission and the International Monetary Fund in Europe’s crisis countries.
Some public sector employees in Greece have now lost as much as a third of the salaries they received in 2009, when they were first frozen. A year without an increase five years ago was followed by cuts of between 12% and 20% in 2010, and in the period 2011 to 2013 budget cuts cost Greek public servants up to a further 17% of their pay.
The figures come from Thorsten Schulten, collective bargaining expert at the Institute of Economic and Social Research (WSI). At a hearing of the European Parliament, he outlined the impact of the policies imposed by the European Central Bank (ECB), the European Commission and the International Monetary Fund (IMF) on pay levels and pay bargaining in Greece, Spain, Portugal, Ireland and Cyprus. It is clear that people’s real purchasing power has been substantially reduced and that collectively agreed pay and minimum wages play less and less of a role.
The aim of the so-called troika of the ECB, the Commission and the IMF is to improve the international competitiveness of the crisis countries through cutting their labour costs – something which has high social costs, according to Schulten. He says it is also ill suited to stimulating economic growth.
Pay cuts are achieved in two ways. Firstly, there are direct interventions, through cuts in the pay of public employees and the freezing or reduction of minimum wages. Secondly, there are “structural reforms” that weaken or in some cases override established collective pay-setting mechanisms.
Although there are many differences in detail, Schulten’s argues that the laws passed in the last few years all boil down to the following elements:
making it more difficult for negotiated collective agreements to be extended to other parts of the economy;
giving company-level pay deals precedence over industry-level agreements;
shortening the period during which expired agreements continue to be binding; and
allowing company-level workforce representatives without any union links to take part in negotiations.
In Greece, for example, there were 65 industry-level agreements in 2010; now there are only 14. The number of company pay deals on the other hand has shot up, and 80% of them have led to cuts in pay. In Portugal, just under 330,000 workers are now covered by collective agreements, compared with 1.9 million in 2008. In Spain the number covered has fallen from 12.0 million to 4.6 million.
In this way the troika is exerting “a strong downward pressure on wages, leading to a deflationary spiral with a very damaging impact on consumer demand,” Schulten says.
Thorsten Schulten: The impact of the troika policy on wages and collective bargaining (PDF), public hearing of the European Parliament on the social consequences of policy of the troika, 9 January 2014