Minimum Wage Regimes: Statutory Regulation, Collective Bargaining and Adequate Levels 2020057558, 2020057559, 9781138392380, 9781032022468, 9780429402234

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Minimum Wage Regimes

This book goes beyond traditional minimum wage research to investigate the interplay between different country and sectoral institutional settings and actors’ strategies in the field of minimum wage policies. It asks which strategies and motives, namely free collective bargaining, fair pay and/or minimum income protection, are emphasised by social actors with respect to the regulation and adaptation of (statutory) minimum wages. Adopting an actor-centred institutionalist approach, and employing cross-country comparative studies, sector studies and single country accounts of change, the book relates institutional and labour market settings, actors’ strategies and power resources with policy and practice outcomes. Looking at the key pay equity indicators of low wage development and women’s over-representation among the low paid, it illuminates our understandings about the importance of historical junctures, specific constellations of social actors, and sector- and country-specific actor strategies. Above all, it underlines the important role of social dialogue in shaping an effective minimum wage policy. This book will be of key interest to scholars, students and policy-makers and practitioners in industrial relations, international human resource management, labour studies, labour market policy, inequality studies, trade union studies, European politics and political economy. Irene Dingeldey is Director of the Institute Labour and Economy at the University of Bremen, Germany. Damian Grimshaw is Professor of Employment Studies at King’s College London, UK, and Associate Dean for Research Impact. Thorsten Schulten is Senior Researcher at the Institute of Economic and Social Research (WSI) at the Hans Böckler Foundation, and Head of the WSI Collective Agreement Archive. He is also an honorary professor at the University of Tübingen, Germany.

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Minimum Wage Regimes Statutory Regulation, Collective Bargaining and Adequate Levels

Edited by Irene Dingeldey, Damian ­Grimshaw and Thorsten Schulten

First published 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 selection and editorial matter, Irene Dingeldey, Damian Grimshaw and Thorsten Schulten; individual chapters, the contributors The right of Irene Dingeldey, Damian Grimshaw and Thorsten Schulten to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Dingeldey, Irene, editor. | Schulten, Thorsten, 1966- editor. | Grimshaw, Damian, editor. Title: Minimum wage regimes : statutory regulation, collective bargaining and adequate levels / edited by Irene Dingeldey, Damian Grimshaw and Thorsten Schulten. Description: Abingdon Oxon ; New York, NY : Routledge, 2021. | Series: Routledge research in comparative politics | Includes bibliographical references and index. Subjects: LCSH: Minimum wage–Government policy. | Minimum wage. Classification: LCC HD4917 .M568 2021 (print) | LCC HD4917 (ebook) | DDC 331.2/3–dc23 LC record available at https://lccn.loc.gov/2020057558 LC ebook record available at https://lccn.loc.gov/2020057559 ISBN: 978-1-138-39238-0 (hbk) ISBN: 978-1-032-02246-8 (pbk) ISBN: 978-0-429-40223-4 (ebk) Typeset in Times by KnowledgeWorks Global Ltd.

Contents

List of figures List of tables List of boxes List of contributors Acknowledgements

vii ix xi xii xvii

1 Introduction: Minimum wage regimes in Europe and selected developing countries 

1

IRENE DINGELDEY, THORSTEN SCHULTEN AND DAMIAN GRIMSHAW

2 Minimum wages and the multiple functions of wages 

17

JILL RUBERY, MATHEW JOHNSON, DAMIAN GRIMSHAW

PART I

Actors’ strategies influencing collective bargaining and minimum wage regulations at national level in European countries 

37

3 Securing wage floors in the absence of a statutory minimum wage: Minimum wage regulations in Scandinavia facing low-wage competition 

39

KRISTIN ALSOS AND LINE ELDRING

4 Minimum wages in Southern Europe: Regulation and reconfiguration under the shadow of hierarchy 

64

OSCAR MOLINA

5 Shaping minimum wages in Central and Eastern Europe: Giving up collective bargaining in favour of legal regulation?  MARTA KAHANCOVÁ AND VASSIL KIROV

87

vi  Contents PART II

The combined effects of minimum wages and collective bargaining in different sectors 

113

6 The interplay of minimum wages and collective bargaining in Germany: How and why does it vary across sectors? 

115

GERHARD BOSCH, THORSTEN SCHULTEN AND CLAUDIA WEINKOPF

7 Downward convergence between negotiated wages and the minimum wage: The case of the Netherlands 

137

WIKE BEEN, PAUL DE BEER AND WIEMER SALVERDA

8 The SMIC as a driver for collective bargaining: The interplay of collective bargaining and minimum wage in France 

162

NOÉLIE DELAHAIE AND CATHERINE VINCENT

PART III

The minimum wage beyond Europe: An accomplishment or an alternative to collective bargaining? 

189

9 Minimum wages in Indonesia: Informality, politics and weak trade unions in a large middle-income country 

191

MAARTEN VAN KLAVEREN

10 Are minimum wages for textile and garment industry workers effective? A sector-in-country institutionalist approach for five developing countries 

206

DAMIAN GRIMSHAW AND RAFAEL MUÑOZ DE BUSTILLO

11 Minimum wages and inequality mitigation in post-dictatorship industrial relations systems in Latin America: The case of Argentina, Brazil and Uruguay 

235

ELIZARDO SCARPATI COSTA AND MARTA KAHANCOVÁ

PART IV

Conclusion: Lessons for theory and practice 

257

12 Conclusion: Understanding the multiple interactions between institutions of minimum wages and industrial relations 

259

DAMIAN GRIMSHAW, IRENE DINGELDEY, THORSTEN SCHULTEN

Index

281

Figures

1.1 Collective bargaining coverage (in %) and minimum wage regimes in Europe and beyond – selected countries –.  3.1 Wage disparity in Germany, Norway and Sweden, 2000 to 2015 (decile ratios of gross earnings).  4.1 Collective bargaining coverage in Southern Europe, 2007–2016. 4.2 Low wage earners as a proportion of all employees, 2006–2014. 4.3 In-work at risk of poverty rate, 2009–2017.  4.4 Kaitz index, minimum wage relative to the median wage of full-time workers, 2000–2017.  4.5 Monthly minimum wages in PPS, 1999–2019.  5.1 Trends in monthly minimum wages, 1999–2019 (nominal, in euros).  5.2 Changes in minimum wage and average gross wage in the Slovak economy (in EUR and in percentage, 1993–2018).  6.1 Collective bargaining coverage in Germany, 1998–2019 in % of workers employed in companies covered by collective agreements.  6.2 Collective bargaining coverage in Germany according to wage quintiles, 2014 in % of workers employed in companies covered by collective agreements.  6.3 Share of low wage earners in Germany, 1995–2018 in % of workers earning below 2/3 of the median wage.  6.4 Collectively agreed and extended sectoral minimum wages in Germany in € per hour, April 2020.  6.5 Distribution of wage groups in German collective agreements in January 2020, in %.  6.6 Wage groups in collective agreements below the threshold of the statutory minimum wage in %.  6.7 Development of the lowest wage grade in the collective agreement for the fast food sector in comparison to the national minimum wage per hour in €. 

6 43 70 72 76 76 77 89 102 117 119 120 124 125 126 127

viii  Figures 6.8 Development of the lowest agreed wages for semi-skilled and unskilled workers in the collective agreement for hairdressing in North Rhine-Westfalia in comparison to the national minimum wage per hour in €.  7.1 Youth minimum wage ladders 1974, 1983, and 2019 (% of adult minimum wage), and average monthly amounts for 1/1/2019 (Euros).  7.2 Adult minimum wage, average collectively negotiated wages and actual wages, hourly labour productivity, 1964–2017.  7.3 Index of the real minimum wage, the weighted average of the real negotiated lowest wage rates and the real average negotiated wage (1983=100).  7.4 Percentage change of employment (jobs) by wage group, age 25–65, 2009–2018 (%).  7.5 Evolution of the lowest collectively negotiated adult wage level as a percentage of the statutory minimum wage.  8.1 Trends in collectively agreed wages at sector level, monthly base wage, SMIC and inflation, 2007–2016.  8.2 Union density by industry in 2013, France (%).  10.1 Employment in textiles and garment industries as a share of total manufacturing employment, 2005, 2012 and 2017.  10.2 Statutory monthly minimum wages for the garment industry, US$, 2014.  10.3 Estimated wages at subcontracting and direct contracting garment factories, Bangladesh.  10.4 The exploitation of women in Pakistan’s home-based garment industry  11.1 Tripartite commission collective bargaining, 2005–2016.  11.2 Structure of agreements at salary councils, 2005–2019.  12.1 Country examples of government imposed minimum wage cuts, freezes and upratings.  12.2 Ideal type institutional interactions with static country illustrations.  12.3 Diverse trends in minimum wages in four ‘Isolated type’ countries, 2001–2020.  12.4 Comparing examples of close interaction: France and Portugal –collective bargaining coverage and trends in the kaitz index.  12.5 Comparing examples of close interaction: trends in the kaitz index (mean wages) in Argentina, Brazil and Uruguay.  12.6 Incidence of low-wage employment by institutional type, European countries, 2006–2014. 

131 139 142 148 152 155 174 181 208 219 226 226 242 249 264 266 268 270 272 273

Tables

1.1 Different types of minimum wage regimes in Europe and selected developing countries  1.2 Different types of intersections between statutory minimum wages (MWs) and collectively agreed wages (CAWs)  1.3 Minimum wages in percent of median and average wages of full-time workers  2.1 The multiple functions of wages  2.2 The combined impact of four policy measures to reduce the UK wage share gap (difference in wage share in 2011 compared to 1980)  3.1 Union density and collective bargaining coverage for blue-collar workers in manufacturing, construction and hospitality in Norway (2016 and 2017) and Sweden (2017 and 2018)  4.1 Differences and similarities in minimum wage regimes in Southern Europe in 2020  4.2 Low-wage earners as a proportion of all employees (excluding apprentices) by sex, 2006–2014  5.1 Statutory minimum wage coverage and annual growth, 2009–2020  5.2 Role of government and tripartite consultation in determining the statutory minimum wage in 2017  5.3 Average collectively agreed nominal wage increases in selected sectors (in percentage, private sector only, 2014–2018)  5.4 Wage growth dynamics in Slovakia: % changes to minimum wage, average wage and collectively agreed wage  6.1 Share of employees with collective agreements, incidence of low hourly wages and representation at workplace level in Germany, 2017 in percent  7.1 Evolution of minimum-wage legislation and application, 1964–2015  7.2 Characteristics of the cleaning, supermarkets and metal sectors 7.3 Characteristics of the youth wages in the collective agreements at the time of the interviews (2016) 

4 8 12 18 28 41 69 73 90 92 104 104 118 145 154 155

x  Tables 8.1 Evolution of wage agreements at sectoral level, 2005–2018, France  8.2 Rate of compliance of selected sector agreements with the level of the SMIC  8.3 Evolution of the number and the topics of workplaces agreements, 2012–2018, France  8.4 Union representativeness in 2017 according to the 2013–2016 workplace elections, France  8.5 Main characteristics of selected sectors: banking, supermarkets and metal sectors, 2015  10.1 Wages in the textile and garment industries relative to average manufacturing wages in five countries, 2005–6, 2011–12 and 2017  10.2 Classification of minimum wage fixing rules in five countries  10.3 Legal coverage of minimum wage legislation  10.4 The average number of workers per labour inspector, 2003–2006 (ranking for 27 selected low and middle-income countries)  10.5 The minimum wage relative to average earnings in the garment industry, national data sources (national currencies) for three countries  11.1 Basic economic indicators, 2019  11.2 Comparing collective bargaining systems in Argentina, Brazil and Uruguay  11.3 Trends in the national minimum wage in Brazil, 2009–2019. Trends in the value, readjustment and real increase  11.4 Periods of operation of the Salary Councils  11.5 National minimum wage in Uruguay, 2009–2019 evolution of value, readjustment and real increase over the past 10 years  11.6 National minimum wage in Argentina, 2009–2019 evolution of value, readjustment and real increase over the past 10 years  11.7 Collective bargaining by sectors, 2009–2017  12.1 Four interaction types between minimum wages and collective bargaining with sectoral variation, 2016–2019 

170 172 173 176 182 208 211 216 217 219 238 239 243 247 247 251 252 269

Boxes

8.1 The positions of the expert group on the SMIC committee  164 10.1 Legitimising employer non-compliance? The case of South Africa pre-2019  224 10.2 Employer practices of non-compliance in Bangladesh: workers’ experiences  225 11.1 Remit of the tripartite National Council in Argentina 250

Contributors

Kristin Alsos is Research Director at Fafo Institute for Labour and Social Research in Oslo, Norway. She has a legal education from the University of Bergen, Norway. Her main research interests are collective bargaining, labour migration, minimum wage regulations and co-determination rights. Her more recent publications cover collective bargaining and living wage in Scandinavia and union strategies facing posting of workers to Norway. Wike Been is a researcher at the Amsterdam Institute for Advanced Labour Studies-Hugo Sinzheimer Institute (AIAS-HSI) of the University of Amsterdam (UvA). She obtained her PhD in Sociology at Utrecht University within the Interuniversity Center for Social Science Theory and Methodology (ICS). Her current research focuses on social dialogue, policy formulation and the organization of, and working conditions in, the creative industries. Paul de Beer is Henri Polak professor of industrial relations at the University of Amsterdam. He is affiliated with the interdisciplinary research institute AIAS-HSI and is also director of the Dutch Scientific Bureau for the Trade Union Movement, De Burcht. He attained his PhD in economics in 2003 at the University of Amsterdam. His research focuses on labour markets, industrial relations, inequality, solidarity and the value of work. He wrote and edited numerous books and published, among others, in the Journal of European Social Policy, the Journal of Ethnic and Migration Studies, and the International Social Security Review. Gerhard Bosch is Professor Emeritus in the Institute for Work, Skills and Training (Institut Arbeit und Qualifikation, IAQ) at the University Duisburg-Essen and Senior Fellow of the Hans-Böckler-Foundation. He founded the IAQ in 2007 and was its director from 2007 to 2016. He is an economics and sociology graduate from the University of Cologne. His fields of research are: International Comparison of Employment and Labour Market Systems, Vocational Training, Industrial Relations and Welfare Systems, Work Organization, Working Time and Wages.

Contributors xiii Elizardo Scarpati Costa is Assistant Professor of Sociology at Federal University of Rio Grande (FURG), Brazil. He was a visiting scholar at the University of Cordoba, Spain in 2019 sponsored by Carolina Foundation. Conducted Postdoctoral research at the Central European Labor Studies Institute (CELSI), Slovak in 2019 and at the University of Beira Interior (UBI), Portugal in 2020. He holds a master’s degree in Sociology from L’Ecole de Hautes Études en Science Sociales (EHESS), France and a PhD in Sociology from the Social Studies Center (CES) at the University of Coimbra (UC), Portugal. He is coordinator of the research group Labor Relations, Social Inequalities and Emancipation (RTDS) at FURG, Brazil. He has several publications of articles and books and participation in scientific events in the labour world area. Noélie Delahaie is a researcher at IRES (Institut de Recherches Economiques et Sociales) in Noisy-le Grand (France) and an associate professor à ISSTO of Rennes 2 University (Institut des Sciences sociales du travail). Her main research interests concern wages and employment policies and industrial relations in French firms. She has recently published in British Journal of Industrial Relations and in collective books on industrial relations in a European comparative view edited by ETUI. Irene Dingeldey is Director of the Institute Labour and Economy at the University of Bremen, Germany. She has a habilitation and holds a PhD in political science. Her main research interests concern comparative welfare state studies, employment policy and industrial relations. She has edited a book on Governance of Welfare State Reform and recently published in the journal Economic and Industrial Democracy and the Industrial Law Journal. Line Eldring is Head of the Policy Department in Fellesforbundet, Norway’s largest private sector trade union. Until 2016, she was a senior researcher at the Fafo Institute for Labour and Social Research, Oslo, Norway. Eldring has over the years participated in a number of research projects on the Nordic labour markets, minimum wage regulations, labour mobility and social dumping, and she has published widely on these issues. Damian Grimshaw is Professor of Employment Studies at King’s College London and Associate Dean for Research Impact. Previously he was Director of the Research Department at the International Labour Organisation in Geneva (2018–19) His published work covers international comparisons of low-wage labour markets, future of work, outsourcing, precarious work and gender inequality. Recent publications include ‘Making Work More Equal’ (2017, Manchester University Press) and ‘International organisations and the future of work: How new technologies and inequality shaped the narratives in 2019’, Journal of Industrial Relations.

xiv  Contributors Mathew Johnson is a lecturer in Employment Studies as the Work and Equalities Institute at The Alliance Manchester Business School. He completed his PhD at Manchester and as a post-doctoral researcher he played a key role in a six country comparative study of precarious work funded by the European Commission (2015–16), and has been involved in a number of locally funded projects looking at the changing nature of work and employment in cities and the role of public procurement in regulating labour standards. Johnson has published articles in the Industrial Relations Journal, Employee Relations, Work, Employment and Society, Economic and Industrial Democracy, Transfer and the Journal of Common Market Studies, and has co-authored several book chapters. Marta Kahancová is the founder and managing director of the Central European Labour Studies Institute (CELSI) in Bratislava, Slovakia. She obtained her PhD. at the University of Amsterdam, the Netherlands, in 2007. Her research interests include working conditions, labour markets, trade unions and industrial relations in Central and Eastern Europe and the EU’s Eastern Partnership countries. She has published in the European Journal of Industrial Relations, Transfer - European Review of Labour and Research,  Comparative Labour Law & Policy Journal, International Journal of Human Resource Management and Industrielle Beziehungen. Vassil Kirov is Associate Professor at the Institute of Philosophy and Sociology, Bulgarian Academy of Sciences (IPS-BAS) and Associate Researcher the European Trade Union Institute (ETUI). He holds a habilitation and a PhD in sociology. Currently he is a Visiting Professor at Sciences Po, France. He has published several books and articles in international scientific journals. Vassil Kirov has been a researcher in large EU-funded research projects (Small, Works, Walqing, Enliven, Beyond4.0) and has worked as an external expert for the European Commission, the International Labour Organisation, the European Foundation for Working and Living Conditions and CEDEFOP. Vassil Kirov has been a member of the European Commission High-Level Expert Group on the Impact of the Digital Transformation on EU Labour Markets (2018–2019). Among his last publications is the co-edited book on Policy Implications of Virtual Work. Maarten van Klaveren Is a labour economist. He worked until 2015 as a labour consultant at STZ consultancy & research, Amsterdam/Eindhoven and until 2018 senior researcher at the Amsterdam Institute for Advanced Labour Studies (AIAS), University of Amsterdam; while being retired, remains involved in research for the WageIndicator Foundation, Amsterdam. Van Klaveren’s publications relate to the many European and worldwide research projects in which he took part, covering

Contributors xv industrial relations, collective bargaining, low-wage work, multinational enterprises and the global garment supply chain. Rafael Muñoz de Bustillo Llorente is Professor of Applied Economics at the University of Salamanca, Spain. He has written extensively on the economics of the welfare state (e.g. Mitos y realidades del Estado de Bienestar, 2019), income distribution and labour economics (e.g. Measuring more than money. The Social Economics of Job Quality). Oscar Molina is Associate Professor appointed to the Department of Sociology and researcher at Centre d’Estudis Sociològics QUIT - Institute for Labour Studies, Universitat Autònoma de Barcelona. He holds a degree in Economics at Pompeu Fabra University 1998. He obtained his PhD in Social and Political Science at the European University Institute (EUI-Florence) in 2004. He has been post-doctoral researcher at the Industrial Relations and Human Resources Group, University College Dublin (2005–2007) and ICREA Researcher at QUIT, Universitat Autònoma de Barcelona, and currently coordinator of Eurofound’s national correspondent team in Spain. His research interests include comparative industrial relations, comparative political economy, labour market policies. Jill Rubery is Professor of Comparative Employment Systems and the Director of the Work and Equalities Institute, at Alliance Manchester Business School, University of Manchester. She is a Fellow of the British Academy and has worked extensively for the European Commission and for the International labour Organisation. Her research focuses on the inter-disciplinary comparative analysis of employment systems with a particular focus on wages, working time, welfare systems and gender equality. Her most recent book is M. Karamessini and J. Rubery ed. (2013) Women and Austerity: The Economic Crisis and the Future for Gender Equality Routledge. Wiemer Salverda is Professor Emeritus of Labour Market and Inequality at Amsterdam Centre for Inequality Studies and Director emeritus of the Amsterdam Institute for Advanced Labour Studies (both at the University of Amsterdam). He is a Fellow of the World Inequality Database and was an ECFIN Research Fellow 2014–15 at the European Commission. He contributes extensively to comparative research on wages, employment, and inequality, and regularly serves as an expert for the European Commission, OECD and ILO. Thorsten Schulten is Senior Researcher at the Institute of Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut, WSI) at the Hans Böckler Foundation and Head of the WSI Collective Agreement Archive. He is also honorary professor at the University of Tübingen. His research covers wage developments, collective bargaining and industrial relations in a European and international comparative perspective.

xvi  Contributors Catherine Vincent is a sociologist and senior researcher at IRES (Noisyle-grand, France). Her current research interests focus on collective bargaining, employee workplace representation and HRM in the public sector. She has authored recently the French chapter of the ETUI book on collective bargaining in Europe. Claudia Weinkopf is Deputy Manager of the Institute for Work, Skills and Training (IAQ) at the University of Duisburg-Essen, Germany. Her main fields of Research are international comparisons of Employment and Labour Market Systems, industrial Relations and Welfare Systems. Since 2015, she is Academic Advisor of the German Minimum Wage Commission.

Acknowledgements

We would like to thank our student assistants Alexander Mißfeld and Alina Porschke for formatting the manuscript. The early stage of the book project was financed by a project grant of the Hans Böckler Foundation (Grant No. 2014-802-3). The engagement of Irene Dingeldey during the final stage of the book project has made possible to integrate results of the project A03 “Worlds of Labour” of the Collaborative Research Centre 1342 “Global Dynamics of Social Policy”, funded by the German Research Foundation – Grant No. 374666841 – SFB 1342.

1

Introduction Minimum wage regimes in Europe and selected developing countries Irene Dingeldey, Thorsten Schulten and Damian Grimshaw

Minimum wages are an almost universally accepted instrument for regulating employment relations. According to the International Labor Organisation more than 90 percent of all countries in the world have some form of minimum wage regulation, which protects workers by determining a certain wage floor under which no one may be legally remunerated (Belser and Uma, 2015; ILO, 2016). More recently, however, existing minimum wage levels are increasingly criticised for being “too low” and not adequate to prevent in-work poverty. Living wage movements around the world have demanded substantial increases of minimum wages in order to ensure low wage workers might enjoy a decent standard of living (Figart, 2004; Anker and Anker, 2017; Schulten and Müller, 2019). The issue of low pay gained even more prominence during the Corona crises, when it became clear that many of the so called “essential” or “key” workers are in fact at the bottom of the wage ladder. The criticisms about the adequacy of existing minimum wage levels are particularly widespread in Europe, where trade unions and other social actors have launched campaigns for more substantial wage increases in many countries (Schulten and Müller, 2020). Against that background the European Commission (2020a) has presented a proposal for a Directive “on adequate minimum wages in the European Union”, which aims to ensure that all EU member states provide decent minimum wage levels. Other regions around the world have also witnessed growing protests to improve the value of the minimum wage, as well as to improve compliance with the law among employers (Alamgir and Banerjee, 2019; Fairless, 2019). International comparisons have shown that there is a great variety of national and sometimes even sub-national minimum wage regimes (e.g. Aumayr-Pintar and Rasche, 2020; Garnero et al., 2015; Grimshaw et al., 2014; Grimshaw and Muñoz de Bustillo, 2016; Schulten et al., 2006; van Klaveren et al., 2015). A minimum wage regime compromises a certain ensemble of legal and institutional arrangements which frame the different levels, scope, adjustment and enforcement of minimum wage protection. The concrete fixing of minimum wages is usually highly contested and depends on the influence, strategy and power resources of different social actors such as trade unions, employers’ organisations, governments, political parties and

2  Irene Dingeldey, Thorsten Schulten and Damian Grimshaw civil society organisations. Minimum wages are therefore always the result of a certain social and political compromise whether they are negotiated by collective bargaining or fixed by statutory regulation. So far, the bulk of academic literature has largely ignored the different minimum wage regimes including their inherent institutional foundations and social and political conflicts. Instead, it has mainly focused on the effects of existing minimum wages on other economic variables – notably on employment (for a recent review, see Belman and Wolfson, 2016; Dube, 2019). This volume thus contributes to a rather underdeveloped research field on minimum wages from a comparative institutional and political economy perspective. In concrete terms, this book asks: 1) How does minimum wage setting interact with collective bargaining at the country and sectoral levels?; and 2) How do different types of institutional interaction shape trends in the value of minimum wages? The research presented combines knowledge about country-specific socio-economic developments, institutional and labour market settings and actors’ strategies and power resources in an effort to explain diverse outcomes of minimum wage policy (see, also, Grimshaw et al., 2014; Doellgast et al., 2018). It largely follows an actor centered institutional approach (Scharpf, 1997) by analysing strategy and behavior of the relevant actors in the process of minimum wages setting. Since minimum wage regimes are understood as a certain national or sometimes even regional ensemble of minimum wage settings, a core research interest of this volume is on the interplay between statutory wage regulation and collective bargaining. Although most countries have both forms of wage regulation, there are so far only a very few studies which have researched the interplay between them (Dingeldey, 2019; Grimshaw, 2013; Grimshaw et al., 2014). Addressing “interaction”, the various chapters in this book consider both an inward oriented mode, namely the strategies and interests of employers, unions and government in the fixing of a minimum wage, and an outwards form of interaction, namely the conflict or complementarities that arise between minimum wage rules and institutions of collective bargaining. Moreover, the chapters follow Rubery et al. (Chapter 2) in addressing the multiple functions and normative settings related to the minimum wage. The issue of collective bargaining also widens the research to a sectoral perspective, as collective bargaining – at least in Western Europe – often takes place at sectoral level so that there might be different sectoral interactions with a national minimum wage. Thus, one chapter has an explicit sector perspective, comparing the garment industry in Asia, while the chapters on the Netherlands, Germany, Sweden and Norway incorporate detailed comparisons between sectors. With this expanded lens of analysis, the book reflects the growing criticism against the “methodological nationalism” of traditional comparative industrial relations which argues that sectoral differences within national systems are of growing importance (Bechter et al., 2012).

Introduction 3 Although most of the contributions in this volume focus on minimum wage regimes in Europe by presenting both national (France, Germany, Netherlands) and regional (Northern, Southern and Eastern Europe) case studies, the book also extends the analysis to Asia and Latin America. This requires certain adjustments of existing theoretical frameworks as minimum wage regimes in these countries may have different mechanisms and functions. In the final chapter, the many diverse empirical insights are drawn together in order to address the two key questions of this book. It argues that the analytical categories of interactions (developed below) carry a good deal of explanatory power in aiding our understanding of both patterns and trends in minimum wage policy and the ability and willingness of countries to sustain a minimum wage at an adequate level.

1.1  Different types of minimum wage regimes – An overview Historically, statutory minimum wages developed in a complementary fashion with collective bargaining, and were often recommended in sectors where no effective negotiations could take place and/or an extremely low level of pay existed (ILO, 1924). Thus, it is expected that minimum wage norms not only have a positive impact on wages, but also unseal the arena of collective bargaining for social policy goals (ILO, 2017; see also Rubery et al., Chapter 2 in this volume). Accordingly, the International Labour Organisation (ILO) defines a statutory minimum wage as, “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract” (ILO, 2019). Analyzing different types of minimum wage regimes, a basic distinction can be made between universal and sectoral regimes (Schulten and Müller, 2020). Universal regimes are characterised by the establishment of a universal minimum wage, which is usually set at national level, but sometimes also at sub-national/ regional level and – apart from possible exceptions – applies to all employees. In contrast, sectoral minimum wage regimes do not have a universal minimum wage floor but set minimum wages for specific industries or occupational groups. In the European Union, 21 of the 27 Member States currently have a universal minimum wage regime with one uniform national minimum wage rate (Schulten and Müller, 2020, see also Table 1.1). The same holds true for the United Kingdom, which recently left the EU, as well as for many countries outside of Europe, such as, for example, in Latin America – Argentina and Brazil –, or in Asia and Oceania – Korea, Australia and New Zealand. Some countries, mostly larger states in Asia, such as China, Japan, India or Indonesia, but also Canada, have set universal minimum wage regimes not at national but at sub-national level where minimum wages are set at the level of regional provinces, prefectures or districts. Other larger countries such as Russia or the US have a combination of a nation-wide minimum wage plus a great variety of sub-national minimum wages.

4  Irene Dingeldey, Thorsten Schulten and Damian Grimshaw Table 1.1  Different types of minimum wage regimes in Europe and selected developing countries Legal Form Regime

Scope

Statutory regulation

Collective bargaining

Universal

National

Western and Continental Europe: France, Ireland, Luxembourg, Netherlands, United Kingdom

Western and Continental Europe: Belgium, Germany

Southern Europe: Greece, Malta, Portugal, Spain Eastern Europe: Bulgaria, Croatia, Latvia, Romania, Slovenia

Eastern Europe: Czechia, Estonia, Hungary Lithuania, Poland, Slovakia, Outside of Europe: Uruguay

Outside of Europe: Argentina, Australia, Brazil, New Zealand, Korea, Russia, South Africa, USA, Vietnam

Sectoral

Sub-National Regional

Outside of Europe: Canada, China, Indonesia, India, Japan, Pakistan (Russia, USA, Vietnam)

Branch or Occupation

Southern Europe: Cyprus Outside of Europe: Bangladesh, Cambodia,

Northern Europe: Denmark, Finland, Norway, Sweden Western and Continental Europe: Austria Southern Europe: Italy Outside of Europe: Uruguay

Source: Own composition on the basis of Müller and Schulten (2020), Van Klaveren et al. (2015)

In most of the countries with universal minimum wage regimes, it is the state which determines the actual minimum wage by law – usually after more or less formalised consultations with employers and trade unions. There are, however, also some examples – mainly European countries – where the national minimum wage is concluded by a national collective agreement (Belgium, Estonia), by a bipartite agreement with a special minimum wage commission (Germany) or by tripartite agreements between employers, trade

Introduction 5 unions and the state (Czechia, Hungary, Lithuania, Poland, and Slovakia). In some of the latter countries the state also decides unilaterally on the minimum wage, if no tripartite agreement could be reached. Outside of Europe, there are only a very few countries, such as, for example, Uruguay, where the national minimum is determined through collective bargaining. After an agreement on a national minimum wage has been reached, it usually becomes legally binding so that it is equivalent to a statutory minimum wage. There are a couple of mostly European countries which have a sectoral minimum wage regime. In contrast to a universal regime, the latter provides no general minimum wage floor, but sets minimum wages for specific industries or occupational groups. Sectoral minimum wage regimes can be found in particular in Northern Europe (Denmark, Finland, Norway and Sweden) as well as in Austria, Italy and Cyprus. Germany also belonged to this group for a long time until it finally introduced a national minimum wage in 2015. Outside Europe there are few examples of sectoral minimum wage regimes, although in this book we examine the illustrative cases of Bangladesh (with 42 industry minimum wages) and Cambodia (its minimum wage only applies to the garment and footwear sector). Countries with sectoral minimum wage regimes usually have no statutory wage floor as wages are exclusively determined by collective agreements. An absolute exception is Uruguay, which has a national minimum wage, but where the actual minimum wages are fixed for almost all workers at sectoral level. Another exception is Cyprus where the states determine minimum wages for certain occupational groups.

1.2  The scope of collective bargaining The scope of collective bargaining has a significant influence on minimum wage setting. This holds true for both universal and sectoral minimum wage regimes. In the former it determines collectively agreed minimum wages in addition to the national or sub-national minimum wages, while in the latter it is typically the only form of minimum wage setting. Regarding the level of collective bargaining coverage, i.e. the percentage of workers covered by collective agreements, there are huge differences both within and outside of Europe (Figure 1.1). The spectrum ranges from countries where the vast majority of workers, 90 percent or more, are covered by collective agreements to countries where only a minority of 20 percent or less falls within the scope of a collective agreement. Notably, most countries with sectoral minimum wage regimes have a comprehensive collective bargaining system and very high collective bargaining coverage of 80 percent or more. This is the case in the northern European States, as well as in Austria and Italy and outside of Europe in Uruguay. In these countries, the high level of collective bargaining coverage ensures comprehensive collectively agreed minimum wage protection, which has a largely universal character. Since the trade unions in these countries also have a relatively high influence on the setting of sectoral minimum wages

6  Irene Dingeldey, Thorsten Schulten and Damian Grimshaw

Figure 1.1  Collective bargaining coverage (in %) and minimum wage regimes in Europe and beyond* – selected countries –. * Data from 2016-2018 (latest available data); ** data from 2008 Sources: ICTWSS Database (Version 6.1.), ILO

through collective bargaining policy, they are often extremely hostile to the introduction of a statutory minimum wage. However, when countries with a sectoral minimum wage regime are faced by a declining bargaining coverage this creates significant political pressure for a regime change towards a universal regime, as was the case in Ireland and the United Kingdom in the late 1990s and in Germany in the early 2010s In many – but not all – countries with a high collective bargaining coverage, this is supported by administrative extension, erga omnes rules or functional equivalents, so that all employers and workers in a certain sector and geographical area are covered by the same collective agreement (Schulten et al., 2015; Hayter and Visser, 2018). In these countries, often the whole wage grid negotiated in collective bargaining is understood to determine the minimum of remuneration that is then typically topped up by individual or firm specific negotiations. The extension of collective agreements is widespread in some European countries such as Belgium, France, Finland, the Netherlands or Spain, as well as in some Latin American countries such as Argentina, Brazil or Uruguay. In the latter as well as in most developing countries, however, collective agreements only regulate conditions for a minority of workers in the formal sector. For the large majority in the informal sector it is mainly the national minimum wage which influences wage setting, even if it is usually not fully paid. Some countries with a universal minimum wage regime such as Belgium, France or the Netherlands also have a rather high bargaining coverage so that the national minimum wage affects only those workers which either

Introduction 7 have very low collectively agreed wages or are not covered by collective agreements. However, the lower the level of collective bargaining coverage, the greater the potential impact of the national minimum wage, since an ever larger group of workers has no other minimum wage protection. As the empirical chapters in this book demonstrate, the bargaining coverage is therefore a core variable for analyzing the interplay between statutory minimum wage regulation and collective bargaining.

1.3 Different types of intersections between minimum wages and collective bargaining Comparative research has highlighted different forms of interplay between minimum wages and the wage scales set within collective bargaining in different national systems according to the different institutional settings and power relations between collective actors (Grimshaw and Rubery, 2013; Grimshaw and Bosch, 2013). As argued above, it is the bargaining coverage, in particular, which closely influences the interplay between both wage-setting institutions. Moreover, the scope of the various wage setting institutions shapes the strategies and options of the relevant actors when it comes to the determination of minimum wages at different levels. Following an adaptation of Grimshaw and Bosch (2013) one can distinguish five types of intersections between statutory minimum and collectively agreed wages (Table 1.2). The first and by far the most wide-spread type is called “Isolated minimum wage” and applies to country or sector regimes where collective bargaining is only of limited importance while most workers are only covered by the statutory minimum wage. This type is to be found in many Eastern European countries such as Bulgaria (see Chapter 5, Kahancová and Kirov), but also in Greece (Chapter 4, Molina), Indonesia (Chapter 9, van Klaveren) and Vietnam (Chapter 10, Grimsaw and Muñoz de Bustillo, all in this volume), as well as in most sectors in the UK and the US; indeed, in the latter pair of countries collective bargaining is only a force of influence in the public sector where coverage is relatively high. Among countries which conform closely to this interaction type, collective bargaining is rather weak and, as such, the influence of the statutory minimum wage is crucial to influence wage developments for a large proportion of workers. The second type is called “Close interaction”1 and describes a system with a high or medium bargaining coverage where minimum wages and collectively agreed wages are partly overlapping. Hence, overall lower wage grades in collective agreements sometimes fall below the level of the national minimum wage especially after its adjustment. While in any case the employers

1 We renamed this type (originally it was called “Direct interaction”) so as to contrast with the other form, “Distant Interaction”.

8  Irene Dingeldey, Thorsten Schulten and Damian Grimshaw Table 1.2  Different types of intersections between statutory minimum wages (MWs) and collectively agreed wages (CAWs) Type

Bargaining Coverage

MW in relation to median wage

Interaction

In developed countries Isolated Minimum Wage

Low

Medium/high

Close Interaction1

High/Medium

Medium/high

Distant Interaction

not too low

Low/medium

Distant Coexistence

High

Low/medium

Substitute for the Minimum Wage

High

No statutory MW

MWs have a dominant influence on wage setting CAWs of limited importance, Overlapping of MWs and CAWs Developments: MWs often influence CAWs MW is used as a point of reference to set CAWs at a certain distance CAWs are generally above the level of MWs Development: CAWs often influence MWs CAWs as “collectively negotiated MW” to be topped up on firm level

We renamed this type (originally it was called “Direct interaction”) so as to contrast with the other form, Distant Interaction.

1

Source: Authors’ update of Grimshaw and Bosch (2013)

have to pay at least the minimum wage, it also becomes an important driver for overall wage developments in the respective sectors. A major representative of this type is France, where the statutory minimum wage is set at a relatively high level and often pushes up collectively agreed wages (Delahaie and Vincent, Chapter 8). The same holds true for some of the low wage sectors in Germany where the collective agreements were forced to negotiate above-average wage increases after the introduction of the statutory minimum wage (Bosch et al., Chapter 6). Due to comparatively high rises of the minimum wage by government policies after the financial crisis this type of “catch-up” collective agreements may also occur in other countries, such as Portugal for example (see Molina, Chapter 4). The third type, called “Distant interaction”, means that the (statutory) minimum wage is used as a point of reference to set sector specific wage levels at a certain distance above it. Such a practice can be observed in some low wage sectors in the Netherlands (Been et al., Chapter 7), where the trade unions aim to keep a certain distance between the minimum wage and the lowest wages determined in collective agreements. Similar strategies can also be found in some low wage sectors in Germany (Dingeldey, 2019), Spain (Molina, Chapter 4) and Belgium.

Introduction 9 The fourth type covers a small number of countries with sectoral minimum wage regimes such as the Northern European states (Alsos and Eldring, Chapter 3) or Austria. These states have no statutory minimum wage, but because of the very high bargaining coverage collectively agreed wages often function as a “Substitute for minimum wage”. In such an institutional setting, the most “productive” sectors national or sectoral agreements are topped up by firm specific negotiations or by premiums – producing positive wage drift. However, other sectors mostly in the service sector may just pay the collectively agreed wages. The fifth type is called “Distant coexistence” and refers to a high bargaining coverage and collectively agreed wages well above the minimum wage level. Collectively agreed wages are set independently from minimum wages and give an orientation for their adjustment. Examples for this practice are often to be found in almost all European countries but also in many developed countries outside of Europe in the higher paid industries in manufacturing, qualified private services or the public sector. These types can be applied to developing countries, but greater attention needs to be paid to on the one hand, the possibility that collective wage agreements may not be so effective (where unions are weak, employer compliance is low and/or where government policies are stridently anti-union) and, on the other, the fact that the share of workers legally covered by a minimum wage is low in most developing countries, reflecting the high share of informal work. In this volume the above described typology of different forms of interplay between minimum wages and collective bargaining is taken as an analytical starting point. In the concluding chapter, we return to these categories and assess how well the empirical evidence fits with the varied institutional characterisations at national and sectoral levels.

1.4  Level and adequacy of minimum wages In modern capitalist societies wages are a core social and economic indicator which has to fulfil multiple functions (Rubery et al., Chapter 2). Minimum wages, in particular, have the function to determine a certain wage floor which basically set a competitive order and limit downward wage competition. Moreover, minimum wages are also associated with the ambition of a living wage, i.e. a wage level that is sufficient for workers to provide not only basic social needs but also a participation in society. There are a couple of international agreements and declarations such as the UN Universal Declaration of Human Rights of 1948, the ILO Conventions on Minimum Wages of 1928 and 1970 or the International Covenant on Economic, Social and Cultural Rights (ICESCR) of 1966 which even demand a “right to a minimum wage” which should allow every worker a fair remuneration and a decent standard of living (Ofek-Ghendler, 2009). Also in Europe there are several declarations, such as the Council of

10  Irene Dingeldey, Thorsten Schulten and Damian Grimshaw Europe’s European Social Charter of 1961, the EU Community Charter of Fundamental Social Rights of Workers of 1989 and – most recently – the European Pillar of Social Rights of 2017 which all define a decent minimum wage as a fundamental social right for all workers (Zimmer, 2019). Despite of all these normative ambitions, in the economic and political debates the basic function of minimum wages is still highly contested (Schulten and Müller, 2019). It is by no means generally accepted that a minimum wage must be a living wage. A more fundamental critique comes from the neoclassical economics perspective which assumes that companies will pay workers only in line with their marginal individual productivity. If a worker’s productivity is below their basic living costs, it is argued that the employer cannot pay a living wage because this would not be economically sustainable. From such a perspective, it is the responsibility of the state to guarantee the workers’ subsistence by providing additional income support, for example through a negative income tax or other in-work benefits. An alternative view, which was already developed by the Webbs with their critique of “parasitic trades” (Webb and Webb, 1920), states that an efficient economy cannot be based on business models that depend on paying non-subsistence wages. Moreover, minimum wages are seen as an important instrument to promote efficiency and productivity of work and to stabilise private demand (Hirsch et al., 2015). Following the concept of a living wage it is basically the responsibility of the employer to provide an adequate wage level. Thus, the different economic views on the adequacy of minimum wages have strong political implications. In countries with developed welfare state regimes, minimum wage earners often receive both wages and additional state benefits. As higher minimum wage levels might lead to lower state benefits and vice versa, the dispute over an adequate level of minimum wages is also a dispute over the question as to whether the employers or the state are mainly responsible to ensure that workers receive an adequate income. In countries without strong welfare states – as in particular in the Global South – earnings from work are often the only source of income, so that the level of the minimum wage has a direct influence on the level of impoverishment. In order to operationalise the concept of adequacy in relation to minimum wages there are two fundamental approaches (Schulten and Müller, 2019). One is the traditional living wage approach which calculates the adequacy on the basis of a basket of services and goods which are needed to have a certain level of decency. Furthermore, the calculation of living wages also depends on the considered workers’ household – whether it is only a single adult household or includes also various forms of family households. In practice, there is a great variety of living wage concepts used around the world at national or even regional level but no universally accepted concept (Anker and Anker, 2017; Hirsch and Valadez-Martinez, 2017). A second, and perhaps more pragmatic approach to define the adequacy of minimum wages is a distribution-oriented approach which sets

Introduction 11 the minimum wage in relation to other wages. One established standard for the international comparison of minimum wages is the so-called Kaitz Index, named after the American labour statistician Hyman Kaitz (1970), which measures minimum wage levels in relation to the average or median wage of the respective regions or countries. Originally, the Kaitz Index was created in order to assess the “bite” of minimum wages and their influence on national wage structures. As the Kaitz Index is also an indicator of the relative position of minimum wage earners in the overall wage distribution, it is also used as an indicator for adequacy. The concrete definition of an adequate minimum wage in relation to the median or average wage is always the result of a social convention, which itself is a result of political, social and discursive disputes. There is, for example, a widely accepted definition of “low wages” which are any wages below two thirds of the median wage. There is, however, no such universally accepted definition for an adequate minimum wage, and the thresholds used across Europe, for example, reveal significant national differences (European Commission, 2020b; Schulten and Müller, 2020). However, in the recitals to the proposed directive on adequate minimum wages, the European Commission (2020a: 20) made reference to “the use of indicators commonly used at international level, such as 60 % of the gross median wage and 50 % of the gross average wage.” Considering these indicators, most of the national minimum wages for which data are available have to be considered as not being adequate. In 2019, only four (France, Portugal, Korea and New Zealand) of the 25 OECD-countries considered in Table 1.3 had a minimum wage which was above 60 % of the median wage of full-time workers. This is nevertheless an improvement on two decades ago (in the year 2000) when France was the only country. In fact, during the last 20 years, most countries have witnessed minimum wages increasing above the growth of median wages. However, in 2019 there were still eight countries with a minimum wage of between 50 % and 60 % of the median wage, while in a majority of the countries the minimum wage was even below 50 % of the median wage. By far the lowest minimum wage is in the US where the national minimum wage was only equivalent to 32 % of the median wage. There were, however, many US federal states with a much higher minimum wage, comparable to those of many European countries. The median wage as a reference for the adequacy of minimum wages has the advantage that, as the midpoint of the wage distribution, it is unaffected by extremely high or low values and represents a wage margin of larger parts of the workers. The median wage is also usually not affected by changes in the minimum wage. However, the median wage as a refence for adequacy becomes more problematic if large parts of the population only earn very low wages so that the median wage itself is also at a very low level. In Europe this is the case for example, in Portugal or in some of the Eastern European countries. The reference is even more problematic when countries of the Global South are concerned. In Brazil, for example, the minimum wage was

12  Irene Dingeldey, Thorsten Schulten and Damian Grimshaw Table 1.3  Minimum wages in percent of median and average wages of full-time workers Median wage

Belgium Czechia Estonia France Germany Greece Hungary Ireland* Latvia Lithuania Luxembourg Netherlands Poland Portugal Romania Slovakia Slovenia** Spain United Kingdom Australia Canada Japan Korea New Zealand USA

Average wage

2000

2019

2000

2019

51 32 34 62 44 36 36 36 50 52 52 40 46 25 42 51 36 41 58 41 32 29 50 36

47 43 43 61 48 48 50 42 47 51 55 47 52 61 57 49 59 49 55 54 51 44 63 66 32

43 28 28 50 37 28 30 26 39 45 47 33 32 20 34 43 29 34 50 38 28 24 45 29

40 37 37 50 43 35 38 35 38 41 44 39 33 44 41 40 49 42 46 47 45 38 49 56 22

* 2002; ** 2005 Source: OECD Earnings Database

78 % of the median wage in 2009, while in Indonesia it was even 105 % (Rani et al., 2013). The figures of these countries reflect the fact that not only the workers in the formal sector have a rather low wage level, but that there is a huge informal sector with wage levels far below statutory minimum wages. Thus, while in countries with a relatively broad middle class the median wage might work well as a reference for the adequacy of minimum wages, this is not the case in countries where larger parts of the populations have very low wages or work in the informal sector. Therefore, in many countries not the median but the average wage is used as reference, whereby – according to the European Commission (2020a) – an adequate minimum wage has to be at least equivalent to 50 % of the average wage. Looking again at the countries for which current data are available, most of them are – often significantly – below that threshold (Table 1.3). According to calculations by the European Commission (2020b: 54), an increase of national minimum

Introduction 13 wages according to the double threshold of 60 % of median wage and 50% of average wage would increase wages of more than 20 million workers in the entire EU. Finally, in countries with a sectoral regime, where minimum wages are usually set by collective agreements, the minimum wage levels are often much higher than in countries with universal regimes (Garnero et al., 2015; European Commission, 2020b; Schulten and Müller, 2020). This holds true, in particular, for the Northern European States where the lowest wages agreed in collective agreements are mostly well above 60 % or even 70 % of the median wage (Ibid.). A similar situation can be observed in some countries with universal regimes, where the lowest collectively agreed wages are mostly somewhat above the statutory minimum wage. This is the case, for example, in Germany and the Netherlands (Bosch et al., Chapter 6 and Been et al., Chapter 7 in this volume) while in other countries such as France (Delahaie and Vincent, Chapter 8), the lowest collectively agreed wages are relatively often below the statutory minimum wage. In general, it is almost an established fact that there is a strong positive correlation between collective bargaining coverage, the equality of the overall wage structure and the relative value of the lowest wage levels, so that a comprehensive collective bargaining system is a core institution to limit wage inequality and low pay (Salverda and Mayhew, 2009; Hayter, 2015; OECD, 2019).

1.5  Implementation and enforcement of minimum wages Finally, the effectiveness of a minimum wage regime depends on its ability to successfully implement and enforce existing minimum wage regulation (Benassi, 2011; ILO, 2016). Violations of the minimum wage are a significant problem in almost all countries. They are reported from developed countries such as Germany (Bosch et al., 2019) or the UK (Low Pay Commission, 2020), as well as from developing countries. In the latter, there is often a particularly large gap between “de jure” and “de facto” validity, as only a minority of employees in the formal sector receive the minimum wage, while large parts of the workforce is in the informal economy where actual pay usually undermines the prescribed minimum wage. In some countries, such as Indonesia or South Africa the non-compliance rate, i.e. the percentage of employees paid less than minimum wage, are more than 50 % (Rani et al., 2013; Garnero et al., 2015). However, even the informal sector is not without rules, so that developments of minimum wages often also have a strong influence of actual wage developments in the informal sector (Lemos, 2009). The extent of non-compliance depends largely on the institutional setting of minimum wages policy and the role of the various social actors in it (Benassi, 2011). One crucial element is the scope, endowment and control rights of labor inspections and other supervisory authorities responsible for monitoring compliance with minimum wages (Kanbur and Ronconi, 2018). Moreover, an equally important aspect is the presence and strength of employers’

14  Irene Dingeldey, Thorsten Schulten and Damian Grimshaw organizations and trade unions, as well as other civil society organizations and their joint efforts to enforce and control minimum wage standards (Venn, 2009; ILO, 2013; Amengual and Fine, 2017). As such, the enforcement capacity is closely related to the quality of labour relations (OECD, 2017). To sum up, minimum wages are not just an economic variable that describes the wage floor of a country’s labour market. Rather, they are the outcome of a complex political process which is embedded in a specific institutional structure and is heavily influenced by the power and strategies of unions, employers and governments. The following chapters of this book seek to advance our understanding of the complex institutional processes shaping minimum wages, drawing on critical studies of national and sectoral conditions. In particular, it is hoped that the improved analysis of the various intersections between statutory regulation and collective bargaining can play a decisive role in informing a fair minimum wage policy that supports adequate minimum income from work.

References Alamgir F. and Banerjee S. B. (2019) Contested compliance regimes in global production networks: Insights from the Bangladesh garment industry. Human Relations 72(2): 272–297. Amengual M. and Fine J. (2017) Co-enforcing labor standards: The unique contributions of state and worker organizations in Argentina and The United States. Regulation and Governance 11(2): 129–142. Anker R. and Anker M. (2017) Living Wages Around the World. Edward: Elgar Publishing. Aumayr-Pintar C. and Rasche M. (2020) Minimum Wages in 2020: Annual Review. Dublin: Eurofound. . Bechter B., Brandl B. and Meardi G. (2012) Sectors or countries? Typologies and levels of analysis in comparative industrial relations. European Journal of Industrial Relations 18: 185–202. Belman D. and Wolfson P. (2016) What Does the Minimum Wage Do in Developing Countries? A Review of Studies and Methodologies. Conditions of Work and Employment Series No. 62, Geneva: ILO. Belser P. and Uma R. (2015) Minimum Wages and Inequality. In: Berg J. (ed) Labour Markets, Institutions and Inequality. Cheltenham/Geneva: Edward Elgar Benassi C. (2011) The Implementation of Minimum Wage: Challenges and Creative Solutions, Global Labour University Working Paper No. 12, Geneva: ILO Bosch G., Hüttenhoff F. and Weinkopf C. (2019) Kontrolle Von Mindestlöhnen. Wiesbaden: Springer VS. Dingeldey I. (2019) Wechselwirkungen zwischen mindestlohn und tariflohn. Arbeit 28: 55–72. Doellgast, V., Lillie, N. and Pulignano,V. ( 2018) Reconstructing solidarity: Labour unions, precarious work, and the politics of institutional change in Europe. Oxford: Oxford University Press. Dube A. (2019) Impacts of minimum wages: review of the international evidence, Report on behalf of the UK Government, Open Government Licence (OGL),

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16  Irene Dingeldey, Thorsten Schulten and Damian Grimshaw ILO (2019) What Is a Minimum Wage? ; access 17/10/2019, Geneva: International Labour Organisation. Kaitz H. (1970) Experience of the Past: The National Minimum. Youth Un-Employment and Minimum Wages, Bulletin 1657. Washington, DC: US Department of Labor, 30–54. Kanbur R. and Ronconi L. (2018) Enforcement matters: The effective regulation of labour. International Labour Review 157 (3):331–356. Low Pay Commission (2020) Non-Compliance and Enforcement of the National Minimum Wage, London: UK Government, Lemos S. (2009) Minimum wage effects in a developing Country. Labour Economics 16(2): 224–237. OECD (2017) Collective Bargaining in a Changing World of Work, OECD Employment Outlook 2017. Paris: OECD, OECD (2019) Negotiating Our Way Up. Collective Bargaining in a Changing World of Work. Paris: OECD. Ofek-Ghendler H. (2009) Globalization and social justice: The right to minimum wage. Law & Ethics of Human Rights 3: 266–300. Rani U., Belser P., Oelz M. and Ranjbar S. (2013) Minimum wage coverage and compliance in developing countries. International Labour Law Review 152: 381–410. Salverda W. and Mayhew K. (2009) Capitalist economies and wage inequality. Oxford Review of Economic Policy 25: 126–154. Scharpf F. (1997) Games Real Actors Play. Actor-Centered Institutionalism in Policy Research. Boulder CO: Westview Press. Schulten T. and Müller T. (2019) What’s in a name? From minimum wages to living wages in Europe. Transfer European Review of Labour and Research 25: 267–284. Schulten T. and Müller T. (2020) Between Poverty Wages and Living Wages. Minimum Wage Regimes in the European Union. European Studies for Social and Labour Market Policy No. 1 (ed. by DIE LINKE at the European Parliament). Brussels,

Schulten T., Bispinck R. and Schäfer C. (ed). (2006) Minimum Wages in Europe, Brussels: ETUI. Schulten T., Eldring L. and Naumann R. (2015) The Role of Extension for the Strength and Stability of Collective Bargaining in Europe, in: van Gyes, G. and Schulten, T. (eds): Wage Bargaining Under the New European Economic Governance. Alternative Strategies for Inclusive Growth, Brussels: European Trade Union Institute: 361–400. Van Klaveren M., Gregory D. and Schulten T. (ed.) (2015) Minimum Wages, Collective Bargaining and Economic Development in Asia and Europe. A Labour Perspective. Palgrave Macmillan. Venn D. (2009) Legislation, collective bargaining and enforcement: Updating the OECD employment protection indicators. OECD Working Papers. Paris: OECD. Webb S. and Webb B. (1920) Industrial Democracy. London, New York etc: Longmans, Green and co. Zimmer R. (2019) Living wages in international and European law. Transfer European Review of Labour and Research 25: 285–299.

2

Minimum wages and the multiple functions of wages Jill Rubery, Mathew Johnson, Damian Grimshaw

To understand the role or roles that minimum wages can play in shaping pay structures we need to consider the multiple functions of wages in capitalist societies. These multiple functions add to the interest in the processes shaping the wage structure as different actors are motivated by the distinct roles that wages play and take different views over what wage policies and strategies should be pursued. This indeterminacy is not only due to the often-­ discussed apparent trade-offs between, for example, the level of wages and the quantity of employment but also to the complex interactions between the different “functions” of wages in the labour market and society. For example, in order to promote gender equality, is it better to raise minimum wages, to say a “living wage”, or to re-evaluate women’s skills? The first strategy could bring about wider and quicker results while the second might deal with deep-rooted underlying prejudices about the relative worth of particular types of jobs and skills. The consideration of the different functions of wages also highlights the inherent ambiguity in and range of perspectives that exist in regard to what constitutes fair wages. To identify the multiple functions of wages we have drawn on, and in practice combined, two distinct but overlapping and complementary frameworks for capturing the multi-dimensional nature of wages and wage setting (Figart et al., 2002; Rubery, 1997). From these combined frameworks we can identify five functions of wages (see Table 2.1). The first two, wages as a price and wages as living, encapsulate the two main functions of wages – as the cost of production and the means for social reproduction. These two functions mirror the well-known alternative approaches to national accounts – as the value of goods and services produced and as the rewards to factors of production. Figart et al. in fact use these exact terms, thereby highlighting one of the persistent areas of contestation in wage setting, between whether wage setting should seek to maintain the real value of wages, that is upgraded by the costs of living, or to reflect the changes in the market and production conditions of the country, sector or firm in which the person is located. These issues are central to debates over minimum wages, that is whether they should reflect the costs of living (or changes therein) on the one hand, or firms’ ability to pay on the other. There is also the issue of whether

18  Jill Rubery, Mathew Johnson and Damian Grimshaw Table 2.1  The multiple functions of wages Wage function

Economic and social effects

Wages as price of labour

Wages are both a cost of production and a signal for labour allocation Wages as the main means of social reproduction; social needs/ expectation as a basis for wage setting

Wages as living

Wages as class distribution

Wages as social practice

Wages as control of the labour process

Wages as the main means of distribution between capital and labour/ wages as a key area of contestation in the employment relationship Wages enacted to both reflect/ reinforce social norms/ practices and to transform/ change social norms/ practices Wages used by management to control the labour process and as a means of resistance by workers

Links to wage function frameworks Figart et al. focus on wages as price/ Rubery on wages and market allocation Figart et al. focus on wages as living including role of family wages; Rubery focuses on both social reproduction and social stratification including family wage. Implicit in both frameworks in the struggle between costs of production and means of social reproduction Figart et al. focus on wages as social practice/ Rubery includes this within social stratification norms Rubery focuses on wages as management tool

either or both of these should be differentiated according to perceived differences in the living needs of people or groups, or in the differences in ability to pay by, for example, sectors. The Rubery framework also identifies these two functions but also adds to the production focus not only the role of wages as production costs but also the role of wages in allocating labour across sectors, firms, and occupations in the economy. Thus, we expand the notion of wages as price to include the impact of minimum wages on labour allocation. The third function we specify is wages as the outcome of distributional struggles between capital and labour. This function can be considered implicit in the tensions between wages as price and wages as living – and as such is not separately identified in the two original frameworks. It is pulled out here not only to consider the contribution of minimum wages to the distribution of income within society and the overall wage share but also to reflect on the relationships between minimum wages and the power dynamics in the employment relationship and the wider economy. For example, we can here consider the extent to which minimum wages contribute to or detract from other mechanisms to bolster employee power such as collective organisation and collective bargaining.

Minimum wages and the multiple functions of wages 19 The fourth function draws on the third dimension in Figart et al.’s framework, wages as a social practice, to capture the ways in which wages shape and reshape social relations. Thus, although wage setting may often reflect and even reinforce social arrangements and norms, it may also kick start a process of transformation of social relations. For instance, campaigns to close the gender pay gap may be instrumental in changes in expected gender relations in the workplace and the household. These changes may be reinforced if women in more households start to earn the same or more than their partners. This allows for a more dynamic approach to understanding the interplay between wage setting and social status than the traditional accounts of how wages and social standing and power are interconnected. There are many examples of these interconnections – ranging on the one hand from Adam Smith’s proposition that high wages are needed in occupations such as judges to ensure trust, to, on the other hand, feminist arguments that male wages “need” to exceed female wages to maintain unequal gender power relations both in the workplace and in the home. However, the social practice approach allows for change and transformation. One issue to consider is how minimum wages and campaigns for higher living wages are or could be transforming relations within the lower segments of the labour market. Finally, but no less importantly, wages are one part of a set of micro-level tools available to management to control and shape work behaviour and productivity within the employment relationship (Rubery, 1997). Workers also use wage setting as a form of resistance to management control, particularly when pay has a variable element as in piecework and bonus or performance systems or where management seeks a change in working practices that may be resisted unless it is compensated by a wage premium. When management is constrained in wage setting, for example by minimum wages, management may turn to other mechanisms, for example, control over working hours, if they no longer have discretion in fixing pay levels for some workforce groups. These five functions can be used to explore the forces shaping the setting of legal minimum wages but wage setting mechanisms also interact, often through the responses of key actors. In line with the focus of this volume, we explore how minimum wage setting interacts with other wage setting mechanisms, in particular collective bargaining, and how both may limit or constrain the third mechanism which is managerial discretion. By focusing on these multiple functions of wages we also cast light on why wages and the concept of fair pay is so contested. Fairness may be judged, for example, according to the ability to pay of the employer, the costs of living that workers have to face, or by the share of national and company income allocated to capital versus labour. Likewise, social norms may serve to legitimise pay inequalities but if pay fails to respond to changing social relations over time these norms may be challenged. Within organisations there may not only be differences of views between managers and workers over the overall

20  Jill Rubery, Mathew Johnson and Damian Grimshaw level and structure of fair wages but also whether the key issue is to fairly reward job grade and skill or to reflect relative effort, performance, and competences. These different perspectives provide much scope for different views and actor strategies both towards the setting of minimum wages and towards how collective bargaining should respond to the setting of minimum wages. Now that the five functions of wages have been introduced, the following sections take each of these perspectives on wages to discuss how minimum wages can and do interact with changing labour markets and social systems on the one hand and collective and managerial wage setting on the other. Many of the examples are drawn from the UK but supplemented by comparative examples where relevant.

2.1  Minimum wages as price Wages as price underpins mainstream economic theories of wages but the meaning is ambiguous. If labour markets are integrated and not segmented, economic theory expects wages to reflect the relative productivity of the worker, linked to their human capital. However, not only may labour markets be segmented but also product markets, so that the capacity to pay by companies and sectors varies in ways that are not fully or mainly explained by the productivity potential of the workforce. These differences in understandings of markets have consequences for views about the appropriate level of national minimum wages. The arguments made for and against a relatively high minimum wage, measured by the Kaitz index, hinges on whether or not there is perceived potential to integrate rather than segment markets. The setting of a relatively high common minimum wage across sectors and firms can be seen as a means to improve the efficiency of markets that, left unregulated, will fail to set a common “going rate” of wages for labour at the lower skill end of the labour market. A common rate promotes efficiency by stopping firms employing labour at below the productivity level implied by the common rate (wage chiselling) (Linder, 1990). This approach should speed up the restructuring of the economy, through promoting not only closures of firms where these are so unproductive that they cannot pay the going rate and stay in business but also through incentivising technological investment and investment in worker skills. This was the famous approach taken by Sweden under the Rehn–Meidner model (Erixon, 2010) whereby common wage increases were set according to productivity increases in the higher productivity export sector so as to encourage the non-export sector to raise efficiency levels. In Sweden it was comprehensive collective bargaining that provided the wage setting mechanism to bring about this high wage strategy as Sweden is one of the few OECD countries that does not have a legal minimum wage. The French SMIC may be the closest to providing a common high minimum wage applicable to all sectors but here the motivation for the high common

Minimum wages and the multiple functions of wages 21 norm stemmed from a policy to reduce wage inequality and to cover living costs following the May 1968 political protests (Gautié and Laroche, 2018) rather than any specific economic restructuring or high productivity agenda. While a high wage strategy to ensure a common rate, upgrade productivity and promote restructuring is one potential strategic approach to pay setting, it is more common in practice for wage setting, particularly collectively-bargained wages, to be segmented by sector, on the grounds that productivity levels between sectors do vary and convergence through wage policy can be at best partial. Consequently, in order for lower productivity sectors and firms to survive, either wage setting may be left to sector or firm-specific collective bargaining or a national minimum wage may be set at a lowish level to allow for collectively-bargained or manager-initiated upgrades. Support for this approach could be said to come from evidence that problems of compliance with legal minimum wages increase when minimum wages are set at higher levels (Rani et al., 2013). Segmented bargaining by sector or firm has been argued to lead to wage inequality, supporting the notion that trade unions favour insiders over outsiders and pursue vested interests rather the sword of justice (Flanders, 1970). However, this dichotomy can be overdrawn as pursuit of vested interests or wielding the sword of justice are not either or strategies: for example trade unions may have to develop areas of strength to provide the leverage to promote policies to improve the position of those not in these areas of strength (Rubery, 1978), for example by raising legal national minimum wages. In short, there will be differences across contexts in how far trade unions use collectively-bargained wages in order to increase, maintain or reduce segmentation in wages by firm and sector. Another set of arguments made in favour of a low minimum wage rate are based on the belief that there are highly variable skills and productivity even among the lower skilled workforce. Thus, lower minimum wage rates for female- or youth-dominated sectors may be legitimised by beliefs that women or young people have low productivity compared to men or adults. Now that in most countries the specification of separate minimum wages for men and women is neither legal nor acceptable, such beliefs instead might lead to the maintenance of a low national minimum wage, targeted at the presumed low productivity levels of women, with collective and individual bargaining used to raise minima in more male-dominated sectors. The UK to some extent fits this pattern as when it introduced the UK national minimum wage (UKNMW) in 1999, the rate was pitched to mainly affect part-time workers, most of them female (female part-time workers were estimated to be 55% of the “beneficiaries” (LPC, 1998: 5)), with limited predicted impacts on fulltime workers (who only accounted for around 33% of the beneficiaries almost equally split by gender). The rate was subsequently raised in real and relative terms during the 2000s but the lack of collective bargaining in many parts of the private sector has allowed the wages for full-time workers near the bottom to be steadily “compressed” downwards towards the NMW over time.

22  Jill Rubery, Mathew Johnson and Damian Grimshaw When it comes to youth wages a relatively high share of countries do set a lower minimum wage rate but although this might suggest a common belief in lower productivity of young people, in practice the differentials are widely variable, as are the actual wage gaps between young people’s and adult wages (Grimshaw, 2013). This suggests that the discounts are not related to any systematic assessment of actual productivity differences and are more affected by political beliefs, social norms and the overall level of inequality. Furthermore, the main causes of low pay may not always be either the productivity levels of firms or the workforce, but the monopsonistic power employers can exert over older, young, female or migrant workers. Low wages for these groups may be used by employers to undercut competitors, particularly if, in the absence of an effective minimum wage, they are able to link wages not to productivity but to assumed costs of living needs. Women and young people are vulnerable to low pay as it is assumed that they can be subsidised by other family members, especially husbands and fathers (Webb and Webb, 1897) while posted workers or migrants are assumed to have different reference points for their expected standard of living (Recio, 2001). Some of the very low wages recorded in Germany prior to its introduction of a statutory minimum wage reflected both the presence of posted workers and migrants and the spread of mini jobs among women workers due to the high taxation married women face in regular work under the German income tax splitting system. Thus, minimum wages can play a very important role in creating more unified markets that do not reflect the different social conditions and household arrangements of the labour force participants. Minimum wages thus act to unify prices in markets that may be segmented by a range of factors that shape availability for low wage work.

2.2  Minimum wages as living Wages are the main source of support for living standards. The need to cover living costs is a constant and important source of pressures from workers for higher minimum wages, particularly in periods of inflation, and also an important reference point in collective bargaining over pay. Recently the notion that minimum wages should be “living wages” has been gaining momentum in developed and developing countries. Living wage campaigns were reignited in 1994 in the US city of Baltimore and have since spread to more than 100 cities throughout the US since then (Levin-Waldman, 2009; Luce, 2014; Swarts and Vasi, 2011), and a national union-led campaign has developed in the UK (Wills, 2009). Some local authorities in the UK have also been active in advocating and adopting living wages. These campaigns for living wages in cities in the United States and elsewhere are notable for their coalitions of community and trade union groups. There is the start of campaigns for living wages across developing countries led by the ICTU- for Africa, Asia -and for all workers in global supply chains in textiles through the ACT initiative.

Minimum wages and the multiple functions of wages 23 This linkage of minimum wages to living standards is in itself a key motivation for establishing minimum wages to protect against poverty. The role of “wages as living” is thus central to debates over both whether to have minimum wages and over the level at which they should be set. However, defining what is meant by a living wage is complex. As Anker (2011: 52) notes “a silver-bullet methodology does not exist, nor will it ever exist”. The notion of a living wage already requires consideration of methodologies for setting poverty lines, including the issue whether it should be based on a basket of necessities or on some measure of relative earnings such as the 60% of the median definition of low pay. The former raises the issue of whether the cost of the basket should be calculated at a national level or locally, particularly where housing costs vary. Some living wage calculations such as the London living wage did until recently refer to the poverty line of 60 per cent of median earnings, but this was dropped when the median wage declined during the financial crisis. The London living wage has now been harmonised with the calculation of the UK living wage and focuses solely on a “basket of goods” approach that is set in dialogue with workers and families (D’Arcy and Finch, 2019). Further issues include to what extent a single wage should cover dependants: in practice the calculation of a living wage has variously been based on the needs of; a worker; a worker and their spouse; and a worker with up to three dependants (Bennett and Lister, 2010). This variation makes it difficult to determine a minimum hourly wage rate (at any level) which would guarantee a specified standard of living for such a heterogeneous set of workers and family types, particularly in the absence of provisions for minimum working hours over the week, month or year (Mutari and Figart, 2004). Living wage calculations also make allowance for the social wage but this requires assumptions to be made in relation to workers’ awareness of and willingness to claim all additional benefits to which they are entitled, such as housing benefits and in-work tax credits among others (Linneker and Wills, 2016; Swaffield et al., 2018). Two cases drawn from the history of debates over fixing minimum wage levels in France and the United States exemplify these problems. In France the original minimum wage, the SMIG, was introduced in 1950 and explicitly tied to providing workers with a "normal life, decent and fully human" (quoted in Gautié and Laroche, 2018: 3). However, by indexing the SMIG to the consumer price index, the effect was to fix standards of living at a point in time, so that low paid workers failed to enjoy the access to higher standards of living through productivity gains. After the May 1968 protests, the SMIG was replaced by the SMIC and raised by more than one third. This time it was not only indexed to consumer prices but also linked to the rise in average earnings to enable all workers to benefit from general productivity increases in the wider economy. This approach recognised the dynamic nature of living and poverty standards.

24  Jill Rubery, Mathew Johnson and Damian Grimshaw The United States example illustrates the issue of gender relations in the determination of wages as living. Interestingly, the first set of actions to try to establish minimum wages during the 1900-1920 progressive period in the United States were aimed at reducing sweated labour in parasitic industries; the Webbs ( Webb and Webb 1897) had linked sweating to the opportunity to employ women on low wages because of their position as household dependants. The dual objective of reformers was to protect women (often in unorganised sectors) who were seen as vulnerable and in special need of protection and also to prevent low wage competition in unionised sectors where women might undermine “family” wages earned by men (Figart et al. 2002). These movements also raised the issue of the appropriate concept of “needs” for women; with Dorothy Douglas defining five possible approaches from the “ultra-reactionary” pin money notion (where lower wages for women were justified as they represented only a component of overall household earnings to cover trivial expenses) to the “ultra-radical” idea that women should be able to provide for their own dependants. In the main the individual states that adopted minimum wages for women decided on the principle that wages should be sufficient for independent living without dependants, though the actual rates set often fell below that standard. These experiments in minimum wages were ultimately deemed to conflict with women’s freedom to contract. When the next move came to establish a minimum wage in the United States it was under the New Deal, influenced by the mass unemployment and poverty among men during the Great Depression. This time the aim was thus to establish a minimum wage for male breadwinners and the issue of the relative and absolute position of women was side-lined as a policy consideration. Many female-dominated sectors were de facto excluded as the federal minimum wage only applied to those sectors where there was interstate commerce and areas such as domestic work and much of retail work were only included gradually over time. In practice, the problem of how to define living wages in a dynamic environment and how to deal with gender and household differences in presumed needs still remain. It is perhaps an irony that those opposed to minimum wages on the grounds of interference with wages as a price have used the ambiguous impact on living standards to further strengthen their opposition, arguing that minimum wages are an ineffective policy tool against poverty (Neumark and Wascher, 2008). Most mainstream economists – and increasingly the policy community – prefer to tackle low pay through wage subsidies that vary with the size and composition of the household, but typically at a relatively low level so that it “pays” for people to be in work (rather than solely reliant on state welfare) (Macpherson, 2004). This can create a vicious circle where the solution to low wages in the short-term is wage subsidies to make up the shortfall in incomes but these subsidies encourage employers to pay low wages or offer short hours. Over time, the cost of correcting for “market failure” through wage subsidies places a significant burden on the state and this expenditure then becomes the target of cutbacks

Minimum wages and the multiple functions of wages 25 as governments attempt to balance budgets even though the underlying low wage dynamics remain unchanged. In the recent recession there was a further issue of whether the minimum wage should be maintained in real or relative terms. The outcome was in fact mixed. For example, while between 2007 and 2013 in the US, Japan, Latvia, Poland, and Slovenia minimum wages were frozen or uprated, slowly their bite increased over this period as median wages fell further. In contrast, the minimum wage bite fell over the same period in the Czech Republic, Spain, Greece, Ireland and Turkey, partly reflecting the conditions of the “troika” bailouts including a direct cut in the minimum wage in Greece of over 20% in 2012, and in Ireland of 13% in 2011 (although it has since been increased again) (Eurofound, 2016). Conversely, in Slovenia there was a deliberate policy of raising the minimum wage by a fifth to protect against poverty in the downturn (Grimshaw et al., 2016). France’s high minimum wage was also protected by its indexation to consumer prices. Overall, according to an ILO report the maintenance of real minimum wages in the downturn was stronger than in the past: “…evidence shows that, contrary to what happened in previous downturns, a large number of countries have raised their real minimum wages or are considering improving their minimum wage fixing systems. This is a recognition that minimum wages can serve as a social floor for wage adjustments, a tool to fight against wage deflation, while maintaining the consumption capacity of those at the bottom of the wage scale, thus contributing to a quicker economic recovery.” (ILO, 2009: 12) It is also the case that many minimum wage policies worldwide can be argued to have in practice reinforced women’s subordinate economic status in the household by setting the minimum rate close to prevailing wages for women in the labour market and well below adult subsistence levels. For example, in the UK the NMW was pitched at a level where over 55% of beneficiaries were female part-time workers whose hourly wage was clearly insufficient for independent subsistence (LPC, 1998). In steadily adjusting the relative value of the NMW upwards since 1999 (Brown, 2017), there has been some attempt to move towards a wage compatible with subsistence even if these adjustments have mainly been aimed at reducing the costs of state subsidies to breadwinners through in-work tax credit systems. For example, the sharp increase of the minimum wage in 2016 for workers aged over 25 (referred to as the “national living wage”) was announced alongside further proposed cuts to child and working tax credits. However, it is in some respects testimony to how far the campaign for gender equality has come in that at least the public debate has taken it as read that women would receive the same minimum living wage as men. Furthermore, in the early stages of gender equality policy the reference to living standards

26  Jill Rubery, Mathew Johnson and Damian Grimshaw would have been interpreted as a move to re-establish breadwinner claims for higher pay and feminists would have opposed a living wage campaign. Now it can be interpreted as potentially extremely positive for gender equality for, as Orloff (1993) has noted, one of the key inequalities women face is not having the resources to set up a family without a man as breadwinner. Although the move to unisex campaigns for living wages as a minimum can be welcomed, there can be some concerns that the linkage to living standards has not been sufficiently thought through and the disadvantages as well as the advantages considered. These problems have been identified by Bennett (2014) from a general equality as well as a gender equality perspective. The wider general equality concern is whether a living wage might encourage governments to seek to cut the social wage on the grounds that labour market earnings should provide sufficient resources. The gender equality concern is that a living wage does nothing to revalue women’s skills and contributions and may also undermine differentials for women’s skills and experiences if the result is further compression of differentials at the bottom of the labour market. We return to the issue of compression below, but it is also important to consider the issue of the social wage. A living wage cannot provide for all living standards needs due to variation in these needs by type of household; it is in fact no more a panacea than that of a universal basic income as both policies provide a uniform individualised level of support. Perhaps the main complement to a living wage should be a basic income for children to increase the socialisation of the costs of children. This, as argued for by Atkinson (2015), would contribute to general equality while also taking the issue of resources for children outside of the wage bargaining system and perhaps finally putting to bed the notion of the need for a male family wage. Of course, such a solution depends both on the existence of a strong welfare state and the counterpart, a fiscal system capable of making employers and the high paid contribute to the costs of socialising the social reproduction of children. •

Living wages may be acting as an important campaign to raise the overall level of minimum wages and to counter the still embedded gender inequality in current levels of minimum wages. However, as wages need to serve multiple functions, this is only one part of an equitable wage policy, even in respect of minimum wages and may potentially cause other problems if pursued to the neglect of other wage functions, as we discuss further below.

2.3  Minimum wages as an instrument of redistribution • •

Minimum wages are redistributional in intent (Freeman, 1996) though the ambition may be limited: At best, an effective minimum wage will shift the earnings distribution in favour of the low-paid and buttress the bottom tiers of the distribution from erosion. At worst, minimum wages reduce the share of earnings

Minimum wages and the multiple functions of wages 27

•

•

going to the low-paid by displacing many from employment. Neither outcome is certain, so that enacting a minimum is a risky but potentially “profitable” investment in redistribution. It is the balancing of risk against gain that makes a minimum so controversial (Freeman, 1996). However, despite these cautionary words, there have been some key examples where minimum wages have become active tools of redistribution. These include the settlement after the May 68 events in France that saw the minimum wage rise by over a third and a commitment to a solidaristic wage policy built around the SMIC, and the pink tide policies of both raising minimum wage levels and formalising of employment in Latin American countries. A recent summary study found that in Argentina there was a 7% drop in the Gini coefficient of income inequality between 2003 and 2012 with minimum wages increases accounting for one third of the decline. Brazil recorded a 5% drop in its Gini coefficient 2013–2011 with minimum wages increases accounting for 84% of the decline. However, in Uruguay the changes were more limited and in Chile were not detectable (Amarante and Prado, 2017). In most cases, however, minimum wages are unlikely to provide a sufficient tool to make dramatic changes to overall levels of inequality or to offset significantly the decline in the wage share in national income. Table 2.2 reports on an exercise commissioned by the peak level union organisation in the UK the Trades Union Congress (TUC) (Lansley and Reed, 2013) to calculate the impact of four complementary strategies to reduce the wage share gap (that is the difference between the wage share in 2011 and in 1980). This reveals that extending trade union membership and collective bargaining would have the biggest impact followed by reduced unemployment. Increasing the wage floor and extending the coverage of the living wage would lead to modest aggregate gains although these would be significant gains for the individuals concerned.

The much greater returns, in terms of wage share, from extending collective bargaining then raises the issue of whether legal minimum wages are substitutes for or a potential catalyst for collective bargaining and trade union organisation. If they act as a substitute, legal minimum wages may have long term negative impacts on both redistribution and power in the employment relationship but if they act as a catalyst, they may complement other strategies to increase the wage share and bolster workers’ power within the employment relationship. Most countries now have a minimum wage, with recent estimates suggesting that around 90% of ILO member states now have a minimum wage system in place (Belser and Rani, 2015), so the main issues now are the exact form of the minimum wage and how it is used by both employers and trade unions. A key factor in the role of the minimum wage in promoting redistribution is its level relative to median earnings or the “bite”, measured by

28  Jill Rubery, Mathew Johnson and Damian Grimshaw Table 2.2  The combined impact of four policy measures to reduce the UK wage share gap (difference in wage share in 2011 compared to 1980)

National Minimum Wage increased to £6.60 per hour Living Wage introduced for 50 percent of employees currently paid below it Extension of trade union membership and collective bargaining coverage Reduced unemployment

Gross increase to wages bill for each item

Percentage of wage gap closed for each item alone

Cumulative effect of combining the policies

£1.0bn

1.2%

1.2%

£3.2bn

3.9%

4.5%

£13.0bn

15.7%

20.2%

£4.1bn

4.9%

25.1%

Notes on calculating the combined impact – of 25.1 per cent – in the table, which assumes: • that half of the impact of increasing the National Minimum Wage from £6.19  to £6.60 per hour is subsumed under the impact of introducing the Living Wage for half of employees (because the living wage rates are higher than the £7.19 per hour rate which would arise from increase in the National Minimum Wage • that the impact of increased collective bargaining is additive, on top of the impact of the living wage • that the impact of reduced unemployment is additive. Source: Lansley and Reed (2013)

the Kaitz index. As Dingeldey et al. note (table 1.3 this volume) 21 out of 25 OECD countries have a minimum wage below 60% of the median wage and for 12 the ratio is below 50%, the OECD’s relative poverty line. This should in principle provide scope for collective bargaining to build on the minimum wage to improve the returns to workers in national income. However, that scope depends upon the strength of trade unions and collective regulation and on organising strategies around the minimum wage. In the UK, the decline in trade union power and collective bargaining preceded the introduction of a national minimum wage and the NMW has been widely used by employers not as a residual protection but as the going rate in the low skilled sector. This could be argued to make reviving collective bargaining more difficult. However, in some sectors, the right to the minimum wage has become a major organising catalyst – for example for workers in the gig economy who have been denied the minimum wage and associated holiday entitlements (Dundon and Inversi, 2017). Likewise, in Latin America the organising of domestic workers and the formalising of their contracts was aimed at getting them access to minimum wage protection (Hobden, 2015a, b). Current campaigns to raise the minimum wage to a

Minimum wages and the multiple functions of wages 29 living wage by trade unions at a national or international level may have the capacity to revitalise organising movements. Even where trade unions are relatively strongly established, there may be valid concerns that minimum wages could lead to the erosion of collective bargaining. The concerns of unions in Germany that the new national minimum wage might detract from collective bargaining led to the negotiation of protective measures to ensure that social partners are involved in the setting of the minimum wage rate, thereby embedding it within the wider collective bargaining system (Bosch, 2018). Much therefore depends upon the institutional and political context and whether the system of minimum wages is designed to complement, extend, or erode the system of protections established through collective bargaining.

2.4  Minimum wages and wages as a social practice Wages signify the value placed on people, work and occupations: that is wage is a social practice that confers a certain status including signifying positions in organisational or social hierarches. These hierarchies may be differently constituted across countries: for example, the division between manual and non-manual work may be more hierarchical in some countries or divisions by educational or training status may result in strong social norms with respect to job status. These differences in status may often be reinforced by wage setting structures where, for example white collar workers or those with higher education have separate bargaining agreements from blue collar. In some cases, these social practices are strongly embedded in the institutions of wage setting (for example wage groups in Germany and the points system in France) while in other cases they are more informal and variable by company or sectors. Wage systems may also reflect and reinforce gender hierarchies; for example, in some counties such as the UK and Finland bargaining groups may be divided as much on gender and skill grounds (Rubery, 1998; Koskinen Sandberg, 2017). Indeed in a comparative study of payment systems between Germany, UK and Italy, it was to be the one that did not have lacked strong norms with respect to pay differentials for either non manual compared to manual or higher skilled manual compared to lower skilled manual work. The consequence was that the lowest rate for non-manual, workers often fell below the lowest rate for manual workers, reflecting gender rather than skill differences (Rubery, 1998). In the period since the national minimum wage was introduced in the UK there is evidence to suggest that the notion of wages signifying status and skill within the bottom half of the labour market has been further eroded. The risk is that minimum wages in a context of weak collective regulation may become, instead of a wage floor or residual protection, the going rate for particular occupations or sectors. That this was not the original intention – at least from the perspective of the Low Pay Commission which recommends the rates at which the NMW/NLW is set is made clear in the first

30  Jill Rubery, Mathew Johnson and Damian Grimshaw report where the LPC states that: “We are introducing a pay floor, not a pay policy. A minimum wage should never be regarded as a ‘going rate’ for pay” (LPC, 1998: 160). In the UK there has however been a clear trend towards compression of pay around the minimum wage, exacerbated by the recent introduction of the national living wage. For example, while in 2007 around 13% of fulltime employees in lower skilled jobs were clustered around the NMW by 2016 the share had risen to 21% (ONS, 2018). The compression is even greater for part-time workers with 32% clustered around the NMW/NLW in 2016. However, much of the compression has in this period applied particularly to men. The impact of these changes may have mixed impacts for gender equality; on the one hand the effect is to raise the value of some female-dominated sectors and occupations relative to the overall median wage and relative to some male-dominated occupations, thereby reducing gender inequality. On the other hand, this has taken place through both a downgrading of men’s jobs and a raising of the minimum wage but without any social revaluing of the work done by women in relation to its significance for the economy and society, its complexity and the skills required. A tendency to treat a large swathe of jobs as simply “minimum wage jobs” may further intensify the effects characterised by Sennett (1998) as “corrosion of character”, that is reducing the meaning and status attached to jobs. This has already been evident in parts of the female labour market where jobs are described simply as part-time or in Germany as mini jobs – without reference to their content and responsibilities. Thus, while social practice may create and reinforce hierarchy and discrimination it may also serve to develop identities in work associated with the value of skills and a trade that may be being undermined for both sexes by the homogenisation of the bottom part of the labour market. This may be particularly the case when, as we discuss further below, opportunities for progression within firms and sectors is declining, in part as firms remove grading structures and pay progression in an effort to reduce the cost of higher minimum wages.

2.5 Minimum wages and the role of wages in managerial control Wages also serve as one of the available management tools at the workplace to influence the labour process and shape employee incentives. One reason for managerial opposition both to a high minimum wage and to collectively-­ bargained pay systems is not only because they may raise final labour costs but because collectively-agreed structures and mandatory minima leave less room for use of discretionary pay as a means of control. This issue can be illustrated by reference to recorded impacts in both the US and the UK of higher minimum wages. In the United States companies have come under pressure to adopt the $15 minimum wage campaigned for

Minimum wages and the multiple functions of wages 31 by combinations of trade unions and community activists. In the case of Amazon, press reports confirm that when Amazon1 conceded to this pressure it also immediately reduced or abolished stock options and monthly incentives to staff. Likewise in the UK, following the mandatory introduction of a higher minimum wage for those over 25, qualitative research on employer responses the national living wage revealed a range of strategies to reduce the costs, all of which removed or reduced the use of pay as an incentive or control mechanism (LPC, 2018; NIESR, 2018). From the NIESR research (2018:37) one employer in the holiday sector said they had abandoned plans to move to a three grade structure to provide rewards for experience as a motivator. Another employer representative for the food processing industry pointed to the problem of squeezed differentials for additional responsibility, saying that “People just aren’t willing to take that added responsibility for what is pretty much like a 5p pay rise or something like that.” (NIESR, 2018: 36). This indicates the extent to which employers were allowing differentials to be narrowed as a consequence of the mandatory higher pay. In another retailer, cited by the Low Pay Commission (2018: 72), the organisation had reduced the number of grades in their retail operations, apparently to retain differentials but presumably for fewer staff and have removed paid breaks and some Sunday premiums, while retaining bank holiday and night shift premiums. High minimum wages may also constrain the opportunities for both managers and trade unions to engage in sector or company level bargaining that has a significant impact on actual pay levels for workers. For example, a high minimum may reduce opportunities for so-called productivity bargaining, where trade unions may be able to negotiate a pay increase in return for changes in working practices as companies may be unwilling to pay any significant premium above the minimum wage. This type of problem has also been found for a long time in France where the SMIC has been set at a level that exceeds several of the lower pay grade points in a company or sectoral agreement, leaving limited opportunities for pay progression or for effective incentives. These problems are not inevitable but indicate the unwillingness of employers in a context of weak collective regulation (here including the US, France and the UK) to restore differentials for responsibility or experience in low paying sectors. This may be because of lack of opportunities to pass the costs on to clients or customers (for example in social care) or because of resistance to greater redistribution either within the overall workforce or in relation to profits. Employers may be less concerned about using wage levels to motivate staff if they perceive other options to be available such as variations in hours. One motivation for employers to use zero hours contracts or variable

1

32  Jill Rubery, Mathew Johnson and Damian Grimshaw hours on top of short guaranteed hours is the control it offers them with respect to worker compliance. Evidence is being uncovered of widespread variations in monthly earnings which is well beyond the numbers on zero hours contracts. There is some indicative evidence to support the notion that employers may be varying hours of work more in low paying jobs as a Resolution Foundation study found that “Over 80 per cent of lower earners (those with annual take-home pay of around £10,000 a year) with a steady job have volatile pay, compared to two-thirds of those on higher earnings (with take-home pay of around £35,000 a year)” (Tomlinson, 2018). Also, research by IDS (2018) for the Low Pay Commission has found that, although more firms only tend to employ a minority of staff on zero hours contracts, a bigger problem is the use of minimum hours contracts that affect a larger number of low paid staff. These offer short minimum guaranteed hours, thereby establishing an employment relationship which may make it more difficult to turn down work. Employers use these contracts as they can flex people’s hours at very little notice even though in practice average hours well exceeded minimum contracted hours.

2.6  Discussion and conclusion Across both developed and developing countries, minimum wages have been generally successful in raising pay for the lowest earning and most vulnerable groups in the labour market without causing many of the job displacement and substitution effects predicted by neoclassical economic models. Statutory minimum wages are increasingly recognised as effective mechanisms to prevent sweating and extreme exploitation and, far from creating distortions in the market, serve to correct for differential bargaining power between employers and employees that can lead to sub-optimal outcomes in respect of allocating labour and sending signals to the market (Rubery, 1997). Because differences in labour supply conditions can cause distortions in the labour market if employers undercut each other through low pay to groups such as young people or migrants, minimum wages can serve both the functions of stabilising product markets (wages as price), and supporting workers in meeting their living costs (wages as living). Minimum wage can also prevent further erosion of the wage share, reduce embedded forms of wage inequality, such as gender pay gaps and protecting workers against the use of variable wages as management tool (provided there are also controls on variable hours). Although minimum wages are yet to reach the level of a living wage, they have assumed a far greater social role in respect of promoting greater equality and preventing extremely low wages (Figart et al., 2002). Nevertheless, mainstream economic thinking is still a powerful force in policy making circles, and the fear of job losses and the growth of informal employment has arguably held minimum wages “in check” in many countries. This means that the bite of the minimum wage is still relatively low in many countries and the modest rates of increase (even

Minimum wages and the multiple functions of wages 33 after the crisis) mean that minimum wages in isolation have struggled to prevent low living standards. They can be considered therefore a necessary but far from sufficient wage setting mechanism that should be seen as supportive of and far from a substitute for collective bargaining. The spread of living wage campaigns in many developed and developing countries points to the need to pay more attention to the social and redistributive functions of minimum wages. This could be achieved through the greater use of existing provisions under ILO convention 131 to regularly assess worker needs relative to prices and movements in wages, and changing social norms and expectations. Furthermore, by reframing minimum wage fixing mechanisms as a platform rather than a substitute for social dialogue, minimum wages can serve as a mechanism to strengthen movements to restore the wage share. The establishment of relatively high minimum wages, reflecting both living wage movements or indeed policies to realise the low wage target of minimum wages as 60% of median wages would provide a strong floor to the labour market, on which collective bargaining should build to restore differentials in the lower half of the labour market and to resist further downward compression. Indeed, rather than considering the outcomes of minimum wages in isolation, they need to be viewed as one part of an overall strategy that seeks to promote greater labour market inclusion and redistributive social policies in which social partners must, along with the state, play a key role.

References Amarante V. and Prado A. (2017) Inequality in Latin America: ECLAC’s Perspective. In: Bértola L. and Williamson J. (eds.) Has Latin American Inequality Changed Direction?. Springer, Cham, 285–315. Anker R. (2011) Estimating a Living Wage: A Methodological Review. Geneva: ILO. Atkinson A.B. (2015) Inequality: What can Be Done? Cambridge, Mass: Harvard University Press. Belser P. and Rani U. (2015) Minimum Wages and Inequality. Labour Markets, Institutions and Inequality: Building Just Societies in the 21st Century. Cheltenham: Edward Elgar, 123–146. Bennett F. (2014) The ‘living wage’, low pay and in work poverty: Rethinking the relationships. Critical Social Policy 34(1): 46–65. Bennett F. and Lister R. (2010) The Living Wage: The Right Answer to Low Pay?, London: Fabian Society. Bosch G. (2018) The making of the German minimum wage: A case study of institutional change. Industrial Relations Journal 49(1): 19–33. Brown W. (2017) The toxic politicising of the national minimum wage. Employee Relations 39(6): 785–789. D’Arcy C. and Finch D. (2019) The calculation of a living wage: the UK’s experience. Transfer: European Review of Labour and Research. Epub ahead of print 30 May 2019. DOI: 10.1177/1024258919847313 Dundon T. and Inversi C. (2017) Worse than zero hours contracts: work, pay and (in)equalities in the gig economy http://blog.policy.manchester.ac.uk/inclusivegrowth/2017/07/ worse-than-zero-hours-contracts-work-pay-and-inequalities-in-the-gig-economy/.

34  Jill Rubery, Mathew Johnson and Damian Grimshaw Erixon L. (2010) The rehn-meidner model in Sweden: Its rise, challenges and survival. Journal of Economic Issues 44 (3): 677–715. Eurofound (2016) Statutory Minimum Wages in the EU. Accessible at: Figart D. M., Mutari E. and Power M. (2002) Living Wages, Equal Wages: Gender and Labor Market Policies in the United States. London: Routledge. Flanders A. (1970) Management and Unions, London: Faber. Freeman R. B. (1996) The minimum wage as a redistributive tool. The Economic Journal 106(436): 639–649. Gautié J. and Laroche P. (2018) Minimum Wage and the Labor Market: What Can We Learn from the French Experience? https://halshs.archives-ouvertes.fr/ halshs-01842434/document. Grimshaw D. (2013) At Work but Earning Less: Review of Evidence, Issues and Policy on Decent Pay and Minimum Wages for Young People. International Labour Organization, Geneva. Grimshaw D., Johnson M., Keizer A. and Rubery J. (2016) Reducing Precarious Work in Europe through Social Dialogue: the case of the UK, Report for The European Commission. Hobden C. (2015a) Improving working conditions for domestic workers: Organizing, coordinated action and bargaining. Issue Brief No.2. Labour Relations and Collective Bargaining. Geneva: ILO. Available at: www.ilo.org/wcmsp5/groups/public/—ed_ protect/—protrav/—travail/documents/publication/wcms_432886.pdf. Hobden C. (2015b) Mapping Collective Bargaining and Other Forms of Negotiation in the Domestic Work Sector. ILO’s Work in Progress 5. Geneva: ILO. Lansley S. and Reed H. (2013) How to Boost the Wage Share. London: Touchstone publications, TUC, 13 Incomes Data Services (IDS) (2018) Minimum and zero hours contracts and lowpaid staff Reforst for Low Pay Commission https://assets.publishing.service.gov.uk/ government/uploads/system/uploads/attachment_data/file/772558/Minimum_and_ zero_hours_contracts_IDR_October_2018_FINAL.pdfIDS ILO (2009) Update of the first Global Wage Report with a focus on minimum wage policy development Committee on Employment and Social Policy GB.306/ESP/2 306th Session ILO Governing Body Geneva https://www.ilo.org/wcmsp5/groups/ public/—ed_norm/—relconf/documents/meetingdocument/wcms_114999.pdf Koskinen Sandberg P. (2017) Intertwining gender inequalities and gender-neutral legitimacy in job evaluation and performance-related pay. Gender, Work and Organization 24(2): 156–170. Levin-Waldman O. M. (2009) Urban path dependency theory and the living wage: Were cities that passed ordinances destined to do so? Journal of Socio-Economics 38(4): 672–683. Linder M. (1990) The minimum wage as industrial policy: A forgotten role. Journal of Legislation 16: 151–71. Linneker B. and Wills J. (2016) The London living wage and in-work poverty reduction: Impacts on employers and workers. Environment and Planning C: Government and Policy 34(5): 759–776. LPC (1998) The National Minimum Wage. Cm 3976 HMSO, London. LPC (2018) The National Minimum Wage: Low Pay Commission 2018 report.

Minimum wages and the multiple functions of wages 35 Luce S. (2014) Living Wages, Minimum Wages, and Low-Wage Workers. In: Luce S., Luff J., McCartin J. and Milkman R. (eds). What Works for Workers?: Public Policies and Innovative Strategies for Low-Wage Workers. Russell Sage Foundation, 215–244. Macpherson, D. (2004) Living Wage Laws and the Case for a Targeted Wage Subsidy. In: Figart D. M. (ed.). Living Wage Movements: Global Perspectives. London: Routledge, 43–50. Mutari E. and Figart D. M. (2004) Wages and Hours: Historical and Contemporary Linkages. In: Figart D. M. (ed.). Living Wage Movements: Global Perspectives. London: Routledge, 27–42. Neumark D. and Wascher W. 2008, Minimum Wages. Boston: MIT Press. NIESR (2018) National Minimum Wage and National Living Wage Impact Assessment: Counterfactual Research Department for Business, Energy and Industrial Strategy, London. Orloff A. (1993) gender and the social rights of citizenship: The comparative analysis of gender relations and welfare States. American Sociological Review 58(3): 303–328. ONS (2018) Analysis of the distribution of earnings across the UK using Annual Survey of Hours and Earnings (ASHE) data: 2016. Rani, U., Belser, P., Oelz, M., and Ranjbar, S. (2013) Minimum wage coverage and compliance in developing countries, International Labour Review 152( 3–4): 411–442. Recio A. (2001) Low pay in Spain. Transfer 7(2): 321–337. Rubery J. (1978) Structured labour markets, worker organization and Low pay. Cambridge journal of Economics 2(1): 17–36. Rubery J. (1997) Wages and the labour market. British Journal of Industrial Relations 35(3): 337–366. Rubery J. (1998) Equal Pay in Europe? Closing the Gender Wage Gap, ILO Studies Series. Basingstoke, Hampshire: Macmillan. Sennett R. (1998) The Corrosion of Character. London: W.W. Norton. Swaffield J., Snell C., Tunstall B. et al. (2018) An evaluation of the living wage: Identifying pathways out of in-work poverty. Social Policy and Society 17(3): 379–392. Swarts H. and Vasi I. B. (2011) Which US cities adopt living wage ordinances? Predictors of adoption of a New labor tactic, 1994-2006. Urban Affairs Review 47(6): 743–774. Tomlinson D. (2018) Irregular payments: Assessing the breadth and depth of month to month earnings volatility. Resolution Foundation Report, October 2018. Webb S. and Webb B. (1897) Industrial Democracy, II (1 ed.). London: Longmans, Green & Co. Wills J. (2009) The living wage. Soundings: A journal of politics and culture, 42, 33–46.

Part I

Actors’ strategies influencing collective bargaining and minimum wage regulations at national level in European countries

3

Securing wage floors in the absence of a statutory minimum wage Minimum wage regulations in Scandinavia facing low-wage competition Kristin Alsos and Line Eldring

The Scandinavian countries have a long tradition of setting wage floors through autonomous collective agreements. With high levels of collective bargaining coverage, the collectively agreed wages have acted as an effective substitute for statutory minimum wages (Chapter 1; see, also, Grimshaw and Bosch, 2013). Moreover, despite decentralization of certain features of bargaining in the 1980s and 1990s, the wage settlements remain highly coordinated and have delivered compressed wage structures with relatively high negotiated (industry level) minimum wages and a comparatively small incidence of low-wage employment (Garnero et al., 2015; Svarstad and Oldervoll, 2018). Overall, the combination of high bargaining coverage and the normative effect of collectively agreed wages provided a high level of institutional stability from the formative phase at the beginning of the 20th century up to EU enlargement in 2004. Since then, however, the rather unique institutional system of low wage regulation has faced growing challenges and has had to adapt to ensure continued effectiveness. A major aspect concerns the large inflows of migrant workers and service providers from low-cost countries. The influx of Central and East European migrant workers since 2004 represents an important historical juncture for both actor strategies and regulatory outcomes in setting wage floors. In the aftermath of EU enlargement, actors in the Scandinavian countries have made use of different strategies in order to protect themselves or make use of the expanded labour market (Afonso, 2012; Dølvik et al., 2018). Due to amendments in migration law in 2008, the Swedish labour market has also seen an increasing influx of third country nationals, coming from countries outside the EU. Strategies employed by social partners in such historical junctures can be interpreted in light of their access to power resources (see Chapter 1). This chapter examines how different kinds of power resources have left their mark on the struggle over establishing or avoiding wage floors in sectors affected by different kinds of external pressures due to migration. The central question is, how have employer associations and trade unions within these sectors acted to retain or challenge wage floors, and how are these strategies linked to their power resources?

40  Kristin Alsos and Line Eldring In order to investigate this question, the chapter compares Norway and Sweden, which have significant contrasts concerning trade union strength. In neither country have statutory minimum wages been part of trade union low-wage strategies; this chapter analyses the reasons for that. The chapter begins with an overview of the industrial relations systems in Norway and Sweden, as well as in three selected sectors (manufacturing, construction and hospitality), and sets out the main challenges. The chapter then focuses on each country in turn and analyses the strategies applied by the social partners. Importantly, the strategies of employer associations’ tend to differ according to the sector. In general, sectoral characteristics in terms of product markets, workforce and union density exert a crucial influence on industrial relations and the regulation of wage floors, although research suggests the sectoral effects are less marked in the Nordic countries than in other European countries (Bechter et al., 2012; Dølvik et al., 2018). The chapter concludes by summing up the findings and discussing how different power resources can explain diverse outcomes.

3.1  Background – Wage setting the Scandinavian way A basic rationale for collective bargaining has been to establish a common wage floor, in order to prevent competition underbidding this minimum. In the Nordic countries this has been done through multi-employer bargaining at central or industry level. In Visser’s (2009) typology of industrial relations regimes, the Nordic countries are grouped together as “organized corporatism”. Strong social partners, high bargaining coverage and highly coordinated wage formation, underpinned by a universal welfare model, have led to low wage disparity and low levels of working poor. However, this aggregated, national level picture tends to obscure national and sectoral differences. The high union density in Sweden is often explained by the Ghent system, in which trade unions are responsible for administering unemployment benefits (Kjellberg, 2009). This is not the case in Norway, however, where all welfare benefits are the responsibility of the state. Furthermore, Swedish employers that are members of an employers’ association are de facto bound by the collective agreements signed by this organization. In Norway, employers’ membership does not have this automatic effect resulting in lower level of collective bargaining coverage. Trade unions in Norway need to put forward a specific demand for a collective agreement and need to demonstrate that the company meets the minimum threshold of union density (usually 10 per cent). If the conditions are met, the employer is obliged to accept the demand. Also, unlike Sweden, Norwegian trade unions are not able to take industrial action against companies that are not members of an employer organization and where there are no union members. Sectoral differences are important in both countries and are therefore analysed throughout this chapter with respect to three important sectors: Manufacturing, where metalworking is dominant in Sweden and shipbuilding

Securing wage floors in the absence of a statutory minimum wage 41 Table 3.1  Union density and collective bargaining coverage for blue-collar workers in manufacturing, construction and hospitality in Norway (2016 and 2017) and Sweden (2017 and 2018) Union density

Bargaining coverage

Private Private sector Manufactur­ing Construc­tion Hospital­ity sector Manufactur­ing Construc­tion Hospital­ity Norway Sweden

34 57

53 73

27 63

19 31

43 (64)a 83

73 (77)a NA

36 (83)a NA

28 (100)a NA

Notes a Numbers in brackets include those covered by legal extension of collectively agreed minimum wages; Sources: Norway: Calculations done by Kristine Nergaard for this chapter. Sweden: Kjellberg (2018)1 and Arbetsmarknadsekonomiska rådet (2018).

in Norway, construction and hospitality (hotels, restaurants and catering). This allows for comparison of the most prominent differences in industrial relations between manufacturing, construction and private services (see Table 3.1). Manufacturing has been the stronghold of the Nordic industrial relations regimes; it has a high level of unionization, high collective bargaining coverage, employs skilled workers and is influential in framing minimum wage policy developments. Construction has traditionally enjoyed a similar industrial relations profile. By contrast, the hospitality sector (emblematic of private services) is more similar to that found in other industrial relations regimes; it has low union density, low bargaining coverage and a mainly low skilled workforce. In both countries, Table 3.1 reveals major sectoral differences in union density. However, with respect to bargaining coverage, the variation is larger between the two countries than between the sectors due to the stronger encompassing rules applied in Sweden. The three sectors are also illustrative of distinctive strategies that respond to different market situations. Manufacturing is exposed to international competition and strategies include the relocation of production, managing cross-border flows of labour and sub-contracting work to foreign service providers posting workers to other countries. Even though less affected by international competition, the construction sector is sensitive to cyclical changes. Since 2004 there has been a massive recruitment of migrant workers, in particular, from Poland and Lithuania, many of them employed in non-unionised companies not covered by collective agreements. An increase of cross-border provision of services since EU-enlargement has also contributed to the intensified low-wage competition in the sector. The hospitality sector is part of the more sheltered domestic economy (albeit subject to important global tourism market pressures) and until now sub-contracting 1 http://portal.research.lu.se/portal/files/39207508/Kollektivavtalst_ckning_samt_organisationsgrad_2018_LUP.pdf

42  Kristin Alsos and Line Eldring work across borders has not been common. Instead, employment strategies must address challenges of incorporating low skilled migrants, problems of wage dumping and gaps in collective bargaining coverage. As small, open economies, the Scandinavian countries have relied on maintaining leadership in key sectors in international competition. This has been underpinned by an approach towards wage formation since the 1960s based on a macroeconomic model that assumes those sectors exposed to international competition (especially manufacturing) must sustain higher productivity growth than comparable countries to support higher wage growth. Furthermore, in order to avoid distortions of labour market competition, wage growth in the more sheltered sectors (private and public services) must be in line with manufacturing. In order to achieve this, coordination of wage growth is crucial. Until the 1980s and 1990s this was secured through cross-industry bargaining at confederation level. However, a period of high inflation and wage growth during the 1980s and 1990s led all countries to adjust their systems towards more decentralised bargaining (Traxler, 1996; Due et al., 1993). Despite this trend, collective bargaining is still highly coordinated in the Scandinavian countries compared to others. Coordination takes place both horizontally across sectors and vertically from national through sector to company level (Nergaard et al., 2016). Horizontal coordination is secured through different mechanisms in the different countries, but tripartite agreements, mediation and high-quality wage statistics are all important elements (Nergaard et al., 2016). Sector-level bargaining adjusts minimum or normal wage rates in collective agreements, and the parties usually agree on wage increases as well. Additionally, in collectively agreed minimum wage areas, the sector bargaining round is succeeded by company-level bargaining under non-strike clauses, either to agree on further wage increases, or in order to divide a wage pot agreed on in the industry bargaining round. Company-level bargaining is conducted by management and local trade union representatives who are elected by union members in the company, an institution based in the collective agreements. How vertical coordination, securing that company-level bargaining does not exceed the norm for each sector, is conducted, is more of a black box, but signals from employer organizations to their members are seen to play an important role (Andersen, 2012). A further very important characteristic of the Scandinavian macroeconomic model is its capacity to share productivity gains across tradeable and non-tradeable sectors, thereby lifting low-paid employees in services sectors especially. Industrial relations and market strategy differences indicate great variation in structural and institutional powers between trade unions in manufacturing, construction and hospitality sectors. By having the manufacturing sector set a norm that, as part of the horizontal coordination, should be followed by bargaining parties in other sectors, trade unions with weak bargaining power are able to obtain wage increases for their members in line with other sectors (Alsos et al., 2019). Through coordination, the Scandinavian countries have been quite successful in order to produce coordinate wage

Securing wage floors in the absence of a statutory minimum wage 43

Figure 3.1  Wage disparity in Germany, Norway and Sweden, 2000 to 2015 (decile ratios of gross earnings).

growth, with relatively high negotiated minimum wages and a compressed wage structure. Wage disparity in Norway and Sweden, compared to Germany, selected as a relevant European point of comparison is shown in Figure 3.1. The figure indicates that wage disparity in Germany, between the highest earners (decile 9) and the lowest earners (decile 1) is significantly wider than in Norway and Sweden. However, wage differences are increasing in Norway, driven by widening inequality at the low wage end of the labour market, while remaining remarkably stable in Sweden. In both Norway and Sweden, most sector-level collective agreements are minimum wage agreements, which allow wages to be higher than the collectively agreed rates. However, while wage bargaining in manufacturing and construction takes place both at sector level and at company level, this is not always the case in the hospitality sector. In hospitality, collective agreements in both countries bear more resemblance with so-called normal wage agreements. These are agreements in which wages are fully fixed at a national, centralised level, and where company-level bargaining does not take place. Indeed, in Norway, employers in the hospitality sector tend to refuse company level negotiations. This is met by union demands for higher wage increases at a centralised sector level in order to compensate for the absence of local bargaining. To illustrate the difference, in Norway the 2018 minimum wage rate for an unskilled

44  Kristin Alsos and Line Eldring worker in the Industry Agreement (covering metal work) was 14.8 Euro (160.10 NOK), compared to 15 Euro (161.87 NOK) per hour in the Hotels and Restaurants Agreement. However, looking at average actual hourly earnings in the two sectors, hospitality workers earn considerably less than manufacturing workers. Nevertheless, the overall picture demonstrates that due to the compressed wage structure in Norway and Sweden, minimum wages in collective agreements are relatively high in all sectors compared to the national average. Comparisons between collectively agreed minimum wages and average wages show that minimum wages in sectors like hospitality, construction, retail and cleaning are all above 60 per cent of national average pay in Norway and Sweden (Swedish construction sector excepted) (Svarstad and Oldervoll, 2018; Alsos et al., 2019).2 In Sweden less than 1 per cent of employees had a wage that was lower than 60 per cent of median pay in 2018 (Hällberg and Kjellström, 2020).

3.2  Pressures from above and below Several factors have put pressure on the existing system of collectively agreed minimum wages in the Scandinavian countries since the beginning of this millennium. Structural changes, such as external shocks, will produce different outcomes based on the national system they are filtered through (Bosch, 2015). Outcomes will depend on the strategies employed by different actors. The following discussion reviews factors that have challenged existing systems in Scandinavia, before examining outcomes in Norway and Sweden. When labour markets are expanded, either by extension of their boundaries or by removing barriers to labour migration, national wage floors can become subject to erosion, and effective coverage of collective agreement tends to shrink (Commons, 1909). From a more or less stable situation when it comes to establishing and adjusting wage floors in the beginning of the 2000s, the EU enlargements in 2004 and 2007 led to a situation where member states and social partners had to adjust to a new situation. High inflows of labour migrants and service providers from low-cost countries in Eastern Europe, in combination with altered strategies from Scandinavian end users, have challenged the Nordic way of establishing wage floors. The existing labour market regimes in these countries have been subject to pressure both from above, through EU regulations (binding on the EU member states Sweden, as well as Norway through the European Economic Area (EEA) agreement), and from below through low-wage competition (Arnholtz and Andersen, 2018). Pressure from above has not so much been

2 Minimum wages level compared to national average pay. Hospitality: NO: 67, SE: 66, Construction, NO: 67, SE: 58, Retail: NO: 61, SE: 64, Cleaning: NO: 67, SE: 68

Securing wage floors in the absence of a statutory minimum wage 45 directly related to new EU legislation, but to the interpretations by the European Court of Justice, especially following the Laval quartet rulings (Dølvik et al., 2014). This forced Sweden (as well as Denmark) to adjust its models to fit into the boundaries of the Posting of Workers Directive. The Laval quartet had less immediate effect on the Norwegian system that due to pressure from below had evoked its legislation for extending collective agreements (Alsos and Eldring, 2008). The EU enlargements have affected manufacturing, construction and hospitality in different ways. Employers in manufacturing have exploited the eased access to cheap labour and production costs resulting from the extension of the EU and EEA boundaries (Müller et al., 2018). This has been done through a number of strategies involving offshoring as well as large-scale use of Eastern European labour. Construction has also made use of cross-country labour mobility. This has led to high inflows of foreign labour through individual migration and posting (Arnholtz et al., 2018). This contrasts with the hospitality sector, where labour migrants also have been used, but more so through recruitment of individual employees both within the single market and from third countries (in Sweden). Another challenging factor has been the increased use of temporary agency work in some sectors. Temporary agency work is regulated differently in the two countries. In Sweden, agencies are covered by collective agreements and the principle of equal pay, while in Norway the bargaining coverage in the sector is extremely low, although new equal pay rules are now in place following the transposition of the EU directive on temporary agency work in 2013 (Alsos and Evans, 2018). Using temporary workers, alongside other strategies such as sub-contracting and offshoring, has been one strategy for employers in manufacturing and construction to reduce labour costs and thereby challenging established wage floors (Alsos and Ødegård, 2019). The next section examines how these pressures from above and below have affected wage floors in Norway and Sweden, and whether manufacturing, construction and hospitality have been affected differently. The analysis includes a focus on the strategic decisions made by both employers’ associations and trade unions, and how these strategies in combination with state interventions have led to institutional change in wage-setting.

3.3  Sweden – Successful autonomy? Sweden has the best prerequisites for establishing and upholding collectively agreed wage floors. As indicated above, high bargaining coverage, even in the private service sector, still exist and grants institutional power to trade unions so that collective regulation of wage floors has been effective. One of the reasons for the high bargaining coverage is of course, the sustained high rate of unionization – or organizational power resources – owing in part to the Ghent system. However, since

46  Kristin Alsos and Line Eldring the changes introduced by the Swedish centre-right government in 2007, whereby state support for the Ghent system was reduced, leading to raised fees for members, the unionization rate has dropped (Kjellberg, 2009). Nevertheless, it is still among the highest in Europe and the bargaining coverage has remained stable. This can be explained by two institutional factors. First, unlike Norway, members of employer organizations, are bound by the collective agreements the organization is part of. Secondly, companies that are not members of an employer organization, or companies where the employees are not members of any trade unions, can still be bound by a collective agreement. If the trade union lacks members in a firm, the trade union can boycott the company, for instance by having members in other companies refuse to deliver goods to the firm. This is an effective way of forcing a company to enter into a collective agreement and even though this is regularly used, the threat seems to be more important than the actual action. In 2013, strikes or boycotts were notified against 27 companies, but action was only taken in 7 cases (SOU, 2015: 83). The system of taking industrial action to establish collective agreements was the core of the Laval case.3 If the company is a member of an employer organization, the industry-wide agreement will be applied. Non-member companies can enter into an agreement that reflects the industry-wide agreement (referred to as hängavtal). As this substitute agreement mirrors the collective agreement, its benefits are conferred to the employees of non-affiliated employers. This system is considered as crucial in explaining how the Swedish system is able to secure a solid wage floor, including in small- and medium-sized companies that tend not to be members of the employer organizations (Andersson and Thörnqvist, 2007, with further references). In 2017 there were more than 75,000 hängavtal, covering 215,000 blue-collar workers, and an unknown number of white-collar workers (Medlingsinstitutet, 2018). The construction union Byggnadsarbeterförbundet signed more than 1,000 of the 4,800 new agreements entered into in 2018, indicating the special relevance of the hängavtal practice in construction. The trade unions for hotels and restaurants, along with IF Metall, signed 437 and 315, respectively, thereby being the blue-collar unions with most hängavtal after Byggnadsarbeterförbundet (ibid.). 3.3.1 Construction sector: Trade unions reluctant to change strategies following the Laval case In the aftermath of the Laval case, the Swedes were forced to alter the system for governing the wage and working conditions of posted workers. In the first phase this was done through lex laval. This amendment of the 3 EU court judgement C-341/05 Laval un Partneri Ltd v Svenska Byggnaddsarbetareförbundet

Securing wage floors in the absence of a statutory minimum wage 47 Posting Act (utstationeringslagen) laid down that industrial action against a cross-border service provider could not be undertaken if the employer could justify that the employees did have wages and working conditions in line with the collective agreements. Furthermore, the justification did not have to cover the full set of regulations in the agreement, but only the hard core as regulated by the EU posting of workers’ directive. If the foreign service provider claimed that this condition was fulfilled, trade unions were not allowed to use their traditional means, to force a collective agreement upon the company. The lex laval did not move away from the fact that foreign service providers had to respect the wage floor set by the bargaining parties at industry level; in this sense, it can be interpreted as reinforcing the Swedish model. However, trade unions were not satisfied as this solution made it impossible for trade unions to enforce the wage floor. As enforcement according to the Swedish model is the domain of trade unions and not the state, the problem with lex laval is that it meant no one had access to the foreign service providers in order to check whether wages and working conditions of posted workers were in accordance with what the service provider claimed (Ødegård and Eldring, 2016; SOU, 2015: 83) Therefore, in order to avoid service providers circumventing lex laval, trade unions argued they still needed to be able to force the employers to sign an agreement committing them to minimum conditions, and giving the unions power to enforce collectively agreed minimum wages.4 The main strategies of the Swedish trade unions were to make foreign companies sign hängavtal mirroring the industry-level agreements of their free will and did not want to make the enforcement of minimum conditions the main rule. An indication of this can be found in their reluctance to provide information on sectoral collectively agreed minimum wage rates. According to the Posting Act (9a §), trade unions were obliged to provide the Labour Inspectorate (Arbetsmiljöverket) with a minimum version of the collective agreement that was to be used by posting companies, but few unions complied with this. The construction union Byggnadsarbeterförbundet decided not to, as they did not want to ‘disturb the market’ by making agreed minimum wages well known.5 In other words, they feared that minimum rates fixed in the collective agreement would become the standard wage. Up until then actual wages paid at company level were usually far above the minimum rates. This argument is in line with arguments put forward by Norwegian trade unions arguing against a statutory minimum wage. However, whereas the Norwegian unions have accepted the collectively agreed minimum wage to become the going rate for foreign service providers, Swedish trade unions

4 http://www.arbeidslivinorden.org/nyheter/nyheter-2017/article.2017-02-28.9405045719 5 http://arbetsratt.juridicum.su.se/euarb/11-3/06.asp

48  Kristin Alsos and Line Eldring still want the full regulations of the collective agreement to apply. Different unions have developed different strategies in this regard. While the construction unions are based in an industry competing in a national market, the manufacturing union IF Metall has taken a different stance. 3.3.2 Manufacturing sector: Unions negotiate a separate collective agreement for posted workers The IF Metall union was the first union to draft a posting collective agreement that could be used as a minimum agreement for foreign service providers in 2010. The collective agreement given to the Labour Inspectorate did have higher minimum wages compared to the agreement it was based on. The reason for this is that other conditions in the underlying agreement, such as working time reduction and additional payments for different kind of work was integrated into the minimum wage, making it 2.5 per cent higher than the rates in the underlying agreement.6 The IF Metall union seems to be in favour of the posting agreement and does enter into agreements with employers that force service providers to sign the posting agreement in order to get a contract for work in Sweden. In 2013, IF Metall nationwide signed between 25 and 50 posting agreements.7 Even though the union found this system to work quite well, they would prefer a different system. They claim that foreign workers still make about 65–70 per cent of Swedish wages, even though different supplements are now included in the minimum wage. The question is why IF Metall has chosen this strategy, while other trade unions hardly sign any such agreements. According to other trade unions affiliated to LO, many of them hardly experience any problems related to encouraging foreign service providers to sign the full agreement (LO, 2013). One explanation that is put forward by LO is that signing an agreement is often required by the company contracting out the work, either because the company find this reasonable or to maintain a good relation with the local trade union (LO, 2013). One might argue that this different approach is related to access to power resources, where the parties in manufacturing have a common interest in keeping labour costs low in order to win in the international competition. The industry partners in construction on the other hand, operating in a different product market, could be more interested in protecting themselves from low-wage competition. However, another explanation might be more prevalent. Since 1975 IF Metall has signed collective agreements with companies posting workers to Sweden as part of short-term assignments.

6 http://arbetsratt.juridicum.su.se/euarb/10-4/10.asp 7 https://arbetet.se/2013/01/18/facken-vagrar-banta-avtal/ and SOU (2015:83 p. 211)

Securing wage floors in the absence of a statutory minimum wage 49 These agreements have been different from the industry-wide agreement and have laid the basis for the posting agreement that is used in EU posting situations (LO, 2013). Problems related to posting do not seem to be severe enough to challenge the wage floor within manufacturing, both because most companies actually sign a full collective agreement and those which do not still adhere to a stripped-down posting agreement. Furthermore, even though manufacturing companies make use of temporary agency workers, this seems to have less effect on the wage level, as these are covered by collective agreements ensuring equal treatment (Alsos and Evans, 2018; Håkansson and Isidorsson, 2015). From June 2017 the posting act was amended, allowing trade unions to make use of industrial action in order to force service providers to sign a posting collective agreement. Thereafter trade unions have had a possibility to get into a position where they can enforce a posting agreement on companies that are reluctant to sign agreements or to comply with those already signed. This further strengthens the ability to secure the collectively agreed wage floor – and trade unions’ power position in general. 3.3.3  Hospitality sector: Charting a different trajectory The Hotel and Restaurant Union was hit hard by the changes in the Ghent system in 2007 and lost one third of its members in 2007 and 2008 (Kjellberg, 2009). This decline added to an ongoing trend. During the last 20 years, the number of members has been cut in half, and the decline in hospitality has been the highest of all industries in Sweden (Kjellberg, 2000; Kjellberg, 2017). Still, the industry has upheld a high bargaining coverage. Even though the coordinated bargaining model leads to fairly similar wage increases across sectors, the hospitality sector wage increases of 2.1 per cent on annual average has been in the lower end during the period 2009–2017 (Medlingsinstitutet, 2019), while in the norm setting manufacturing industry it was 2.6 per cent. While manufacturing companies have a number of different strategies to use in order to reduce labour costs, this is not the case for hotel and restaurants. This might explain why employers in the hospitality sector have used other strategies in order to keep the wage floor down. The main employer organization, Visita, has argued that starting wages in the industry are too high, and that there is a need for higher wage disparity within the sector in order for the employer to be able to reward skills, and at the same time make it possible for people outside the labour market to enter work.8 This is despite the fact that blue-collar workers’ pay within the sector is in the low end of the national wage distribution when looking at monthly average income (€2275, SEK 23,800 in 2017 – LO, 2018). 8 http://www.visita.se/omvisita/press/nyheter/visita-och-hrf-har-tecknat-avtal-pa-market/

50  Kristin Alsos and Line Eldring The argument by Visita can be seen as a reaction towards the agreement made within the manufacturing industry in the bargaining round in 2017, where there was an agreement on lifting low-wage earners (those earning less than SEK 24,000 a month). Beside increasing minimum wages in the agreement with approx. 2 per cent, branches or companies with employees earning less than SEK 24,000 were given a larger wage pot to distribute than those without low pay earners. However, the bargaining partners disagreed on whether the low wage measures were to come on top of the norm or was part of the 6.5 per cent 3 years’ settlement. The interpretation of the norm set by the front running manufacturing sector was of great importance for the hospitality sector where many employees had wages below the benchmark on SEK 24,000. A blue print of the low wage measures would mean a settlement far above the 6.5 per cent norm, and compressing the wage distribution within the sector further. In the end an agreement increasing minimum wages with approx. 2.5 per cent and including the same low wage measure as in the manufacturing industry was made. Vista claimed the total settlement to be within the 6.5 per cent norm in the frontrunner industries (Medlingsinstitutet 2018). Wage statistics from 2017 to 2019 show that blue-collar workers in hospitality had an average annual increase of 2.1 per cent, compared to 2.4 per cent in manufacturing.9 The 2017 wage negotiation is an example of how the strong coordination makes it possible to lift low wage services sectors despite decreasing union density and low organizational power resources on the union side, and how employers in the private service sector are affected by settlements made by the manufacturing employers that might leave a very different footprint. However, as the parties in a bargaining area decide how the norm should be transposed into their area, low power resources and different priorities may lead to different results in different bargaining areas. While EU enlargement and posting seem to be of less relevance for the hospitality sector, amendments in the Swedish immigration law seem to have had greater indirect effect on the wage floor. In 2008 the immigration act was amended in order to make it easier for companies in industries with a shortage of labour to recruit employees from third countries. The act was not limited to these industries, and many migrants came to work in lowskilled jobs in the private service sector, even in industries with a surplus of available workers, like cleaning and the hospitality sector. The restaurant sector alone had above 10,000 work permits from 2009–2015 (Frödin and Kjellberg, 2017: 86). Some of these were granted to asylum-seekers, who used this opportunity to stay in Sweden despite their asylum application having been turned down, and some had been students in Swedish institutions (Frödin and Kjellberg, 2015, 2017). A calculation based on permissions 9 https://www.mi.se/lon-loneutveckling/konjukturslonestatistik/

Securing wage floors in the absence of a statutory minimum wage 51 given in 2012 showed that less than 60 per cent entered the country as labour migrants (Frödin and Kjellberg, 2018). In a survey conducted among hotels and restaurants in the Stockholm region, around two in five companies (42 per cent) that had made use of the amended immigration law were covered by a collective agreement (ibid.). In a majority of the companies, there existed no legally binding wage floor. According to the immigration act, employers may recruit employees from third countries as soon as the job opening is announced and that hiring is done on terms equal to those laid down in industry level collective agreements. The state institution, The Migration Agency, must decide whether employers comply with this. The act further requires the trade union in the relevant industry to assess the conditions, and to recommend or dissuade the application.10 In this process the Hotel and Restaurant Union has the right to examine whether the conditions in the offers of employment are at least in level with the industry-wide collective agreement.11 This practice gives the union strong institutional powers to uphold the collectively agreed wage floor in situations where workers migrate from low-cost countries. According to Frödin and Kjellberg (2017), however, the Migration Agency accepts a large number of applications that have not been accepted by the unions. The reason for these permissions not to be recommended by the union is related to other reasons that the Migration Agency is allowed to consider (ibid). This does not mean that these workers actually obtain the conditions they are promised. Labour migration in many industries is associated with problems of sham contracts. Controls made by the hospitality sector union in 2011 revealed that in 61 out of 64 workplaces they visited, each with employees from third countries, the wages paid were below the collectively agreed minimum (Hotell- och restaurangfacket, 201212). Different calculations show that employees entering the Swedish labour market through a permission after the 2008 amendment had wages that were lower than for all other employees, in all sectors, including in the restaurant sector (OECD, 2011; Emilsson et al., 2014). In 2012 the regulation was tightened, and in order to apply for a work permit, the demand for documentation on actual wages was strengthened.13 Tightening of rules seems to have made employers seek out other strategies in order to reduce wage costs. The number of jobs with wage subsidies, as well as jobs defined in the bipartite agreement on probationary wage levels for refugees, has increased since 2011 (Frödin and Kjellberg, 2018).

10 5 kap. 7 a § utlänningsförordning 11 https://vr m.lr v.lt/uploads/vr m /documents/f iles/LT_versija/Svarbi_infor macija/ Vykdomi_projektai/PublicationReportsFINAL.pdf#page=171 12 http://mb.cision.com/Main/255/9277703/25619.pdf 13 https://onlinelibrary.wiley.com/doi/pdf/10.1111/irj.12126

52  Kristin Alsos and Line Eldring This is another indication of how employers within domestic-based industries have limited options to reduce labour costs, and therefore seek out other solutions in order to keep costs down.

3.4  Norway – Stepping away from the traditional model In the first few years after EU enlargement in 2004, Norway received more migrant labour from the accession countries than all the other Nordic countries combined (Dølvik and Eldring, 2008). The influx was to a large extent demand driven as the economy was booming. While around 8,000 citizens from the Central- and Eastern European countries that later became EU-members were registered living in Norway in 2003, the number was close to 200,000 in 2019. In addition, at least 30,000–40,000 short-term and posted workers are registered each year (Berge, 2021). The labour migrants have over the years found employment in a wide range of sectors but are still highly overrepresented in construction, ship-building, cleaning and hospitality, the focus of this section. Shipbuilding is in the core of the Norwegian metal sector and can be characterised as the hub of the pattern bargaining model. Trade union density and collective bargaining coverage have been high and combined with forceful local bargaining the trade unions and their members have achieved strong influence and solid wages. In ship-building, which constitutes the core of the Norwegian metal industry, every fourth worker is now a foreigner, mostly from Eastern Europe (Müller et al., 2018). In addition, an unknown, but most likely high, number of these labour migrants are employed in domestic or foreign temporary work agencies. In hospitality, the share of foreign workers has grown from 33 per cent in 2008 to 55 per cent in 2019. Most of the growth is due to recruitment of workers from the East. Construction has also been highly affected by EU enlargement. In 2019, 40 per cent of the construction workers were of foreign origin, most of them being labour migrants and posted workers from Poland and the Baltic states (Jordfald, 2020). These workers are even more dominant among temporary agency workers in construction that constitute a large proportion of the workforce in the sector. Estimates show that between 14 and 18 per cent of workers in the construction industry in the capital area and between 8 and 11 per cent in rest of the country were hired from a temporary work agency (Nergaard, 2017). In hospitality, the industrial relations situation has been, and still is, almost the opposite of the situation in ship-building. Unions are weak, particularly in the restaurants where the majority of the workers are not covered by an industry-wide collective agreement (Trygstad et al., 2014). In spite of this, the collective agreement has traditionally had a certain normative effect on the minimum wage paid by companies in the sector; the evidence suggests the majority of companies used to pay at or close to the

Securing wage floors in the absence of a statutory minimum wage 53 minimum wage collective agreed in the sectoral agreement. By contrast in shipbuilding and construction, the sectoral agreement’s minimum rates set an initial benchmark against which unions negotiate higher rates through local bargaining. Overall in Norway, while all three sectors experienced a rise in the incidence of low wage work after 2004, each responded differently and at a different pace. 3.4.1  Enforcing minimum wage floors through extension When joining the EEA agreement in 1994 Norway became fully integrated into EU’s internal market. In 1993, the Norwegian parliament adopted a new law on general application of collective agreements, motivated by the substantial differences in wage levels within the EEA/EU and the absence of a statutory minimum wage in Norway. The act came as a result of the cooperation between the social democrat government and LO. The majority of European countries have mechanisms for legal extension of collective agreements, but only a few countries use it frequently (Schulten et al., 2015). The Norwegian system differs from most others (but is similar to the German AEntG), with the explicit purpose of the act being to protect foreign workers from wage dumping and to facilitate fair competition among companies operating in Norway. The precondition for enforcing an extension is that it is documented that foreign workers work under conditions that are generally inferior to the norms stipulated by nationwide collective agreements for the relevant occupation or industry, or to the general conditions prevailing in the relevant location or trade. The decision to accept applications for extensions is made by the Tariff Board (Tariffnemnda), which is appointed by the government. The board consists of five members; three neutral members, one from the employers and one from the unions. However, during the first 10 years, the board did not receive any applications for extensions. The expected influx of foreign workers failed to materialise, and the act was dormant and more or less forgotten until EU enlargement in May 2004 (Alsos and Eldring, 2008; Schulten et al., 2015). The trade unions have had ambiguous views on the legal extension of agreements, fearing that it would exacerbate the free-rider problem and even more that it would interfere with the strong principle of autonomous collective bargaining. The numerous reports on wage dumping following the inflow of low-paid workers from the accession countries, made in particular Fellesforbundet, the largest private sector union, change its strategy, with other unions following in the coming years. As of today, parts of nine nation-wide collective agreements are legally extended; in construction, shipbuilding, agriculture, cleaning, fish processing, electrical work, bus transport, road transport and hospitality. These sectors stand out when it comes to recruitment of labour migrants, which means that a considerable proportion of potentially vulnerable workers not covered by collective agreements now have a safety net through the legal extension of minimum

54  Kristin Alsos and Line Eldring wage rates. Significantly, only very few of the provisions in the collective agreements have been extended, and mainly those relating to minimum wage rates. 3.4.2  Shipyards: A war on extension One could expect that those sectors where trade unions (or bargaining resources) are relatively weak would be quick to demand their agreements to be legally extended in order to compensate for low coverage of collective agreements. This has not been the case. In fact, the Industry Agreement, covering the metal working industry, was one of the first agreements that Fellesforbundet/LO applied to extend. From 2008 the minimum wage rates, provisions on travel, board and lodging and working hours were made generally applicable for the whole ship-building industry. The major reason for the early call for extension in ship-building was the wide-spread use of temporary agency workers and sub-contractors in the sector, most often not covered by collective agreements. Prior to the extension, Norwegian and foreign workers were working side by side, employed by different companies, and with enormous differences in wage levels. The local unions were partly accepting of the situation, fearing that increased costs could threaten their own jobs (Alsos and Ødegård, 2019). But in the end, the situation became intolerable for the union both at central and local level, and it was decided to apply for an extension. The employers strongly resisted and voted against the majority decision in the Tariff Board. The extension included the agreement’s provisions on coverage of expenses related to travel, board and lodging, which was seen as crucial to not undermine the minimum wage floor. As a result, all workers at the shipyards were at least secured a wage floor, although in most cases far less than the native workers employed in the local companies. The minimum rates in the Industry Agreement are relatively low, and unlike other sectors with extended minimum wages, the rates have not been pushed upwards through collective bargaining at central level to fill the gap between minimum rates and actual rates in the sector. In part, this is probably the result of unions recognizing that the shipyards struggle to compete in international markets. The shipyards are important also for local employment and the consequences are harsh for the communities if they close down or offshore production to low-cost countries. In several sectors, the extensions have been met with resistance and hostility on the employers’ side, but mostly so in the ship-building industry. With support from the employer confederations, nine shipyards sued the state in 2009, arguing that the extension (and, in particular, the provisions on travel, board and lodging) was in breach with both Norwegian law and the EEA agreement (EU law). They lost the case, and also the following appeals, finally with the Supreme Court ruling in 2013 that the extension was legal. Furthermore, the court stated that it

Securing wage floors in the absence of a statutory minimum wage 55 was “adequately documented that a general application of [the Industry Agreement] rules relating to compensation payable for travel, board and lodging expenses are of importance to the stability of the Norwegian labour market and wage leadership model” (Case HR-2013 – 0496-A, (170)). However, the employers continued their fight, and later in 2013, they submitted a complaint to the EFTA Surveillance Authority (ESA), the body that monitors that the EEA countries comply with internal market regulations. In September 2016, ESA issued a formal complaint to the Norwegian state, agreeing with the employers’ reasoning. Probably feeling the heat from Brussels, the Tariff Board changed the provisions on travel, board and lodging slightly when they decided on a continuation of the extension in October 2018. In short, the new regulation says more explicitly that it only regulates travel within Norway. For foreign workers, this could mean that they have to pay for the tickets to Norway themselves, depending on the regulations in their work contracts or in the sending countries’ regulations, which in practice could reduce the actual wage outcome. To clarify the consequences of the revised extension, the leaders of the employers’ association Norsk Industri and the trade union Fellesforbundet made a joint statement on the interpretation of the new regulation such that in practice it means as soon as a posted worker passes the Norwegian border, Norwegian rules must be followed (Alsos and Ødegård, 2019).14 In spite of this, there is still considerable dissatisfaction among union members, fearing that the negotiated sector minimum wage floor will be undermined by posting of workers that must pay their own flight tickets to Norway. As a result of the Tariff Board’s latest decision, Fellesforbundet’s largest industrial branch issued a statement in favour of leaving the EEA-agreement. In December 2018, the ESA decided to close the case against Norway, stating that the regulations were in compliance with EU law (probably based on a slightly different interpretation than the Norwegian social partners). A few weeks later the employer confederations hesitantly admitted that maybe the struggle against the extensions had not been worthwhile. Above all, this conclusion was probably motivated by a wish to calm down the rapidly increasing EEA scepticism among trade unions that had been fuelled strongly by this case. This was not fully successful as the Fellesforbundet’s national convention in autumn of 2019 ordered a study to look into alternatives to the EEA-agreement. First evaluations of wage statistics show that almost all registered workers in the shipbuilding sector earn the collectively agreed hourly minimum wage or more. While the native workers’ wages have a wider range, the migrant

14 https://www.vg.no/nyheter/innenriks/i/7lz33K/kamphaner-roeyker-eoes-fredspipe

56  Kristin Alsos and Line Eldring workers’ wages tend to be clustered around the minimum rate. This is a clear indication that the extended rates provide a valuable wage floor for all companies in the sector, and that wages most probably would decrease if the regulation were lifted (Jordfald, 2018). 3.4.3  Construction – Common interests The inflow of labour migrants and posted workers from low-cost countries in the east, quite quickly became a challenge for the Norwegian construction industry. Fuelled by an economic boom in the early 2000s, the industry was lacking labour, an ideal match for the expanded labour market resulting from the EU enlargement in 2004. While some construction companies could increase their profit based on contracting out part of the work, smalland medium-sized companies tended to lose in competition. Surveys among Polish workers in the capital area showed that their wages were far below Norwegian workers in the same sectors (Friberg and Eldring, 2011; Friberg et al., 2014). The volume of foreign workers – around half of all construction workers in Oslo (Arnholtz et al., 2018) – combined with a rise in atypical employment such as posting, temporary agency work and self-employment led to both union density and bargaining coverage decreasing considerably. While 51 per cent of construction workers in Norway were covered by a collective agreement in 2001, the share had dropped to 41 in 2013 (Nergaard, 2018). The collective agreement for construction work was extended as early as 2005 in parts of the country, and was the first agreement to be extended nationally, in 2007. The trade unions’ demand for an extension was mainly supported by the Federation of Norwegian Construction Industries (BNL) that organises construction companies. Their position was that employers supported and understood the need for establishing a general applicable wage floor for the construction industry (Tariffnemnda decision 21.11.2006 case 4/2006). The view of the construction employers must be seen in light of the fierce competition that their SME members met in the years following the Eastern enlargement of the EU. Facing competition from foreign suppliers, Norwegian employers were eager to extend the minimum wage floor in order to make sure that they did not lose in the competition. By doing this they reduced the potential leeway for using wages as a competitive factor, as the initial intention was with collective agreements when they started to develop in Norway at the beginning of the 20th century. The strategy of the employer organization seems to have been supported by their members in the sector. In a survey among Norwegian companies as many as 70 per cent of the construction companies regarded extension as a positive measure (Alsos and Eldring, 2008). As part of the strategy to avoid low-wage competition, the bargaining parties have also decided to raise the minimum wage floor in the industry-level agreement in order to reduce the gap between minimum and actual wages. By employers and trade unions having concurrent interests, they have been able to agree on a strategy that reduces

Securing wage floors in the absence of a statutory minimum wage 57 low-wage competition from foreign service providers without increasing their own costs. Extending and raising minimum wages have had little consequences for Norwegian construction firms relying on skilled workers, as their wage level is high above the minimum wage. At the same time, they have boosted the costs of foreign service providers. 3.4.4  Hospitality – Less controversies and stronger bite The call for statutory minimum wage regulation (in the form of extension) was more pronounced in the shipyard sector, which has stronger membership and collective bargaining, than in hospitality, which may seem paradoxical. At a more fundamental level, the Norwegian blue-collar unions stand united in their defence of collective bargaining as the main wage setting mechanism, with legal extension as a complementary mechanism – if need be. There is a deeply rooted scepticism towards a statutory minimum wage among all the unions in Norway; the main fear is that it would lead to downward wage pressure and weaken the influence of the collective agreements (Eldring and Alsos, 2012; 2014). The Hotel and Restaurant workers’ union merged with Fellesforbundet in 2007. According to one of the officials at that time, the union traditionally had been dominated by waiters working in well reputed establishments with generous local wage systems. As such, the union had not been at the forefront of combatting low wages in other parts of the sector, and in spite of joining Fellesforbundet it took time to learn from other sectors. Indeed, in the hospitality sector, Fellesforbundet did not apply for the collective agreement to be extended until 2017, with the extension approved from 2018. Hotels and restaurants have had far less use of agency workers and sub-contracting, but also more often lack collective agreements. In this sense low-wage competition was not a novelty and it also implies that the “bite” of the extension from 2018 is higher than in any of the other nine sectors that currently have legally extended collective agreements (possibly with the exception of the cleaning sector). Before the extension, 24 per cent of hospitality sector employees earned less than the minimum rates agreed in sectoral bargaining (Jordfald, 2018). In practice the wage rates in the collective agreement functioned more as actual wages – which means that they were rarely topped up by company agreements, and were less functional in setting a minimum outside the organised parts of the sector. The employer organization for the sector, NHO Reiseliv, argued that the actual wage level in restaurants was below the wage floor in the collective agreement, especially in rural areas. They therefore feared that an extension would have a wage inflation effect. Thus while the shipbuilding employers have continually challenged the empirical evidence on wage dumping in the sector, the hospitality employers argue that the documented high incidence of low wages proved that making the collectively agreed minimum

58  Kristin Alsos and Line Eldring wages generally binding would harm the many small businesses in the sector. Nevertheless, despite expressions of dissatisfaction, the hospitality employers’ resistance to the extension has been far less strong than among employers in ship-building. At the time of writing (2020), given the recent implementation of the extension, it is still too early to measure its effects on wages paid in the hospitality sector.

3.5 Discussion In Norway and Sweden wage floors are set through collective agreements, and a statutory minimum wage is still an alien institution to the Nordic labour market model. In the last 15 years, the wage setting models of these labour markets have been challenged both by pressures from above and below. Both pressures and responses have been different between the countries and between the key economic sectors. This chapter has analysed developments in the two countries from a sector perspective and identified important differences in strategies among the social actors in securing and challenging existing wage floors, as well as how these strategies relate to different power resources. There are many similarities, but also some important differences between Norway and Sweden. Both countries have relatively high union density rates. However, this has been challenged by an overall declining trend, and in Sweden is further undermined by the conservative government’s adjustments to the Ghent system. Nevertheless, the overall ability of each country to secure a decent minimum wage floor is more closely linked to the coverage of collective bargaining. In this respect Sweden has not seen the same decline in the private services sector as in Norway. This is related to institutional factors concerning how industry level collective agreements are invoked at company level, and the ability of trade unions to force unorganised firms to be covered by these agreements. Thus, Swedish private service industries, like hospitality, still have a high bargaining coverage, while the rate is rather low in Norway (the effect of extension of minimum wages not included). The strong institutions in the Swedish autonomy model therefore make it more resistant than in Norway to pressures to reduce wage floors (Ruhs, 2006). Due to EU law and the lex laval, the Swedes had to adjust the way cross-border service providers were bound by Swedish collective agreements. They did so without diverging from the principle of setting wage floors through collective agreements. At the same time, diverse economic situations in the two countries during EU enlargement made the pressure from low-wage competition weaker in Sweden than in Norway. Norway received more labour migrants and posted workers than its neighbouring country. The difficulties experienced by Norwegian trade unions to combat low-wage competition through high bargaining coverage led them to require state support for the collectively agreed wage floor through

Securing wage floors in the absence of a statutory minimum wage 59 the extension mechanism. One could argue that this has made the model less autonomous compared by the Swedish, but on the other hand the system of wage setting in the affected sectors are still controlled by the collective bargaining partners. As such, the different strategies between trade unions in Norway and Sweden cannot be explained by the different kinds of pressure only. Strength of institutions seems to have played an important role. The effectiveness of the minimum wage floors in Norway and Sweden has partly relied on the ability of unions to secure wage floors for those workers and employers who fall outside the collective agreement. In Sweden a number of different institutions have contributed to securing a high bargaining coverage despite pressures following market expansion. In Norway, the situation has been more challenging. The normative effect of the collective agreements, namely the mark-up set by the agreed minimum wage, did not prove effective enough facing low-wage competition. This can be explained through differences between the two countries in regulations related to covering of collective agreements and strikes. Further, the trade unions’ ability to act strategically can also be seen as an explanation. While Swedish IF Metal has been successful in persuading employers to demand service providers to sign an agreement, this has proven more difficult for the Norwegian trade union, Fellesforbundet, in part due to lower union density and bargaining coverage. One might expect the situation to be more similar in the two countries in the hospitality sector where union density in Sweden is much lower than within manufacturing. Still, this does not seem to be the case. Bargaining coverage is still high in Sweden as employers are automatically covered by the agreements signed by the employer organisation they are affiliated to. Other institutional mechanisms, as the Swedish trade unions’ impact on the application of immigration law, might also be an explanation. From a sector perspective, diverse responses can be explained through understanding the different pressures and unions’ access to power resources. In manufacturing, union density and bargaining coverage is still high in both countries. Market expansion through increased access to mobile workers has given firms new strategic possibilities when it comes to lowering costs. Offshoring and externalization of tasks makes it possible to secure high wages for national employees, at the same time as lowering the total production costs. However, this strategy has been more successful for larger companies where the high demand for labour makes such strategies more profitable, than for smaller companies that are competing with the foreign service providers. This indicates that the power balance between large and small companies within the employer organization is decisive (Afonso, 2012). In national-based industries like construction and hospitality, companies’ choices are more limited. This might explain the pressure for lowering the entry wage and higher wage disparity in the Swedish hospitality industry.

60  Kristin Alsos and Line Eldring Still, unions with relatively weak institutional power are strengthened by the institutional framework of the pattern bargaining model. It can be argued that their weak spots are reduced through the strength of the front running metal working industries in both countries. This is apparent through the lifting of wage floors, but in Norway also through the extension mechanism. It might seem strange to argue that state support is linked to the strength of trade unions, rather than their weakness. However, in Norway the extension was not invoked in the hospitality sector until after the trade union was merged with the metal working union, thereby becoming a more powerful social actor. Facing the challenges related to low-wage competition, one might wonder why Norwegian trade unions, in particular, are still reluctant to introduce a statutory national minimum wage. So far, this issue has only been voiced by some of the Norwegian employers’ associations. One explanation is related to the coordinated wage setting model, as this model has to date managed not only to secure wage increases for strong trade unions but also to lift the bargaining power of weaker unions as well. Overall, unions in both countries still perceive a statutory minimum wage as a potential threat to their ability to sustain and grow an active membership base and also having the potential of jeopardizing the collectively agreed, and relatively effective, wage floors.

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Securing wage floors in the absence of a statutory minimum wage 61 Arnholtz J., Meardi G. and Oldervoll J. (2018). Collective wage bargaining under strain in northern European construction: Resisting institutional drift? European Journal of Industrial Relations, 24(4), 341–356. DOI:10.1177/0959680118790816. Bechter B., Brandl B. and Meardi G. (2012) Sectors or countries? Typologies and levels of analysis in comparative industrial relations. European Journal of Industrial Relations 18(3): 185–202. Berge, C. (2021) Hvor mange pendler til Norge for å arbeide? Oslo: Statistics Norway, 12. February 2021. Bosch G. (2015) Shrinking collective bargaining coverage, increasing income inequality: A comparison of five EU countries. International Labour Review 154: 57–66. DOI: 10.1111/j.1564-913X.2015.00226X. Commons J. R. (1909) American shoemakers, 1648–1895: A sketch of industrial evolution. Quarterly Journal of Economics 24(1): 39–84. Dølvik J. E. and Eldring L. (2008) Mobility of Labour from New EU States to the Nordic Region. TemaNord. Copenhagen: Nordic Council of Ministers, 537. Dølvik J. E., Eldring L. and Visser L. (2014) Setting Wage Floors in Open Markets: The Role of the Social Partners in Europe’s Multilevel Governance. In: Evju S. (eds.) Regulating Transnational Labour in Europe: The Quandaries of Multilevel Governance. Publications Series No. 196. Oslo: Department of Private Law, University of Oslo. Dølvik J. E., Marginson P., Alsos K., Arnholtz J., Meardi G., Müller T. and Trygstad S. (2018). Collective wage regulation in northern Europe under strain: Multiple drivers of change and differing responses. European Journal of Industrial Relations, 24(4): 321–339. https://doi.org/10.1177/0143831X18790815 Due J., Madsen J. S. and Jensen C. S. (1993) Den Danske Model: En historisk sociologisk analyse af det kollektive aftalesystem. København: DJØF/Jurist- og Økonomforbundets Forlag. Eldring L. and Alsos K. (2012) European Minimum Wage: A Nordic Outlook. Faforapport 2012:16. Eldring L. and Alsos K. (2014) European Minimum Wage: A Nordic Outlook – an update. Fafo-paper 2014:21. Emilsson H., Magnusson K., Osanami Törngren O. and Bevelander P. (2014) The World’s Most Open Country: Labour Migration to Sweden after the 2008 Law. Current Themes in IMER Research 15, Malmö: Malmö University. Friberg J. H., Eldring L. (2011) Polonia i Oslo 2010. Mobilitet, arbeid og levekår blant polakker i hovedstaden. Fafo-rapport 2011:33. Friberg J. H., Arnholtz J. and Eldring L. et al. (2014) Nordic labour market institutions and the incorporation of new migrant workers: Comparing wages and working conditions among Polish migrants in Oslo, Copenhagen and Reykjavik. European Journal of Industrial Relations 20(1): 37–53. Frödin O. and Kjellberg A. (2015) Arbetskraftsinvandring Från Tredje Land I Restaurang- Och Städbranscherna. I Calleman C, Herzfeld Olsson P (Red) Arbetskraft Från Hela Världen. Hur Blev Det Med 2008 års Reform? Stockholm: Delegationen för migrationsforskning (Delmi), 150–199. Frödin O. and Kjellberg A. (2017) Arbetskraftmigrasjonfrån tredje land i låglöneyrke. Arbetsmarknad & Arbetsliv 23(1): 82–100. Frödin O. and Kjellberg A. (2018) Labor migration from Third countries to Swedish Low-wage jobs. Nordic Journal of Working Life Studies 8(1). DOI: 10.18291/njwls. v8i1.104.

62  Kristin Alsos and Line Eldring Garnero A., Kampelmann S. and Rycx F. (2015) Minimum wage systems and earnings inequalities: Does institutional diversity matter? European Journal of Industrial Relations 21(2): 115–130. Grimshaw D. and Bosch G. (2013) The Intersection between Minimum Wage and Collective Bargaining Institutions. In: Grimshaw, D. (eds.) Minimum Wages, Pay Equity and Comparative Industrial Relations. New York, London: Routledge: 51–81. Hällberg P. and Kjellström C. (2020) Collective agreements and minimum wages. Stockholm: Medlingsinstitutet. Håkansson K. and Isidorsson T. (2015) Temporary agency workers—Precarious workers? Perceived job security and employability for temporary agency workers and client organization employees at a Swedish manufacturing plan. Nordic Journal of Working Life Studies 5(4): 3–22. Hotell- och restaurangfacket (2012) Till vilket pris som helst? En uppföljning av arbetskraftsmigranters villkor i hotell- och restaurangbranschen. Stockholm: Hotell- och restaurangfacket. Jordfald B. (2018) Lønnsfordeling i privat sektor. Bygg og HORECA. Fafo-notat 2018:19. Jordfald B. (2020) Lønnsfordeling i allmenngjorte bransjer. Fafo-notat 19.10.2020. Kjellberg A. (2000) Sweden. In: Waddington, J. and Hoffman, R. (eds.) Trade Unions in Europe Facing Challenges and Searching for Solutions. Brussels: ETUI, 529–574. Kjellberg A. (2009) The Swedish Ghent system and trade unions under pressure. Transfer: European Review of Labour and Research 15(3–4): 481–504. DOI: 10.1177/10242589090150031601. Kjellberg A. (2017) Organisationsgraden hos fack och arbetsgivare, kollektivavtalens täckningsgrad mm. Lund: Lund universitet. Kjellberg A. (2018) Kollektivavtalens täckningsgrad samt organisationsgraden hos arbetsgivarförbund och fackförbund. Lund: Lund universitet. LO (2013) Gäst i verkligheten – om utstationerad arbeidskraft i praktiken. LO (2018) Lönerapport 2018: Löner och löneutveckling år 1913–2017 efter klass och kön. Medlingsinstitutet (2019) Avtalsrörelsen och lönebildningen 2019. Medlingsinstitutet (2018) Avtalsrörelsen och lönebildningen 2018. Müller T., Dølvik J. E., Ibsen C. and Schulten T. (2018) The manufacturing sector: Still an anchor for pattern bargaining within and across countries? European Journal of Industrial Relations 24(4): 357–372. DOI: 10.1177/0959680118790817. Nergaard K. (2018) Organisasjonsgrader, tariffavtaledekning og arbeidskonflikter 2016/2017. Fafo-notat 2018:20. Nergaard K. (2017) Arbeidsutleie og selvstendige næringsdrivende. Oppdaterte tall for 2016. Fafo.notat 2017: 12. Nergaard K., Alsos K. and Seip ÅA. (2016) Koordinering av lønnsdannelsen innen de nordiske frontfagsmodellene. Fafo-notat 2016: 25. OECD (2011) Recruiting Immigrant Workers. Sweden: OECD Publishing. Ruhs M. (2006) Eastern European Labour Market Immigration in the UK. Oxford: COMPAS Working Paper 36, University of Oxford. Schulten T., Eldring L. and Naumann R. (2015) The Role of Extension for the Strength and Stability of Collective Bargaining in Europe. In: Van Gyes, G. and Schulten T. (eds.) Wage Bargaining Under the New European Economic Governance Alternative Strategies for Inclusive Growth. Brussels: European Trade Union Institute (ETUI): 361–400.

Securing wage floors in the absence of a statutory minimum wage 63 SOU (2015:83) Översyn av lex Laval, Betänkande av Utstationeringskomittén. Stockholm: Statens offentliga utredningar. Svarstad E. and Oldervoll J. (2018) Mellom lov og avtale. Minstelønnsreguleringer i Nord-Europa. Fafo-notat 2018:12. Traxler F. (1996) European trade union policy and collective bargaining: Mechanisms and levels of labour market regulation in comparison. Transfer: European Review of Labour and Research 2(2): 287–297. Trygstad S. C., Andersen R. K. and Hagen I. M. et al. (2014) Arbeidsforhold i utelivsbransjen. Fafo-rapport 2014:02. Visser J. (2009) Industrial Relations in Europe 2008. Brussels: European Commission. Ødegård A. M. and Eldring L. (2016) Nordiske arbeidstilsyn med utenlandsk arbeidskraft i bygg og transport. TemaNord 2016:530. Copenhagen: Nordisk ministerråd.

4

Minimum wages in Southern Europe Regulation and reconfiguration under the shadow of hierarchy Oscar Molina

The debate about the regulation, levels and effects of minimum wages in Southern Europe has gained momentum in the context of the financial and sovereign debt crises (Schulten et al., 2015; Clemens and Wither, 2019). In the internal devaluation process taking place in all Southern European countries during the great recession and the sovereign debt crisis, minimum wages were an instrument used by states to achieve the downward wage adjustment and this has contributed to the re-opening of the debate around the role of the state in industrial relations (Afonso, 2019; Molina, 2014). Moreover, the increase in unemployment, non-standard employment, new forms of work organisation in the digital economy and income inequalities has also extended the debate around minimum income schemes and the role of minimum wages in the broader context of income support policies (Levin-Waldman, 2018; Palier, 2019). Additionally, the high price sensitivity of predominant economic sectors in Southern Europe makes minimum wages particularly sensitive instruments due to the tendency to adopt a cost-competition strategy in these countries. Finally, in the context of the single currency, maintaining some control over wage-setting is important for Southern European states to compensate for the loss of exchange rate policy. The minimum wage regime in Southern Europe – namely, Greece, Italy, Portugal and Spain – shares some commonalities compared to the rest of EU countries (Schulten, 2014). First, there is a prevalence of legal universal minimum wage set by law, thus reflecting the comparatively more important role of the state in the industrial relations systems in these countries. Secondly, the minimum wage levels are historically low which is associated to medium-high earnings inequalities and relatively large numbers of low paid workers (Barbieri et al., 2018). There are however some important differences. Italy and, until 2012 Greece, set minimum wages through collective bargaining and not via state regulation. Moreover, there are important differences in levels, with Spain exhibiting generally higher levels in minimum wages, especially since the increase in January 2019. Finally, the crisis has had an asymmetric impact across the four countries, with some countries experiencing a revitalisation of their minimum wage regime, whilst in other countries the crisis has had little or no effect.

Minimum wages in Southern Europe 65 This chapter analyzes recent developments in the Southern European minimum wage regime. In doing so, it combines institutionalist and actor-centred approaches with the aim of shedding light on those actors and processes that determine how minimum wages are set, their levels and implementation. Even though minimum wage setting institutions are discussed and analysed, this chapter pays particular attention to the role of agency in relation to minimum wage-setting, including the actors involved in negotiations around reform, their views in relation to the contested dimensions of minimum wage-setting and the way in which they interact. The analysis shows how the regulation, implementation and levels of minimum wages in Southern Europe exhibit important commonalities, but also significant diversity. Even though a strong role of the state in the form of unilateral regulation predominates, and has become even more intense during the crisis, there remain cases where minimum wages are set by collective bargaining, whilst the stronger role of the state is contested by social partners in other countries. Moreover, the comparative analysis reveals the existence of different actor constellations in the four Southern European countries and conflicts in relation to the levels and impact of minimum wages. In all four countries, trade unions and employers have similar views on what their role should be in minimum wage setting vis-à-vis the state. Moreover, it is argued that the lack of pre-defined formulas leaves the door open to a discretionary use of minimum wage rules by the government and constitutes a major source of conflict between actors involved. This chapter is structured in four sections. Section one provides a short theoretical discussion around minimum wage setting and the role of agency. Section two presents a comparative analysis of minimum wage regimes in Southern Europe, including the role of different actors and the processes whereby minimum wages are set. Section three compares minimum wage levels, evolution and inequalities in Southern Europe and section four analyses the contested dimensions of minimum wage setting in Greece, Italy, Portugal and Spain. The concluding section provides some final insights about where Southern Europe is moving in relation to minimum wage setting.

4.1 The role of minimum wages in Southern Europe: An actor-centred approach Minimum wages are very often assessed by adopting a somewhat narrow institutional perspective, i.e., focusing on those sets of institutions and regulations that explain the way minimum wages are set, their effectiveness and impact. Among those institutions, industrial relations and collective bargaining play an important role. Considering the institutional context is necessary to understand differences across countries, and it presents a first step in the in-depth analysis of minimum wage systems in any country.

66  Oscar Molina However, there is ample evidence showing that minimum wages constitute a contested terrain for many reasons. First of all, there is disagreement about the need to have a minimum wage, whether legal or negotiated, due to the potentially negative impact it may have on the labour market and the economy more generally. This debate is now framed in the broader discussion around guaranteed universal income schemes. Secondly, disagreements may also exist around the way to set it, i.e., through law or collective bargaining. Finally, actors may also disagree on the level at which the minimum wage is set. These three contested dimensions of minimum wages require the adoption of analytical approaches that incorporate agency into their analysis. In other words, what is needed is a closer look at the actors involved in minimum wage-setting, their preferences, coalitions, interactions and discourses in relation to the minimum wage. 4.1.1  Social partners’ autonomy versus the State One of the key debates in relation to minimum wages in Southern Europe involves the role of the state vs the autonomy of social partners. The tension between state intervention in industrial relations and autonomous collective bargaining is a distinctive trait of Southern Europe where several studies have pointed out the comparatively stronger role of the state in industrial relations (Crouch, 1993; Molina, 2014). In the context of the varieties of capitalism literature, a stronger state in the mixed market economies of Southern Europe responds to the difficulties of achieving alternative forms of strategic coordination due to an ideologically fragmented system of interest representation and associational weakness of social partners (Molina and Rhodes, 2007; Schmidt, 2009). Under these conditions, the state steps into industrial relations either directly through regulation, or indirectly by facilitating dialogue and coordination between social partners. According to this view, in critical economic and political moments that may require adopting policies in order to curb that situation, there is a stronger propensity for the state to intervene unilaterally compared to other countries. In the words of Héritier and Lehmkuhl (2008: 2), the “shadow of hierarchy” implies that governments can threaten to enact adverse legislation unless potentially affected actors alter their behaviour to accommodate the legislators’ demands. The impact of a legal as opposed to a negotiated minimum wage depends on many dimensions, but some authors have shown a functional equivalence between minimum wage regimes based on legal regulation and those based on autonomous collective bargaining between social partners (Garnero et al., 2015). According to these studies, when collective bargaining coverage is high (either because of erga omnes extension, high union density or any other form of extension mechanisms), a legal and a negotiated minimum wage are likely to have a similar impact on earnings’ distribution. When this is the case, actors’ preferences in relation to minimum wage setting will be

Minimum wages in Southern Europe 67 determined by factors other than merely its effectiveness. These can include retaining power and decision-making capacity, avoiding excessive fluctuations in minimum wage levels due to the colour of the government or achieving a better fit between socio-economic conditions and minimum wage levels. Sectorally negotiated minimum wages serve this last objective better than a national (legal or negotiated) minimum wage. Moreover, a national minimum wage will be set considering those sectors where earnings are lower, meaning that compared to a sectorally negotiated minimum wage, an average national minimum wage will tend to be set at a lower level, all other factors being equal. Finally, a legal minimum wage is always subject to political discretion, especially when there is no obligation for the government to reach an agreement with social partners. This means that governments can adjust it depending on political criteria or economic conditions. 4.1.2  Minimum wages and distributional impact Minimum wages play different roles and have diverse meanings in different institutional and socio-economic settings. In the case of Southern Europe, two functions of minimum wages are particularly relevant. First, minimum wages have a strong re-distributional role in limiting downward wage competition and compressing low paid jobs at the bottom of the earnings structure. In the two Southern European countries where right-wing totalitarian regimes ended in the 1970s (Portugal and Spain), the organisational fragmentation and weakness of autonomous regulation led to the introduction of legal minimum wages. In this vein, minimum wages were a key element to build and consolidate collective bargaining institutions. The introduction of the legal minimum wage during the transition to democracy and the adoption of a more liberal agenda points to the legitimation role of the minimum wage in these countries. In Greece and Italy, which had longer traditions of autonomous industrial relations and collective bargaining, minimum wages were set autonomously by social partners at national and sectoral levels respectively and contributed to strengthen collective bargaining frameworks. However, as minimum wages in Southern Europe very often acquired the status of “the going rate” for certain low skilled jobs and/or groups of workers, their re-distributional impact remained lower than it could be. In a production structure characterised by cost competitiveness, employers will tend to use the minimum wage as the target wage for certain jobs, not as a floor. This means that there will be a large proportion of workers whose earnings are close to the minimum wage. This effect will be stronger when there is a national statutory minimum wage, compared to the alternative scenario of sectorally negotiated minimum wage. The negotiated scenario also typically establishes grids of incremental wage scales that reward seniority, experience and skill, and therefore lift workers above the wage floor (Grimshaw et al., 2014).

68  Oscar Molina

4.2  Minimum wage regimes in Southern Europe With the exception of Greece, the countries in Southern Europe have not recently experienced significant changes in minimum wage regimes1. In the other three countries, the actors, mechanisms and type of minimum wage have remained rather stable over the last decade (See Table 4.1). Of the four Southern European economies, only Italy has a negotiated minimum wage. Accordingly, there is no role for the state; but as the analysis for the Italian case shows, there have been attempts in recent years for the government to set a legal minimum wage that would complement, without replacing, the negotiated minimum wage. Greece had, until recently, a negotiated system; but in the context of austerity policies, the government was under strong pressure from the Troika to change the minimum wage regime, meaning that the state would unilaterally set minimum wages (Karamessini, 2012; Karamessini and Grimshaw, 2017). Overall, the picture that emerges from Table 4.1 is the existence of high levels of state intervention in minimum wage setting in all four countries, a characteristic that has been accentuated during the recent economic and financial crisis. An interesting and very often overlooked characteristic of minimum wage regimes in Southern Europe is the lack of predefined rules used to set minimum wages. In those countries where a legal minimum wage is in place, the level is set considering several variables including inflation, productivity levels, economic growth etc. The lack of a clear formula for calculating the minimum wage level opens the door to its discretionary use by the government, as developments in France and the UK have shown. This feature constitutes an important source of conflict in relation to minimum wage-setting in Southern Europe and eventually allows the government to set wages following different and changing criteria. 4.2.1  Wage setting in Southern Europe Where they exist, legal minimum wages are central elements of wage-setting systems. However, they play different roles depending on the minimum wage regime and the characteristics of collective bargaining. There are two main reasons for this. First, in those countries where there is no legal minimum wage, its efficacy largely depends on the structure and coverage of collective bargaining. Secondly, even when a legal minimum exists, collective bargaining institutions will determine the number of people who will be covered by collective agreements that tend to set wages above the legal minima. 1 The concept of Minimum Wage Regimes has been used by Schulten (2014) as a heuristic device in order to compare differences across countries in the mechanisms for setting minimum wages, their levels etc. In this chapter, minimum wage regimes refer to the set of institutions, actors and processes whereby minimum wages are set, as well as their level

Table 4.1  Differences and similarities in minimum wage regimes in Southern Europe in 2020 Italy

Portugal

Spain

Type of Minimum Wage

Legal

Legal

Legal

Implementation Coverage

Law or Ministerial Decree Universally binding, but sub-minimum for employees under 25 after 2012 Decides unilaterally the minimum wage level, but some spaces for consultation opened recently Consulted by the government

Non-legal. Minimum wages are only established in collective agreements Collective Agreement Depends on the sector

Law or Ministerial Decree Universally binding

Law or Ministerial Decree Universally binding

No role in minimum wage setting

Negotiates with social partners

Consults social partners

Decide through sectoral collective agreements the minimum wage levels

Consulted by the government and eventually negotiate a tripartite agreement Institutionalised consultation

Ad-hoc bi-partite consultations/ negotiations

Role of the State

Role of Social Partners Role of National Social Dialogue Institutions Pre-defined Formula

OMED (Consultation and Arbitration body) plays a coordination role in the recently established consultation process No Variables considered: Inflation, productivity

Source: Author’s elaboration

No role

No

No Variables considered: inflation, productivity, purchasing power, combating in work poverty, poverty and social exclusion

No role

No Variables considered: inflation, productivity, contribution of labour to the Gross National Income and the general economic context

Minimum wages in Southern Europe 69

Greece

70  Oscar Molina

Figure 4.1  Collective bargaining coverage in Southern Europe, 2007–2016. Source: OECD. For Greece, the last year available is 2013

Collective bargaining and wage setting in Southern Europe have experienced profound transformations during and since the global financial crisis, which have, in many cases, entailed an erosion of collective bargaining institutions (Visser, 2016). This erosion has manifested in two key dimensions of collective bargaining systems; a decline in collective bargaining coverage levels accompanied by a de-centralisation of collective bargaining. Figure 4.1 shows collective bargaining coverage rates in the four countries in 2007 and 2015 (or last year available). Collective bargaining coverage in Southern Europe used to be systematically high, covering around 80% of the workforce. This is explained by the existence of extension mechanisms in all countries in the years prior to the crisis. In Spain, the erga omnes clause implies the automatic extension to all workers within the functional/ geographical scope of the collective agreement. In Portugal and Italy, there are mechanisms allowing social partners to extend collective agreements, either through an administrative procedure (Portugal) or court ruling (Italy). Unfortunately, the only country with a negotiated minimum wage at a sectoral level, Italy, lacks reliable data on collective bargaining coverage levels and evolution, though most analysis point to a high level of collective bargaining coverage that has remained rather stable. The second important point from Figure 4.1 is that there hasn’t been a generalised decline in collective bargaining coverage. Only two countries now have lower coverage rates compared to the beginning of the crisis: Greece and Portugal. In the case of Greece, this decline is explained by the elimination of extension mechanisms since 2011. The collective agreements are now binding only for the members of the signatory parties. In the case

Minimum wages in Southern Europe 71 of Portugal, the decline is explained by the decrease in the number of multi-employer and company agreements signed as a consequence of labour market deregulation and loss of bargaining power by trade unions. Another important element in relation to collective bargaining is the structure of collective bargaining. In a majority of countries, reforms have been implemented during the crisis period to decentralise collective bargaining and reinforce the role of company level bargaining. In the case of Spain, the 2012 reform gave predominance to company level agreements through the extension of opting-out clauses and more unilateral decision-making power to the employer. However, the effect of the reform has not been as dramatic as expected due to employers’ support for the sectoral bargaining structures (Bulfone and Afonso, 2020). In Portugal, many of the sectoral collective agreements collapsed, therefore opening a scenario of predominantly company level bargaining. In Greece, the reforms implemented during the crisis have implied a departure from the principle of free collective bargaining and have led to a stronger state role in industrial relations. These changes included abolishing the “principle of favourability”, which de facto provided strong incentives for employers to de-centralise collective bargaining. Moreover, reforms also introduced non-union representatives into firms with the right to conclude company-level collective agreements (the so-called “associations of persons”) (Voskeritsian et al., 2017; Koukiadaki and Grimshaw, 2016). The only exception to these trends is Italy, where in spite of strong pressures to de-centralise, both trade unions and employers have confirmed the two-tier system whereby national sectoral collective agreements open possibilities for company level agreements to modify the terms agreed in the sectoral agreement. The above trends in collective bargaining contain two main implications for the future of minimum wage regimes in Southern Europe. First, in Greece and Portugal, and to a lesser extent Spain (where collective bargaining coverage has declined), legal minimum wages present themselves as an even more important instrument in limiting the race to the bottom and reducing inequalities. This is because declining bargaining coverage breaks the functional equivalence between a legal minimum wage and a negotiated minimum wage. Secondly, in a context of growing de-centralisation in collective bargaining, again most marked in Greece and Portugal, we can expect an increase in earnings inequalities. In this context, legal minimum wages could play an important role in fighting against growing disparities in the labour market, as the next section shows.

4.3 The evolution of wage inequalities and minimum wages in Southern Europe Minimum wages are considered very effective mechanisms to reduce earnings inequalities. Compared to other anti-poverty mechanisms, raising the minimum wage is expected to have a direct and proportional effect on the

72  Oscar Molina incomes of poorer individuals and their families. Moreover, compared to other policies, it is expected to have little or no public or social costs. These arguments are however contested by those who argue that because of minimum wages, employers will increase prices and those at the bottom of the income distribution will be penalised to a greater degree. The level and evolution of low wage earners as a proportion of all employees over the period from 2006–2014 shows a mixed picture for Southern Europe (Figure 4.2). First, compared to the Euro Area average, Italy, Portugal and Spain have a below average low-wage incidence. In fact, only Portugal before the crisis and Greece both before and afterwards have a higher proportion of low wage earners. Interestingly, the only country where there is no legal minimum wage, Italy, is the one with the lower proportion of low wage earners. This confirms analyses of the consequences of functional institutional equivalence between legal and negotiated minimum wages with high coverage (Garnero et al., 2015). In other words, the combination of sectoral minima and high collective bargaining coverage can be regarded as a functional equivalent of a binding legal minimum wage, at least for earnings inequalities. The dynamics in all four Southern European countries are nevertheless different. In the case of the two countries where collective bargaining exhibited a decline, Greece and Portugal, we observe opposite trends. In Greece, there is a sharp increase in 2014 in the percentage of low wage earners. By contrast, in Portugal, there is a reduction between 2006 and 2014. In Spain, the percentage of low wage earners increased slightly over the period

Figure 4.2  Low wage earners as a proportion of all employees, 2006–2014. Source: Eurostat

Minimum wages in Southern Europe 73 considered. High collective bargaining coverage is, accordingly, an important but not sufficient element to reduce the proportion of low wage earners, as shown by the contrasting cases of Greece and Portugal. Declining collective bargaining coverage will have a more significant impact in those countries where there is a negotiated minimum wage, as any change in collective bargaining coverage has a direct impact on coverage and therefore effectiveness of minimum wage. By contrast, where there is a legal minimum wage, the decline in collective bargaining coverage means that a larger share of workers that receive a minimum wage will fall outside of collective bargaining protection and the potential “ripple effects” of the minimum wage will be limited2. In the Portuguese case, where collective bargaining coverage remains high, notwithstanding the decline experienced in recent years, the combined effect of high-value minimum wage systems with still relatively strong collective bargaining coverage (around 70%) explains the declining incidence of low-wage employment by ensuring long-reaching ripple effects of a rising statutory minimum wage. By contrast, in the case of Greece, the weakening of collective bargaining institutions is directly associated with a significant increase in the share of low-wage employment. This is largely caused by a spike in the wage distribution at the wage floor resulting from the inability of unions to put in place a pay scale that incorporates pay differentials by skill or experience. Thus, where governments act to improve pay equity by gradually raising the minimum wage over time, in the absence of complementary collective bargaining, the positive impact is likely to be limited to the very lowest paid, protecting against exploitative pay but not lifting workers out of low-wage employment (Rubery, 2003). In all Southern European countries, women are more likely to be low wage earners compared to men (see Table 4.2). This difference is particularly high in Spain and Portugal, where the proportion of women with low wages exceeds that of men by more than ten percentage points. The decline in this difference observed in all countries over the period of 2006–2014 is largely explained by Table 4.2  Low-wage earners as a proportion of all employees (excluding apprentices) by sex, 2006–2014 2006

Greece Spain Italy Portugal

2014

Females

Males

Females

Males

20.16 21.24 14.00 26.40

12.45  7.97  7.52 15.37

23.48 19.84 11.33 16.98

20.16  9.78  7.93  6.60

Source: Eurostat 2 Ripple effects refer to wage rises above the level of the minimum wage that are indirectly caused by uprating of the minimum wage

74  Oscar Molina the increase in male low wage earners (except for Portugal) together with the decline in female low wage earners in that same period. The only exception to this decline is Greece, where the proportion of low wage earners increased by 16.5% in this period. Notwithstanding, as the proportion of male low wage earners went up by 62% over the same period, the difference narrowed. As a consequence, the gender impact of minimum wages is expected to be particularly significant in Southern Europe, since in these countries there is a comparatively larger concentration of women in low paid jobs. Moreover, the crisis has had a stronger impact among low paid workers, a high percentage of which were women, as the internal devaluation affected to a greater extent those workers who already had lower salaries before the crisis. For this reason, we can expect that increases in the minimum wage will have, other things being equal, a positive effect in reducing the gender pay gap. When we look at this evidence for the Southern European countries with minimum wage data, only Spain follows the expected pattern of an 18% increase in the minimum wage over the period from 2008–2017 in conjunction with a 6% decrease in the gender pay gap3. In the case of Greece, for the period 2008–2014, the minimum wage decreased by 14% but there was, nonetheless, a 43% fall in the gender pay gap, which reflects other factors that led to a near doubling of men in low-wage employment (Table 4.2). Finally, in Portugal a 31% rise in the minimum wage over the period 2008–2017 had a positive impact on reducing low wage earners (see Table 4.2), but was not accompanied by a fall in the gender pay gap; to the contrary, it increased by 77% in that period. This could be related to the negative impact of austerity policies on public sector new hiring, employment levels and wage cuts which have been particularly intense in female sectors such as education and health (González, 2014). Overall, this suggests the existence of many other factors mediating the relationship between these two variables and more specifically, affecting occupational sex segregation. Among other things, we know that the crisis had a strong impact on the public sector, where female employment is particularly important. But the important policy lesson from this evidence suggests that, unless complemented by other policies to combat occupational sex segregation, the impact of minimum wages on gender inequalities in the labour market will be limited in Southern European countries. An aspect often overlooked when analysing the impact of minimum wage is the relationship with the self-employed, a group that remains particularly vulnerable. When we look at the risk of poverty for the actively self-employed, we observe higher levels in all countries, therefore showing that, on average, the self-employed have lower income levels in relation to employees. The difference is particularly high in the case of Portugal, where the risk of in-work poverty for self-employed workers reaches 26% compared to 8% 3 Gender gap in unadjusted form, Eurostat

Minimum wages in Southern Europe 75 for employees and lower in the case of Italy, where the rate for self-employed is 17% compared to 11% for employees. In principle, self-employed workers are not directly affected by a minimum wage. However, the increase in minimum wage levels may have several indirect effects on self-employed workers (Baker et al., 2018). The first is through the outsourcing of dependent jobs to self-employment. This can be an employer strategy to overcome labour market regulations, including the minimum wage, by shifting part of the risks onto the self-employed worker. We could expect this effect to be particularly important in Southern Europen countries where cost competition is predominant, and the informal economy is large. The Spanish Central Bank called attention to this potential impact after a 22% increase in the minimum wage was approved for 2019 (Banco de España, 2019). Moreover, even though the self-employed are not directly affected by the minimum wage, its increase may have indirect costs. In some cases, taxes or social contributions paid by the self-employed are linked to the minimum wage. In Spain, for example, the increase in the minimum wage triggers an automatic increase in social contributions paid by the employer and the self-employed. Moreover, those self-employed persons with employees will experience an increase in labour costs. Even though there is no quantifiable evidence on this, the higher rates of self-employment in Southern European countries, in particular Greece and Italy, could suggest a potentially stronger indirect impact of the minimum wage in these countries. Finally, another important indicator to understand the potential impact of minimum wages is the risk of in-work poverty. This indicator shows those workers who, despite being employed, face situations of material deprivation. For this reason, it suggests the extent to which the minimum wage is close to a “living wage”. In those countries where the minimum wage, in relation to the average or median wage, is low, we can expect a higher level of in-work poverty. The data shows an increase of in-work poverty for employees in all countries since the beginning of the economic crisis (Figure 4.3). This increase seems to have reversed in the post-crisis years for Greece and, to a lesser extent, Portugal, whilst in the case of Spain and Italy, it has grown. This evidence would suggest that minimum wages in Italy and Spain are low compared to Greece or Portugal. 4.3.1  Minimum wage levels and their evolution Minimum wage levels in those Southern European countries where there is a legal minimum wage have remained low according to the Kaitz index, ranging from 40 to 60% of the median wage (Figure 4.4; see, also, Chapter 1). However, there are differences in levels and evolution, with Portugal exhibiting the highest level, coupled with an increasing trend. By contrast, both Greece and Spain show how the Kaitz index stagnated over the period considered, though in the most recent years there has been an increase in both countries, one that is particularly intense in Spain. Even though there is no data available, the

76  Oscar Molina

Figure 4.3  In-work at risk of poverty rate, 2009–2017. Source: Eurostat using EU-SILC data

increase in the Kaitz index is probably explained by average wages growing less than the minimum wage since the onset of the great recession. Even though the Kaitz index, in nominal terms, is the lowest in Spain and is still below the 60% target in all three countires, when it comes to purchasing power (PPP) of minimum wages, the picture changes. Despite its low

Figure 4.4  Kaitz index, minimum wage relative to the median wage of full-time workers, 2000–2017. Source: OECD

Minimum wages in Southern Europe 77

Figure 4.5  Monthly minimum wages in PPS, 1999–2019. Source: Eurostat

number on the Kaitz index, Spain has the most generous minimum wage in real terms, especially since the 1st of January 2019 (See Figure 4.5). This is important, since the notion of a living wage relates to the real capacity of wages to allow workers to have a decent life, including the capacity to satisfy basic needs such as housing, etc. Minimum wages in Portugal and Spain have experienced sustained increases in real terms over the last two decades. By contrast, minimum wages in PPP in Greece experienced a sharp decline during the crisis and have stagnated in the post-crisis period. One of the most important consequences of internal devaluation experienced by Southern European countries has been a decline in average earnings. Even though minimum wages experienced low increases or even cuts during the great recession (as in Greece in 2012, see Figures 4.4 and 4.5) the Kaitz index remained stable or even increased. This trend has continued even through the post-crisis years, as minimum wages have remained rather stable or experienced low increases. Internal devaluation has, accordingly, triggered stability or increases in the Kaitz Index in Southern Europe.

4.4  Minimum wages in Southern Europe 4.4.1 Setting minimum wages in Greece: From negotiation to consultation In the context of Southern Europe, Greece is the country where the minimum wage regime has experienced more profound changes in recent years. Before 2010, the minimum wage was determined through the General National Collective Agreement (EGSSE), a cross-sector national agreement

78  Oscar Molina between social partners and the government. In 2012, with Law 4046/2012 and Law 4093/2012, the government, for the first time since 1990, intervened in free collective bargaining and the formation of the national minimum wages through the General National Collective Agreement (EGSSE). These laws introduced a cut of 22% (and 32% for workers under 25 years old) to the 2012 national minimum wage (of €751.40 at that time). The new national minimum wages, applied from December 2012, were set at €586.08 and €510.95 for employees under 25 years old. Moreover, since 2013 with Law 4177/2913, the minimum wage was set by the government, with the social partners having only a consultative, but no institutionalised role. The law that introduced the legal minimum wage in Greece also established that it would be frozen until 2016. Already in 2016, the national-level social partners reached a common position in relation to the minimum wage, according to which there was, no need to cut it further or to eliminate the 13th and 14th payments. Moreover, they claim their role in setting it as part of the National General Collective Employment Agreement (EGSSE) (Lampousaki, 2016). Even though the proposal was rejected initially by the IMF, in 2018, a new mechanism for determining the minimum wage came into force. They established specific dates for a five-month consultation period, starting August 2018 and ending January 2019. This new mechanism provides for the development of a step-by-step consultation process involving the social partners, specialised scientific research bodies, as well as experts from several disciplines including economics, labour market, social policy and industrial relations. The consultation coordination committee consists of the president of the Mediation and Arbitration Service (OMED) as chairman, a representative of the Ministry of Labour and a representative of the Ministry of Finance. The new consultation process was contested by the General Confederation of Greek Workers (GSEE), which showed its disagreement by not attending the meetings. The GSEE not only asks for setting the minimum wage at the level before the 22% cut in 2012 (751€) for all workers, but it also seeks to reintroduce a negotiated minimum wage, not just consultations around a legal minimum wage set by the government. Employer organisations remain generally favourable to return to a negotiated minimum wage setting regime and the need to increase it, but at the same time expressed doubts and set conditions with regard to the way increases in the minimum wage are calculated. The Hellenic Federation of Enterprises (SEV) and the Federation of Industries of Northern Greece (SVVE) stressed that unless a wage increase is the result of improved productivity and non-wage competitiveness, it could be problematic for many companies. By contrast, the Hellenic Confederation of Commerce and Entrepreneurship (ESEE) proposed a gradual increase of the minimum wage over four years, to reach €751 by 2022, and stressed the need to reduce non-wage costs. It also called for the rationalisation of the contributions of self-employed professionals.

Minimum wages in Southern Europe 79 In spite of the differences between social partners on the level and the criteria to be used to determine minimum wages, there remains a consensus around the need to return to a negotiated system where social partners have the power to agree as part of the National General Collective Employment Agreement (EGSSE). There is an open debate regarding the impacts of the legal minimum wage on employment and the labour market, but most studies seem to suggest that whilst minimum wage has a significant impact on individual and firm level wages, there is no aggregate employment effect (Georgiadis et al., 2018). In a similar way, Kakoulidou et al. (2018) show that the cuts in minimum wage introduced in 2012 had no statistically significant effect on employment. Finally, Karamanis et al. (2018) find evidence that the minimum wage has no significant unemployment effect and that employment and unemployment rates in the Greek labour market during this period are due primarily to factors other than increases or decreases of the minimum wage. 4.4.2  On the road towards a legal minimum wage in Italy? The Italian legislation does not provide for a national minimum wage. The minimum wage is set by each sectoral collective agreement (CCNL, Contratto Collettivo Nazionale del Lavoro), which lays down minimum standards for the whole sector and applies them throughout the country. In the absence of an agreement or mutual consent between the employer and the employee, wages and salaries may be determined by courts according to precedents and practices found in similar sectors or CCNL. Local company-level agreements may step up these standards through provisions on issues such as pay rates, performance bonuses, and bonuses on productivity. Even though this system remains in place, some factors have determined a new emergence of the legal minimum wage issue during the economic and financial crisis makes it an ongoing debate. A higher unemployment rate accompanied by an internal devaluation triggered an increase in the number of people in poverty or below the poverty lines together with the increase of the working poor. Faced with these problems, some of the governments during the crisis and post-crisis periods have considered the establishment of a legal minimum wage as a solution to these problems. For instance, the original proposal of the Jobs Act in 2014 contemplated the introduction of an hourly minimum wage in those sectors where there was no national sector collective agreement. More recently, the Five Stars Movement (M5S) made a similar law proposal (658/2018). The objective of this proposal was to implement the constitutional principle of fair pay in relation to those workers whose earnings were below the poverty line. According to this initiative, the legal minimum wage should relate to collective agreements, have a minimum threshold of €9 per hour and take all wage elements into account (including social contributions). The new coalition government

80  Oscar Molina between the Five Star Movement and the Democratic Party appointed in September 2019, still has on the agenda the issue of a legal minimum wage to be set according to collectively agreed wage rates (Pedersini, 2019). Notwithstanding these proposals coming from different governments, there is a consensus among social partners in Italy on the need to maintain the current minimum wage setting system through collective bargaining. The largest trade union confederations (CGIL, CISL and UIL) are strongly against a legal minimum wage, and instead emphasise autonomous collective bargaining for setting minimum wages (Eldring and Alsos, 2012). In addition to maintaining this important policy prerogative in the hands of social partners, Italian trade unions also argue that a legal minimum wage would be lower than the average minimum negotiated at sectoral level. Trade unions defend the idea of sectoral negotiations for the minimum wage as the best mechanism to ensure a minimum living wage, whilst allowing adaptation to differences in productivity levels across sectors. All this can be interpreted as a union’s strategy to maintain and strengthen their role in collective bargaining. But employers are also against the introduction of a legal minimum wage and have criticised the recent proposal made by both the Five Starts Movement, as well as the Democratic Party (Pd), in order to create a legal minimum wage (Confindustria, 2019). In fact, trade unions and employers consider that the best way to deal with low paid jobs in Italy is to establish a universal basic minimum income for those who are not covered by collective agreement. This would then be complemented with the extension of the sectoral minima set in those national collective agreements which are negotiated by the most representative organisations in each sector. This requires clearly defining the representativeness criteria applied to trade unions and employers as a pre-condition to identify those sectoral collective agreements whose minima would be extended to workers in that sector. In 2018, CGIL, CISL, UIL and Confindustria signed the so-called “Patto per la Fabbrica” (Pact for the Factory) where they committed to measure their representativeness in order to fight against the extension of so-called Pirate collective agreements which were signed by small organisations in order to undermine conditions set in sectoral collective agreements. One year later, in September 2019, the largest trade union confederations signed an agreement specifying the way representativeness would be measured on the union side. 4.4.3  Minimum wage in Portugal: Back to negotiation The minimum wage in Portugal is set by law after rounds of consultation with social partners. In the periods from 2006–2010 and 2015–2017, those consultations concluded tripartite agreements. However, in the periods from 2011–2014, under the Troika (EC, ECB and IMF) intervention, the minimum wage was frozen unilaterally by the government. This unilateral intervention was an unusual practice in relation to minimum wage setting.

Minimum wages in Southern Europe 81 Decisions about the minimum wage usually follow consultation with social partners, resulting in some cases in tripartite agreements. The consultations with social partners take place in the context of the tripartite CPCS (Standing Committee for Social Concertation). There are no fixed rules for setting minimum wages, but some variables should be considered by both social partners and the government when setting the level. These include inflation, productivity, purchasing power, combating in-work poverty, poverty and social exclusion. The impact of the crisis on the minimum wage regime in Portugal has had two dimensions. First, it has led to unilateral state intervention, therefore abandoning the practice of consulting social partners. Secondly, it has implied a real decrease in the minimum wage in those years when it was frozen. During the crisis, the number of workers earning minimum wage in Portugal increased quite dramatically. Estimates at the end of 2014 put the share at around 13% of the working population. In the post-crisis years, the consultation process continued, though an agreement was not always possible. In 2016 and 2017, employers required cuts in social contributions paid in order to accept minimum wage increases. The trade union confederation didn’t accept these cuts and remained out of the agreement. Growing tensions in relation to the minimum wage hindered an agreement for 2018. When the Socialist government took power in November 2015, it presented a proposal at the Standing Committee for Social Concertation (CPCS) on an annual increase in the monthly minimum wage (from €530 in 2016 to €557 in 2017, €580 in 2018 and €600 in 2019). Trade unions, including UGT, were generally happy about this increase, even though the CGTP wanted a higher increase, up to 600 Euros in 2017. Employer confederations initially opposed this increase; but, shortly afterwards, they accepted it conditional upon the fulfilment of a series of requirements (including a commitment not to introduce any changes to labor market regulations) that, ultimately, the government couldn’t accept, as this challenged the government’s plans to change rules allowing the individualisation of working time arrangements and limiting companies’ use of atypical forms of work. Finally, neither CGTP nor employers agreed to sign an agreement and the government approved the minimum wage up to 580 per month for 2018. It is relevant to note that a trajectory of the minimum wage increase to reach €600 in 2019 is a result of the parliamentary deals with the left parties, and one of the conditions they put forward to support the government of the Socialist Party (See the section Tripartite and bipartite bodies and concertation.) The minimum wage increase to €580 in 2018 had considered this trajectory. Differences among social partners in relation to the minimum wage regime are mostly related to the criteria used to determine its level or its impact. As a matter of fact, it is not unusual to see some of the social partners opt out of the agreement to increase the minimum wage. The very existence of a legal minimum wage is, however, not contested by most social partners.

82  Oscar Molina 4.4.4  Boosting the minimum wage in Spain According to the Labour Code (Estatuto de los Trabajadores), the minimum wage level in Spain is set by the government every year after consulting social partners and considering four variables: the annual consumer prices index (Índice de Precios al Consumo); the national productivity average; the contribution of labour to the gross national income; the general economic context. However, there is no pre-defined formula or fixed mechanism to calculate it. Moreover, the variables that should be considered when setting minimum wage levels do not include any reference to what an adequate minimum wage should be in order to guarantee a decent standard of living. On the other hand, even though in most cases governments have involved social partners to set minimum wage levels, there is no obligation to reach an agreement, nor even to consult them. The minimum wage regime has remained rather stable over the years. However, with the 2008–2010 financial and sovereign debt crises, two important developments have occurred. First, there has been a return to unilateralism without consultation. Secondly, in 2011, and for the first time since the introduction of the national minimum wage, the Spanish government decided not to increase/update the minimum wage for the next year. This freeze was maintained in 2013. After some years of unilateral state intervention, the minimum wage for 2018 was the result of a tripartite agreement reached between the government and social partners. They agreed to progressively increase the minimum wage to 850 Euros by 2018 dependent on two conditions: the Spanish GDP would increase by more than 2.5% each year, and Social Security would register more than 450,000 affiliated people (i.e. workers) each year. All in all, in order to progressively reach the level of 850 Euros in 2020, it was agreed by all parties that the salary would increase by 4% (up to 735.90 Euro) in 2018. This would mean an annual wage of 10,302.60 Euros, as 14 wages are considered (i.e., including two extra monthly payments) standing around 40% of the mediam wage. The Socialist government appointed n June 2018 and the new left-wing coalition government appointed in January 2019, both in agreement with the left-wing Podemos party, decided to give minimum wages a boost. In the case of the minimum wage for 2018, the government approved a 22.3% increase, from 735,90 Euro in 2018 up to 900 Euro per month or 12,600 per year in 2019. This is the highest increase experienced by the minimum wage since 1977. Similar to the 2017 increase in Portugal, the minimum wage for 2019 in Spain was negotiated mostly in the political sphere, with social dialogue playing a limited role. The governing pact between the Socialist party (PSOE) and Podemos established four years of gradual increases in order to reach a target of 60% of the average gross wage of 2024. According to the new government, increasing the minimum wage was necessary in order to converge with the EU average minimum wage, both in a context

Minimum wages in Southern Europe 83 of economic growth, and also because it would contribute, in a context of demand to improvement of the general conditions of the economy whilst preventing poverty at work and encouraging a more dynamic wage growth. More specifically, this increase was in line with recommendations made by the European Committee on Social Rights to set the minimum wage at 60% of the median wage in the economy and contributes to meeting the objectives of the 2030 Agenda. The government also expects this increase to have a positive impact on internal demand and an increase in tax revenues through social security contributions. Whilst trade unions have welcomed the recent increases, employer organisations (CEOE) have been very critical. According to their views, it will destroy jobs and become an obstacle for employment creation. The Spanish Central Bank also warned about the dangers of excessive increases for employment performance, though without providing any evidence against it. Some organizations of self-employed workers (in particular, ATA, Asociación de Trabajadores Autónomos) have also been very critical with these increases, as the social security contributions they pay for their dependent employees are linked to the minimum wage. However, other organizations of self-employed workers (UATAE) have welcomed these initiatives. These differences among organisations of self-employed are explained by their membership. In the case of ATA, most members are small entrepreneurs with some dependent workers, whilst in the case of UATAE, there are mostly solo self-employees. The increase in the minimum wage for 2019 was preceded by a collective bargaining agreement signed by the most representative trade union organisations in 2018, the Trade Union Confederation of Workers’ Commissions (CCOO) and the General Workers’ Confederation (UGT), as well as employer organisations including the Spanish Confederation of Employers’ Organisations (CEOE) and the Spanish Confederation of Small and MediumSized Companies (CEPYME). The peak-level, inter-sectoral agreement covers wages and collective bargaining until 2020. Compared to previous peak level cross-sector agreements, the one signed in 2018 not only set guidelines for collective bargaining and wage-setting for 2018 and 2019, but it also established a base of €14,000 a year for negotiated wages; a clear improvement for the lowest salaries, which suffered most in the crisis, and comfortably above the newly implemented statutory minimum wage. The social partners are keen for this pact to mark a turning point in relation to the internal devaluation which started in 2010 and led to a decline in wages in real terms. The debate around the minimum wage in Spain is limited to the level at which it is set, its role in reducing inequalities and the impact it has on the labour market. Trade unions and employers consider the legal minimum wage a good instrument to fight against social dumping and reduce inequalities, though employers have cautioned about the negative effects of the rapid increase experienced in 2019. The establishment of a minimum negotiated wage in the peak cross-sectoral agreement for 2018-2020, though non-binding, marks a turning point with respect to previous years,

84  Oscar Molina where social partners only negotiated guidelines for wage increases in the peak cross-sectoral agreements and shows a shared consensus around the need to push up wages after several years of internal devaluation.

4.5  Concluding remarks As an important element of wage setting systems, minimum wages in Southern Europe have been under similar pressures throughout the crisis years. The crisis has triggered an increase in unilateral state action in relation to wage setting. In the case of Portugal, this has consisted in breaking with the tradition of consulting social partners and setting the minimum wage unilaterally. Something similar has occurred in Spain, where the government has tended to overcome social partners and set the minimum wage unilaterally. In the case of Greece, the negotiated system in place before the crisis was replaced by a legal minimum wage to be fixed unilaterally. In Italy, the government has made several proposals to install a legal minimum wage, but social partners have instead renewed their commitment to a negotiated minimum wage. As a consequence of these changes, and as part of the internal devaluation implemented in Southern European countries, employees paid at the minimum wage level have suffered losses in real terms due to a slowdown in nominal increases and a failure to keep pace with rising prices, and/or the freezing of minimum wages. In the post-crisis years, we have seen how these trends have been, to some extent, reversed. On the one hand, more spaces for negotiations and/or consultation with social partners seem to emerge in those countries where the trend towards state unilateralism intensified. This has been the case in Greece and Portugal, though in the former, social partners are still demanding a return to a negotiated minimum wage. However, both Spain and Portugal have witnessed in recent years the pre-eminence of party-political negotiations over social dialogue when setting minimum wages. This shows that, even in a favourable macroeconomic context, the shadow of hierarchy of the state remains key in order to understand developments in relation to industrial relations and the labour market. Moreover, the last two years have witnessed important real increases in minimum wages. In most cases, these increases have occurred in the context of multi-annual plans to increase minimum wage levels according to pre-determined goals. In the case of Spain and Portugal, the goal of reaching 60% of the average/median wage is explicitly stated. The analysis has shown how minimum wage setting regimes in Southern Europe are open to cyclical changes and discretionarily used by governments due to the lack of well-defined criteria required to set them. Even though inflation, productivity and general economic conditions appear as criteria to be considered by governments and/or social partners, less attention is paid to their role as mechanisms to reduce inequalities to their potential role as industrial policy instruments (Linder, 1989). Interestingly, there is no policy debate around the need to embrace the notion of a living wage when setting

Minimum wages in Southern Europe 85 minimum wages in Southern Europe. Even though there are general references to the idea of a decent minimum wage, and the 60% average wage target, there isn’t yet a real policy debate around the need to adopt other criteria to calculate minimum wages, including housing costs, subsistence etc. So far, the variables used to calculate minimum wage increases rely on economic conditions, not the living standards. Consequently, minimum wage setting is, to a large extent, subject to economic and distributional considerations.

References Afonso A. (2019) State-led wage devaluation in Southern Europe in the wake of the eurozone crisis. European Journal of Political Research 58(3): 938–959. Banco de España (2019) Boletín Económico. Informe Trimestral de la Economía Española, 1/2019 Barbieri P., Cutuli G. and Scherer S. (2018) In-Work Poverty in Southern Europe: the Case of Italy. In: Lohmann H. and Marx I. (eds.) Handbook on In-Work Poverty. Cheltenham: Edward Elgar Publishing, 312–327. Baker M., Égert B., Fulop G. and Mourougane A. (2018) To what extent do policies contribute to self-employment? OECD Economics Department Working Papers No. 1512, OECD Publishing. Bulfone F. and Afonso A. (2020) Business against markets: Employer resistance to collective bargaining liberalization during the eurozone crisis. Comparative Political Studies 53(5): 809–846. Clemens J. and Wither M. (2019) The minimum wage and the Great recession: Evidence of effects on the employment and income trajectories of low-skilled workers. Journal of Public Economics 170: 53–67. Confindustria (2019) Disegno di Legge n. 310 Istituzione del salario minimo orario Disegno di Legge n. 658 Disposizioni per l’istituzione del salario minimo orari,

Crouch C. (1993) Industrial Relations and European State Traditions. Oxford University Press. Eldring L. and Alsos K. (2012) European minimum wage: A Nordic outlook. Fafo report, 16. Garnero A., Kampelmann S. and Rycx F. (2015) Minimum wage systems and earnings inequalities: Does institutional diversity matter? European Journal of Industrial Relations 21(2): 115–130. Georgiadis A., Kaplanis I. and Monastiriotis V. (2018) The impact of minimum wages on wages and employment: evidence from Greece (No. 91959). London School of Economics and Political Science, LSE Library. González P. (2014) Gender issues of the recent crisis in Portugal. Revue de l’OFCE 133(2): 241–275. Grimshaw D., Bosch G. and Rubery J. (2014) Minimum wages and collective bargaining: What types of pay bargaining can foster positive pay equity outcomes? British Journal of Industrial Relations 52(3): 470–498. Héritier A. and Lehmkuhl D. (2008) The shadow of hierarchy and new modes of governance. Journal of public policy 28(1): 1–17.

86  Oscar Molina Kakoulidou T., Konstantinou P. and Moutos T. (2018) The Subminimum Wage Reform in Greece and the Labour-Labour Substitution Hypothesis (No. 7273). CESIFO working paper. Karamanis K. and Ioakimidis M. (2018) Greek labour market: The evaluation of minimum wage and unemployment during the period 2000–2017. Journal of International Studies 11(4): 93–105. Karamessini M. (2012) Sovereign Debt Crisis: an Opportunity to Complete the Neoliberal Project and Dismantle the Greek Employment Model. In Lehndorff S. (eds.) A Triumph of Failed Ideas: European Models of Capitalism in the Crisis. Brussels: ETUI, 155–182. Karamessini M. and Grimshaw D. (2017) Minimum Wages and the Remaking of the Wage-Setting Systems in Greece and the UK In: Grimshaw D., Fagan C., Hebson H., and Tavora I. (eds.) Making Work More Equal: a New Labour Market Segmentation Approach. Manchester: Manchester University Press, 330–355. Koukiadaki A. and Grimshaw D. (2016) Evaluating the effects of the structural labour market reforms on collective bargaining in Greece. Conditions of Work and Employment Series (85). Lampousaki S. (2016) Greece: Latest working life developments – Q3 2016. Levin-Waldman O. M. (2018) The inevitability of a universal basic income. Challenge 61(2): 133–155. Linder M. (1989) The minimum wage as industrial policy: A forgotten role. J. Legis. 16: 151. Molina O. and Rhodes M. (2007) The Political Economy of Adjustment in Mixed Market Economies: A Study of Spain and Italy. In: Hancké B., Rhodes M. and Thatcher M. (eds.) Beyond Varieties of Capitalism: Conflict, Contradictions and Complementarities in the European Economy. Oxford Scholarship Online 223–252. Molina O. (2014) Self-regulation and the state in industrial relations in Southern Europe: Back to the future? European Journal of Industrial Relations 20(1): 21–36. Palier B. (2019) Work, social protection and the middle classes: What future in the digital age? International Social Security Review 72(3): 113–133. Pedersini R. (2019) Italy: Latest developments in working life Q3 2019, Rubery J. (2003) Pay Equity, Minimum Wage and Equality at Work. Geneva, Switzerland: ILO. Schmidt V. A. (2009) Putting the political back into political economy by bringing the state back in yet again. World Politics 61(3): 516–546. Schulten T. (2014) Minimum Wage Regimes in Europe. Friedrich Ebert Stiftung. Schulten T., Müller T. and Eldring L. (2015) Prospects and Obstacles of a European Minimum Wage Policy. In: Van Gyes G. and Schulten T. (eds.) Wage Bargaining Under the New European Economic Governance. Alternative Strategies for Inclusive Growth. Brussels: ETUI, 327–359. Visser J. (2016) What happened to collective bargaining during the great recession? IZA Journal of Labor Policy 5(1): 9. Voskeritsian H., Veliziotis M., Kapotas P. and Kornelakis A. (2017) Between a Rock and a Hard Place: Social Partners and Reforms in the Wage-Setting System in Greece Under Austerity (No. 84540. London School of Economics and Political Science, LSE Library.

5

Shaping minimum wages in Central and Eastern Europe Giving up collective bargaining in favour of legal regulation? Marta Kahancová and Vassil Kirov

Central and Eastern European (CEE) member states of the EU share a common past under state socialism and the transition to democracy and a market economy. Nevertheless, in each CEE country, the transition experience was channeled via country-specific institutional arrangements, resulting in diverse forms of capitalism - neoliberal (Bulgaria, Estonia, Lithuania, Latvia, Romania), embedded neoliberal (Croatia, Czechia, Hungary, Poland, Slovakia) and corporatist (Slovenia) (Bohle and Greskovits, 2012; Samardžija et al., 2017). Neoliberalism of the Baltics and embedded neoliberalism of the Visegrad countries share an early policy orientation that emphasised privatisation, liberalisation, and deregulation with the aim to attract foreign direct investment. However, these countries are distinctive in their approach towards making a radical break with the past, in particular concerning the choice to preserve social and welfare policies in the light of neoliberal reforms (Bohle and Greskovits, 2012). Despite these differences in their systems of political economy and industrial relations, all CEE countries succeeded in introducing a statutory minimum wage. In addition, the region has registered relatively high levels of growth in nominal and real values of minimum wages, although the minimum wage levels are still among the lowest in the EU (Eurofound, 2017). While the minimum wage debate belongs to the most important topics for tripartite negotiations in CEE countries with established structures of tripartite social dialogue, evidence shows that in several countries different mechanisms assure the minimum wage is increased on a regular basis rather than stalled by disagreements in tripartite negotiations. It could be an established mechanism with a fixed procedure to settle a minimum wage increase if social partners fail to come to an agreement (as, for example, in Hungary before 2002, or in Czechia and Slovakia) or a discretionary government decision inscribed in the long-term budget planning (as in Bulgaria). Acknowledging the diverse mechanisms of minimum wage setting in CEE countries, this chapter explores and analyses minimum wage negotiations from an actor-oriented and industrial relations oriented perspective (see Dingeldey et al., Chapter 1). It asks what role do tripartite social partners, including representatives of employers, trade unions and governments,

88  Marta Kahancová and Vassil Kirov play in the annual fixing of minimum wages?; and how do the minimum wage setting procedures affect and interact with broader processes of collective bargaining at the national and sector levels? In addressing these questions, the chapter seeks to explain the relationship between two important phenomena - namely, steep rises of minimum wages on the one hand, and a declining power of trade unions, bargaining decentralisation and a weakening policy influence of tripartite negotiations on the other. The analysis is based on original empirical evidence collected by the authors as part of related research on collective bargaining (Kirov, 2019; Delteil and Kirov, 2016; Fabo et al., 2013; Kahancová et al., 2019). A central argument of this chapter is that while social partners initially considered the legally stipulated automatic mechanisms of minimum wage increases a success of tripartite social dialogue, in a context of changing power relations in negotiations such mechanisms turned out to crowd out institutions of social dialogue and collective bargaining. The chapter consists of three sections. Section one examines the evolution of minimum wages in CEE countries, including attention to the share of minimum wage earners in the labour force. This evidence sets the backdrop for understanding particular actors’ strategies regarding minimum wage setting. Section two focuses on the mechanisms of minimum wage setting and the role of social actors in this process in a comparative perspective. Focusing on Bulgaria and Slovakia as two specific country studies, section three critically analyses two diverse pathways of minimum wage setting and the related activities of social partners. The conclusion summarises the main arguments and draws implications from the experiences with minimum wage setting for more general roles of collective bargaining in the CEE region.

5.1 Minimum wage developments in Central and Eastern Europe Comparative analysis of the evolution of minimum wages in the eleven countries that entered the EU in 2004 (Czechia, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia and Slovakia), 2007 (Bulgaria and Romania) and 2013 (Croatia) shows that in all eleven countries a statutory minimum wage exists and constitutes an important benchmark for other wage setting mechanisms (Vaughan-Whitehead, 2010). In all of these countries, the statutory minimum wage also acts as a reference value for welfare allowances, unemployment benefits and state pensions; also, for a number of freelance professions the minimum wage serves as a reference for taxation (Galgóczi, 2015: 302–303). While the development of minimum wage levels in CEE countries shows an increase in all countries since 1999, different countries experienced different patterns of increase, fall and stagnation (Figure 5.1). In some countries, the rise has been substantial: in Romania the minimum wage tripled

Shaping minimum wages in Central and Eastern Europe 89

Figure 5.1  Trends in monthly minimum wages, 1999–2019 (nominal, in euros). Source: Eurostat (data code: earn_mw_cur) and Eurofound (2020).

in the last decade and in Bulgaria and Lithuania it more than doubled (Figure 5.1). In Romania, the reason behind such increase was a combination of a governmental catching-up strategy given the comparatively lowest level of minimum wage in the EU and high share of minimum wage earners, with labour shortages and demands of trade unions (Emerging Europe, 2018; Stoiciu, 2019). In contrast, there are several examples of periods of declining and stagnating minimum wages in the immediate aftermath of the 2008 economic crisis (Bulgaria, Croatia, Estonia and Lithuania) or in later years (Croatia between 2010–13, Czechia between 2011–12, Poland between 2012–13 and Hungary between 2013–15). These ‘pauses’ in minimum wage rises are inter-related with changes in approach towards minimum wage rises and the relative positioning and bargaining power of the social partners, as section two documents. The overall increasing trend in the level of minimum wages in the last two decades is related to governmental catching-up strategies during the post-crisis period resulting in political will to increase minimum wages, often after negotiations with social partners (Eurofound, 2020; Goraus-Tanska and Lewandowski, 2016; Hárs, 2019; Stoiciu, 2019). While the CEE region should no longer be perceived as a low-wage region, because of growing productivity and rapid improvements in economic performance after the inflow of foreign investments in the last 20 years, several countries are still firmly rooted in a low wage economic model (Galgóczi, 2017). In Bulgaria, Latvia, Romania and Hungary, the minimum wage level remained below €500 in 2020 (Eurofound, 2020). In fact, only Slovenia belongs to countries with ‘mid-range’ minimum wage rates

90  Marta Kahancová and Vassil Kirov (between 650 and 900 Euros); all other CEE countries are classified as ‘low-range’ countries in a European perspective, with minimum wages between €500–600 or below €500 for the above-mentioned countries (Eurofound, 2018; and 2020). Assessing the relevance of a minimum wage as a regulatory tool on the labour market derives not only from its steady upwards increases, but also from the actual share of minimum wage earners. Empirical evidence suggests that countries with highest average growth of the statutory minimum wage also record the highest share of minimum wage earners (see Table 5.1). These include Bulgaria, Lithuania, and Romania. The most outstanding case is Romania, where the minimum wage grew on average by 11% since 2009, while the share of minimum wage earners reached 40% in 2017 (see also Stoiciu, 2019). In contrast, Croatia, Czechia, Slovakia and Slovenia belong to countries with a share of minimum wage earners close to the EU average of 4-5% (Eurofound, 2020). Also, these countries demonstrate a comparatively low rate of average minimum wage increases between 4 – 6% (see Table 5.1). Evidence on the share of minimum wage earners includes part-time workers in a number of countries. For the sake of comparability, the Structure of Earnings Survey (SES) from 2010 and 2014 compared the share of minimum wage earners among full-time workers aged at least 21 and working on companies with at least 10 employees, excluding employees in public administration, defense and compulsory social security and excluding additional income from overtime and shift work (Eurostat, 2020). These data show that the share of full-time workers among minimum wage earners exceeded 10% in 2014 in Poland (11,7%), Romania (15,7%) and Slovenia (19,1%) (Eurostat, 2019). A comparison with Table 5.1 shows that within the overall lowest share of minimum wage earners in Slovenia, a significant share of these are workers in full-time employment. In Romania, a country with the highest Table 5.1  Statutory minimum wage coverage and annual growth, 2009–2020 Share of minimum wage earners (%) Bulgaria Croatia Czechia Estonia Hungary Latvia

17,7% 5,4% 3,6% 19-15% 14% 18%

Lithuania Poland Romania Slovakia Slovenia

Rate of average annual minimum wage growth 20,2% 10% 40% 5-6% 5,4%

Bulgaria Croatia Czechia Estonia Hungary Latvia

9% 4% 6% 7% 6% 5%

Lithuania Poland Romania Slovakia Slovenia

9% 6% 11% 6% 4%

Source: The authors based on Eurofound (2018 and 2020), Eurostat and Nestić et al. (2017). Data on share of minimum wage earners for 2017 except Croatia (2015), Czechia (2016), Hungary (2015), Lithuania (2016), Poland (2015) and Slovenia (2016). Rate of average annual minimum wage growth refers to geometric average (geomean) for the period 2009–2020.

Shaping minimum wages in Central and Eastern Europe 91 share of minimum wage earners in the whole CEE region, the share of minimum wage earners is comparatively high both among full-time workers and workers in other job positions. In sum, minimum wages recorded a gradual increase all over the region since 1999, with varying country-specific patterns of high growth, stagnation or evenly spread annual growth. In some countries, the share of minimum wage earners increased; in others, the share of minimum wage earners remains marginal. We interpret this finding from the perspective of the multiple functions a minimum wage can play in a society (Rubery et al., Chapter 2; see, also, Figart et al., 2002; Rubery et al., 2020). First, the low share of minimum wage earners suggests that individual solutions to wage demands are likely to play an important role in these countries. Second, the widespread practice of minimum wage payments complemented by undocumented cash payments to avoid income tax, found in South Eastern Europe (Williams, 2015), means an unknown share of minimum wage earners are in fact misclassified. It is therefore important to analyse the minimum wage setting mechanisms in a broader framework of social relations and political choices instead of a narrow focus linking minimum wage developments with economic performance.

5.2 Mechanisms for minimum wage determination: between a legal instrument and collective bargaining Within the broader societal context, analysis of minimum wage setting must also consider the interests and political will of the involved actors that possess some power or discretion over minimum wage setting. This is even more the case in the context of weak institutions in the CEE region (Trif et al., 2020) where, with the exception of Slovenia, industry-level and multi-employer bargaining remains weak, while national tripartism and company-level collective bargaining are common in most countries (Galgóczi, 2015; Müller et al., 2019). In the context of the contested role of tripartism, which has been termed as a ‘façade’ or ‘window-dressing’ (Ost, 2000), negotiations about minimum wages gain importance because they constitute a core activity of tripartite councils in CEE countries. All CEE countries sought a negotiated process of minimum wage setting between social partners before adopting a binding decree of law on minimum wage levels by government or parliament (Eurofound, 2020; Galgóczi, 2015; Nestić et al., 2018). Consultations on the minimum wage increase between the government, unions and employers occurs either prior to government decision or at the final stage of government decision, with or without other specific mechanisms such as indexation linked to developments in real wages and inflation. In 10 CEE states, the government consulted social partners regarding the minimum wage rise in 2017 (see Table 5.2). However, despite consultations, in 5 countries (Czechia, Poland, Romania, Slovakia and Slovenia) social partners failed to reach an agreement on a

92  Marta Kahancová and Vassil Kirov Table 5.2  Role of government and tripartite consultation in determining the statutory minimum wage in 2017 Country Bulgaria Croatia Czechia Estonia Latvia Lithuania Hungary Poland Romania Slovenia Slovakia

Government

Tripartite consultation

R R R+U R R R R R+U R+U R+U R+U

N N N N VN VN VN N N N

Notes: R - Decided new minimum wage level after taking into account recommendations of social partners or other mechanisms (e.g. indexation related to development of real wage and inflation); U - Decided level unilaterally; V - Reached consensus on the level; N – provided non-binding recommendation on level. Grey cells refer to cases where decisions regarding minimum wage increase were consulted with social partners. Source: adapted by the authors from Eurofound (2018 and 2020)

recommended minimum wage and the government implemented the uprating unilaterally. While this comparative finding can be associated with the government’s political commitment to the living wage function of a minimum wage (c.f. Rubery et al., 2020), it suggests that the negotiated minimum wage setting as a social practice is contested in some CEE countries. In turn, several countries are turning to a rule-based methodology for minimum wage setting. Estonia has been the first country to introduce such a methodology in 2017, but its implementation remains contested and raises tensions among partners in finding a consensus on the minimum wage level (Eurofound, 2020: 28–29). The government’s strong discretion over the process of minimum wage setting in the majority of CEE countries relates to the resources of social actors and their power relations. Trade unions’ role in the determination of minimum wages through their involvement in national tripartism has in fact kept the erosion of union influence within reasonable limits (Galgóczi, 2015: 302). At the same time, the fact that trade unions build their influence over minimum wage determination by relying on political resources, typically through alliances with political parties, makes unions and bargaining structures overly dependent on political will for their role in the minimum wage fixing process (ibid.). In this context, the power asymmetry between unions and employers has been growing. In turn, in some CEE countries unilateral governmental decisions over minimum wage increases have become more frequent, while some countries saw a change from negotiated setting

Shaping minimum wages in Central and Eastern Europe 93 of minimum wages to other mechanisms. In 2019, Croatia adopted a mechanism based on an expert committee (Eurofound, 2020), while Slovakia introduced an indexation mechanism from 2021, linking the minimum wage level to 60% of average gross nominal wages from two years preceding the new minimum wage level if social partners fail to agree on a proposed minimum wage increase (see Section 3 below). Governments are motivated to maintain a certain level of minimum wage for multiple competing reasons (Grimshaw, 2013). These include fiscal reasons, since raising the minimum wage, extending its coverage (for example among freelancers) and improving compliance (by reducing the practice of paying envelope wages in cash for example) increases the volume of income tax revenues for government. In countries where the minimum wage level significantly influenced the overall wage levels, namely in Hungary, Czechia and the Baltic States, governments pushed for minimum wage increases to ease social tensions, increase state revenues and push up general wage scales. The well-known example is Hungary where the government intervened to raise the minimum wage by 50% in 2000 and 40% in 2001. These increases exceeded the trade union demands in tripartite negotiations. In 2019, Slovakia’s most important trade unions and employers’ associations criticised the government for their politicised approach to minimum wage setting and for announcing a proposal for a new minimum wage level in 2020 without prior negotiations with the social partners.1 In some cases, governments have also intervened unilaterally to reduce the minimum wage. In 2010 and 2011, the Polish government unilaterally fixed a minimum wage level that was below the agreement of social partners. Romania saw a governmental suspension of a tripartite agreement for 2008–2014 on minimum wages and a unilateral introduction of wage freezes to meet the IMF-EU debt settlement requirements. In this case, the declared minimum wage was 30% below the trade union demand. Hungary faced a trade-off between an introduction of a flat tax rate on personal income tax in 2010 while making minimum wages subject to taxation since 2011, causing a drop in net income levels of low wage earners (Galgóczi, 2015). In sum, all CEE countries have established tripartite fora where annual minimum wage increases belong to the most important points on the agenda. Nevertheless, the role of social dialogue has been weakening in the determination of minimum wages, as social partners increasingly failed to reach a consensus on the minimum wage increase, or the government did not accept the social partners’ non-binding recommendations (Eurofound, 2020). The fact that social partners increasingly find it difficult to reach an agreement regarding minimum wage growth and that other mechanisms for minimum wage setting have been introduced weakens their bargaining

1 Source: 2019 interviews with national-level unions and employers that are represented in the tripartite committee.

94  Marta Kahancová and Vassil Kirov capacity and increases the government’s discretion over minimum wage setting. Governments may take decisions informed by economic factors, but the evidence suggests their decisions are often politically motivated or combine both economic and political factors. Despite the heterogeneity of the CEE region, CEE countries fit into the institutional categories of either ‘Isolated minimum wage’ or ‘Distant interaction’ with respect to the relationship between the minimum wage and collectively agreed wages (see Dingeldey et al., Chapter 1). The initial idea of tripartism was to have the statutory minimum wage act as a base line and then to motivate trade unions to negotiate sector-specific wage levels at defined levels above the minimum wage. While this would have promoted a degree of coexistence between the minimum wage and collectively bargained wages, in reality the weakening union resources and weak enforcement of collective agreements among most CEE countries pushed trade unions to orient their wage policies towards minimum wage increases rather than collective bargaining (c.f. Trif et al., 2020; Kahancová, 2015). This pattern of wage-setting therefore rather resembles an isolated coexistence of the statutory minimum wage and collectively agreed wages where the minimum wage setting procedure does not yield a direct impact on collective bargaining procedures or outcomes. The next section offers a more in-depth perspective on two country cases – Bulgaria and Slovakia. These cases illustrate contrasting trajectories in how the intervening role of minimum wage setting institutions informed the bargaining strategies at the level of sectors.

5.3 Country case studies: The interplay of actors between collective bargaining and the legal determination of minimum wages To provide more in-depth evidence on the interplay of actors’ bargaining strategies and the changing power relations between unions, employers and the government in the determination of minimum wages, this section examines the cases of Bulgaria and Slovakia. In both countries, the minimum wage is subject to tripartite negotiations, but the final decision on a minimum wage increase is determined by the government if social partners fail to reach a consensus. While in both countries tensions between the government and social partners over minimum wage negotiations were increasing, Bulgaria and Slovakia adopted different pathways of minimum wage determination. 5.3.1  The case of Bulgaria The case of Bulgaria illustrates a situation where social partners have sought a mechanism for minimum wage setting beyond the discretional decisions of the government.

Shaping minimum wages in Central and Eastern Europe 95 5.3.1.1  Collective bargaining and its actors Collective bargaining in Bulgaria takes place between trade unions and employers’ organisations at industry and company levels where the company level is the most important bargaining level (Kirov, 2019). Estimates of bargaining coverage suggest a 20–30% coverage for recent years (ETUI, 2016). Even though bargaining coverage decreased by 11% points between 2002–2012, it is still relatively high compared to other CEE countries. Between 2001 and 2011 the option to extend collective agreements was not used because of employer-induced government opposition to the principle of extension. This situation changed in 2011 when trade unions campaigned to promote the extension mechanism to collective agreements with anti-crisis stipulations. Hence, after May 2011 five agreements were extended in industries such as mining, beer brewing and water supply (Kirov, 2019). Since 2016, however, the extension mechanism has not been used. An important factor explaining the decline in bargaining coverage is the drop in union density from 26% in 2002 to 15% in 2012 (Kirov, 2019). During the transition, the Bulgarian trade union movement was dominated by two large confederations. The main actors in the development of industrial relations on the trade union side were the reformed old social structures of the Confederation of Independent Trade Unions of Bulgaria (Konfederatziata na nezavisimite sindikati v Balgaria, KNSB) and the newly created Confederation of Labour (CL) ‘Podkrepa’ (Konfederatziata na truda ‘Podkrepa’).2 In contrast to the trade union movement, pluralism is much more prominent on the employers’ side with five nationally representative organisations.3 5.3.1.2  Minimum wage development Since 1990, the minimum wage in Bulgaria has been defined by decrees of the Council of Ministers. The Labour Code stipulates that these decisions are discussed accordingly and in advance at the National Council for Tripartite Co-operation. The size of the minimum wage is determined as

2 KNSB is the largest confederation with an estimated membership of 250,000 in 2014. CL Podkrepa was formed in 1989 by a small group of dissidents. After the 1989 regime change, CL Podkrepa rapidly became the second largest trade union confederation in Bulgaria with a strong presence in all sectors and regions. The latest available data report 91,738 members of CL Podkrepa in 2012 (Kirov, 2019). 3 The successors of the old structure of managers of state-owned companies, the Bulgarian Industrial Association (Balgarskata stopanska kamara, BSK) and the Bulgarian Chamber of Commerce and Industry (Balgarskata targovskopromishlena palata, BTPP) co-exist with the more recently established Confederation of Employers and Industrialists in Bulgaria (Konfederaziata na rabotodatelite I industrialzite v Balgaria, KRIB), claiming to represent a significant part of GDP and employment, and the Association of Industrial Capital in Bulgaria (Assoziaziata na industrialnia capital v Balgaria, AIKB), representing the former mass privatisation funds.

96  Marta Kahancová and Vassil Kirov an absolute value per month and per hour having in mind the normal duration of working time (eight hours per day and five working days per week, four working weeks in a month) (Loukanova, 2011). In general, the change in the minimum wage is introduced in the National Council for Tripartite Cooperation during the presentation of the State Budget, but the Minister can set the minimum wage administratively, if agreement is not reached by the social partners. According to Tomev et al. (2019), this legislative norm, providing for a unilateral government decision without meaningful negotiations with social partners, has been attacked over the last ten years by both trade unions and employers, albeit from different perspectives and with different arguments. Trade unions complained when the minimum wage was frozen for nearly three years between 2009 and 2011 following the economic crisis. However, since then the government has ensured regular minimum wage increases each year, despite fierce opposition from employers. In 2010 the minimum wage deducted by payable taxes reached 189.70 BGN – a level that is below the poverty line4 of 211 BGN. According to Loukanova (2011), this was the main argument of those who insisted on its increase in 2011. The minimum wage was kept below the poverty line until 2007 and this was proved by some experts’ calculations in 2002–2005. In the period 2009–2012 the minimum wage in the country was practically frozen (at 240 BGN from the 1 January 2009 to 31 August 20115) in response to the financial crisis. The recovery since 2013 has been characterised by a continuous increase of the minimum wage in Bulgaria (from 310 BGN since 2013 to 560 BGN in 2019). During 2013-2019, there was active debate between the social partners and the government. In general, the employers’ organisations were opposed to the minimum wage increases, arguing that it would destabilise the economy and make low wage employees redundant. In January 2017, three of the largest nationally representative employers’ organisations in the country6, criticised the government’s decision to increase the minimum wage. They claimed that the decision violated the law as the decree was adopted by Bulgaria’s Council of Ministers without preliminary discussion with the representative social partners in the National Council for Tripartite Cooperation (NCTC). In May 2017, following the complaint, the Supreme Administrative Court of Bulgaria (SAC) repealed the decree, which had

4 The poverty line was introduced in 2007 in Bulgaria and before that its functions were delegated to the minimum wage as a basic income line to determine the social insurance and social assistance payments. 5 See data about the minimum wage evolution at https://www.kik-info.com/spravochnik/ mrz.php 6 The Bulgarian Industrial Capital Association (BICA), the Bulgarian Industrial Association (BIA), the Bulgarian Chamber of Commerce and Industry (BCCI) and the Confederation of Employers and Industrialists in Bulgaria (KRIB).

Shaping minimum wages in Central and Eastern Europe 97 from 1st of January 2017 increased the minimum wage from BGN 420 per month to BGN 460. The Council of Ministers had also failed to comply with the court decision, in force since 2015, which had repealed a 2014 decree to increase the minimum wage. This repeal was issued because of an unfulfilled conciliation procedure with the NCTC. The NCTC was supposed to discuss the decree to increase the minimum wage in order to overcome the SAC decision. The issue of the minimum wage has gained importance not only at national level, but also in the framework of the EU semester and more precisely the Country Specific Recommendations (CSRs), which advised the government to establish a transparent mechanism for minimum wage setting in consultation with social partners. Tomev et al. (2019) show that this issue has been repeatedly raised in CSRs since 2014 and is addressed in the National Reform Programme. In CSRs 2014, 2015, 2016 and 2017 the European Commission stated: “The minimum wage is set without a clear and transparent mechanism and the percentage of workers at the minimum wage has increased more than twofold over the last six years. The lack of such a mechanism may put at risk the achievement of a proper balance between the objectives of supporting employment and competitiveness, while safeguarding labour income. In addition, it creates uncertainty that can adversely impact the predictability of business conditions.” (European Commission, 2018) According to Tomev et al. (2019: 24), “the establishment of a transparent mechanism for minimum wage setting (using precise and clear criteria and indicators) has long been on the social dialogue agenda”, but this process has intensified since the European Commission CSR. Tomev et al. (2019) argue that in response to the 2016 CSR, the National Reform Programme included measures for its implementation and an expert working group was set up, consisting of representatives of MLSP, the two trade union confederations and five employers’ organisations. The two nationally representative trade union confederations, CITUB and Podkrepa, proposed a Conceptual model for setting the minimum wage (2016), in which the level is negotiated by social partners (Tomev et al., 2019). However, no “significant progress was achieved in 2016 due to the diverging positions of employers and trade unions, and the inability to reach a compromise settlement” (op. cit.). The main points of disagreement were the lower and upper threshold of the minimum wage, particularly the upper threshold. While trade unions proposed an upper threshold of 50% (CITUB)/60% (Podkrepa) of the average wage, the employers insisted on an upper threshold of 43–45%. The deadlock in 2017 meant that the negotiations were shifted from the working group to political level - with the participation of the Minister of Labour and the leaders of the social partners’ organisations. The Minister

98  Marta Kahancová and Vassil Kirov of Labour initiated consultations on the social partners’ readiness to sign a tripartite Framework Agreement on the procedure for negotiation and fixing of the amount of the minimum wage for the country (Tomev et al., 2019). This agreement included a bilateral negotiation procedure. In the case when social partners fail to reach a joint decision, the Minister of Labour was supposed to propose a draft Decree setting the minimum wage to the Council of Ministers. The proposed procedure and scenarios were discussed at expert level in July 2017, when it became clear that it would be difficult to coordinate the still divergent views. Employers have firmly insisted on an upper threshold of no more than 43% of the average wage. Substantial differences between the social partners also existed on issues such as the relevant social and economic criteria for minimum wage setting and the respective weights to be given to these, as well as minimum social security thresholds, and the so-called ‘seniority bonus’. While trade unions insisted on giving greater weight to the social indicators, the employers attached greater importance to economic indicators. Thus, the signing of a Framework Agreement in 2017 was impossible despite the apparent common will to move forward. To break the deadlock in negotiations, social partners decided to base the future mechanism on the ILO Convention 131 on minimum wage fixing (Tomev et al., 2019). Under the Convention, the minimum wage ought to be determined according to a number of important social and economic criteria, including inflation, labour productivity, employment and GDP growth. In January 2018, Bulgaria ratified Convention 1317, which was assessed by the European Commission as ‘a step in the right direction’. (European Commission, 2018: 30). Employers have warned that the proposed minimum wage increase does not correspond to the poverty line (or minimum level of income required), the extremely low growth of labour productivity and employment, and the dynamics of the average wage in recent years. However, trade unions and the government support the increase in the minimum wage. The medium-term budget plans of the current government8 included increasing the minimum wage to BGN 510 (€260) in 2018 and to a minimum of BGN 610 (€312) in 2020. In the debates, employers have considered the ‘poverty line’ as a suitable lower limit, because all the parameters relevant to the quality of life have been taken into account and it is calculated on the basis of objective statistical indicators. The employers also say that the requirements of Article 3 of ILO Convention No. 131 should be implemented as part of Bulgarian labour legislation so that, while determining the minimum wage, the needs

7 In this way Bulgaria joined four other CEE countries (Romania in 1975, Latvia in 1993, Lithuania in 1994 and Slovenia in 1992). The other CEEC have not ratified the Convention 131. 8

Shaping minimum wages in Central and Eastern Europe 99 of workers and their families are taken into account, as well as: the overall level of wages in the country; the cost of living; social benefits; the standard of living of other social groups. The employers want the maximum limit to be determined as an average of the ratio of the minimum wage and average wage in the countries of the European Union with a statutory minimum wage. During the social partners’ discussions on the state budget for 2018, the largest trade union confederation CITUB – organised a national protest for pay increases on 27 October 2017 under the banner of ‘Income, Rights, Dignity’. More than 10,000 workers from all economic sectors protested in front of the Council of Ministers. The national protest delivered the Declaration of Working Bulgaria, addressed to the government and employers, calling for action on various key topics involving labour rights. The CITUB national protest demanded reforms from the government such as an income policy that would achieve 60% of the average European gross domestic product, minimum monthly income levels of at least BGN 800 (€408), and an average monthly wage of BGN 1,700 (€866) by 2022. In addition, the CITUB wanted the minimum wage to provide normal living support, with differentiated amounts paid according to an employee’s level of educational attainment – for example, at least BGN 700 (€357) per month for university graduates at the start of their career. In addition, the protesters insisted that seniority pay should be preserved, as well as the current additional remuneration with annual increases in line with the growth in average pay. In sum, the case of Bulgaria illustrates a situation when the minimum wage has been routinely fixed unilaterally by the government, provoking protests of trade unions and employers in different periods and for different reasons. Although there has been a continuous push from the European Commission for a clear and transparent mechanism for minimum wage setting, for the time being social partners have not been able to reach an agreement, particularly on the lower threshold of the minimum wage. As a consequence, the unilateral fixing of the statutory minimum wage by government has not yet been replaced with a more transparent mechanism. The meaningfulness of the minimum wage for collective bargaining is relatively limited. Despite a few exceptions, real wage bargaining at the sector level is not practiced and sectoral collective agreements often merely replicate Labour Code provisions. Nevertheless, the statutory minimum wage remains very relevant for low wage workers, including those working in the public sector (Kirov, 2019). In this context, the influence of the minimum wage on company-level bargaining remains indirect. 5.3.2  The case of Slovakia As the only country in CEE, Slovakia introduced a mechanism for minimum wage setting at the level of 60% of the national average nominal wage

100  Marta Kahancová and Vassil Kirov from two calendar years preceding the year for which the minimum wage is set.9 While trade unions consider this a historical success, the new mechanism also undermines negotiated minimum wage setting and collective bargaining. 5.3.2.1  Collective bargaining and its actors The new minimum wage setting mechanism has been shaping up in conditions of a of a transparent hierarchy of trade unions and employers’ associations, established national tripartism and sectoral bargaining coexisting with company-level bargaining. Despite formally well-established bargaining institutions, bargaining coverage gradually declined from 52% in 2000 to 30% in 201510. This is due to fragmentation of unions and employers and their increasing focus to seek legislative solutions to regulate working conditions instead of collective bargaining (Kahancová, 2015). Access of unions and employers to legislative regulation occurs mainly, but not exclusively, through their representation in national tripartite social dialogue. There are four peak-level employers’ federations and one trade union confederation recognised representative in national tripartism. In 2019 the national tripartite council consisted of seven government representatives, seven representatives of the trade union confederation (Konfederácia odborových zväzov SR, KOZ SR), and seven representatives of employers’ associations11. 5.3.2.2  Minimum wage determination The trend of seeking legal solutions instead of negotiated ones broadly applies also to developments related to the minimum wage. Slovakia has a legally stipulated minimum wage, which has been renegotiated in the tripartite council on an annual basis. The history of tripartism dates back to 1990 when the tripartite Council for Economic and Social Accord (Rada hospodárskej a sociálnej dohody, RHSD) was founded. The most important outcome of tripartite negotiations has been the conclusion of an annual

9 Minimum wage in year N is set as 60% of the national average nominal wage in year N-2. 10 Source: Dataset on Industrial Relations, Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts (ICTWSS dataset), version 6.1, November 2019, data code AdjCov. [ accessed November 29, 2019]. 11 On the employers’ side, the Association of Employers’ Federations and Associations (Asociácia zamestnávateľských zväzov a združení, AZZZ) has three representatives in tripartism, the Republic’s Union of Employers (Republiková únia zamestnávateľov, RÚZ) has two representatives, and the Association of Industry Federations (Asociácia priemyselných zväzov, APZ) and the Federation of cities and municipalities (Združenie miest a obcí Slovenska, ZMOS) have one representative each in tripartism.

Shaping minimum wages in Central and Eastern Europe 101 national-level General Agreement (Generálna dohoda, GD). In the 1990s, the GDs presented particular responsibilities for the government in the process of economic and social reforms and stipulated a minimum wage. Next to policy-related recommendations through memoranda and standpoints supporting the government’s legislative proposals on economic and social policy, negotiations of the minimum wage belonged to key topics of tripartism already in the 1990s. However, after 1996 tripartism faced increasing tensions under an authoritarian government rule. In light of escalated tensions, the dominant trade union confederation KOZ SR refused to sign a GD for 1997 and allied with the political opposition (Ost, 2000: 513). Tripartite consultations were suspended in 1997–1998 and reconvened again in 1999 after a government change and the enactment of new legislation on tripartism (Act No. 106/1999 on Economic and Social Partnership). Due to growing discrepancies in social partners’ standpoints on particular policy domains, the last GD was concluded in 2000 to stipulate recommendations in economic, income, employment and social policy domains (Czíria, 2012). Tripartite negotiations were reintroduced after 2000 and received a revised regulation in form of Act No. 103/2007 on tripartism. Nevertheless, tripartite negotiations stipulated only non-binding recommendations to the government. Thereby the actual role of social dialogue in the process of setting the minimum wage has been gradually weakening and the discretion over the final decision in minimum wage setting was increasingly shifted onto the government (c.f. Fabo et al., 2013). In 2006, the leading social-democratic political party SMER entered government and a standardised legislation procedure with a predefined indexation mechanism for the minimum wage followed in 2007 (Act No. 667/2007 Coll. on the minimum wage). The law stipulates that if social partners fail to agree, then the next year’s minimum wage will be set at least at the level of the current minimum wage plus the index of annual growth of the average nominal wage. This index is published by the Statistical Office for the calendar year preceding the year in which the minimum wage setting takes place. The statutory monthly gross minimum wage is adjusted pro rata for employees working in part-time employment. In addition, in a manner more commonly associated with emerging economies outside Europe (Grimshaw and Bustillo, Chapter 10), the Labour Code also stipulates a specific six legally binding minimum wage levels based on the complexity of the job content. These levels are considered as a statutory benchmark for particular job types (not occupations), and should also be reflected in collective agreements. The indexation mechanism influenced the interests and priorities of tripartite social partners. In fact, their willingness to achieve a consensus regarding minimum wage increases diminished in the knowledge that there is a mechanism for uprating if they fail to agree. Thus, while minimum wage setting was still among the core topics of tripartite social dialogue after 2008, the past decade has not witnessed an agreement on the minimum

102  Marta Kahancová and Vassil Kirov wage level. This freed up political space for the government to exercise discretion over and above the indexation mechanism (see below), against a backdrop of the overall weakening of tripartism and the advisory character of tripartite agreements with no effective enforcement mechanisms. In contrast to Bulgaria, where social partners still have opportunities to influence the government’s decision, in Slovakia the precise indexation mechanism prevented further interventions by social partners and the ultimate decision is at the discretion of the government and implemented via a Government Decree. While the existing indexation mechanism has secured regular minimum wage increases, it has been subject to extensive criticism especially by employers, because regularly securing a minimum wage rise. Nevertheless, there is consensus that minimum wage setting had become highly politicised prior to 2007 and that the fixing of its level needed to be more closely related to the development of the average wage in the Slovak economy and not to the electoral cycle of political parties in government (Uhlerová, 2019). 5.3.2.3  The minimum wage and collective wage bargaining Since the early 1990s the minimum wage has reflected Slovakia’s economic development and increased accordingly. Figure 5.2 compares the percentage change in minimum wage and in the average gross wage. Between 1998 and 2003, the minimum wage grew significantly faster than the average wage. Between 2003 and 2006, under a right-wing government coalition, minimum wage growth slowed down and remained at or below the growth of average wages. Furthermore, there were two stagnation periods in which

Figure 5.2  Changes in minimum wage and average gross wage in the Slovak economy (in EUR and in percentage, 1993–2018). Source: the authors, using data from the Slovak Statistical Office and [accessed March 20, 2019].

Shaping minimum wages in Central and Eastern Europe 103 the minimum wage did not increase – first, during the years of economic transition (1993–1995) and second, during the economic crisis of 2007–2008. Since 2008, with the exception of 2014 when the minimum wage growth corresponded to the growth of average wages, the minimum wage as grown faster than the average wage. This period corresponds with the introduction of the new indexation mechanism and the diminishing role of unions and employers in fixing the level of the minimum wage. In 2010-2013, the rate at which the minimum wage growth exceeded the growth of the average wage was stable. Viewing these developments in the political context and the approach of the incumbent government to social dialogue, we observe that the two largest growth periods, in the late 1990s and the late 2000s occurred under two very different governments. In the late 1990s, Slovakia’s right-wing reformist government aimed for the Slovak economy to catch up with neighbouring countries, attract foreign direct investors, meet the criteria for country to enter the EU and introduce liberalizing yet stabilizing labour market measures to boost the economy. The second growth period when the minimum wage growth exceeded the growth of the average wage falls under the ruling of the leading social-democratic party SMER and its government coalition. In this period, the Slovak economy was growing, unemployment declining, and the indexation mechanism was in place. Although the indexation mechanism stipulates minimum wage growth based on the growth of average nominal wages in the preceding year, the government is free to implement a minimum wage that exceeds the indexation rate (similar to the French coup de pouce, see Delahaie and Vincent, Chapter 8). The evidence in Figure 5.2 confirms that the government’s decision on the minimum wage indeed exceeded the level of average wage growth, especially in the most recent years (2015-18); the minimum wage rises also surpassed the level of collectively agreed wage increases (see Tables 5.3 and 5.4). The reason for extensive minimum growth lies in several factors, including the practiced indexation mechanism, the economic situation and political will, but also the interest of trade unions to target their activities at minimum wage rise instead of wage rise through the (continuously weakening) sectoral collective bargaining. Although there is no direct interaction between minimum wage setting procedures and collective bargaining, the minimum wage represents an important benchmark for wage bargaining at the sector level and the company level. In the overall context of the minimum wage indexation mechanism and weakened influence of tripartite negotiations on minimum wage setting and the unions’ and employers’ strategies to seek legislative regulation instead of negotiated solutions, it appears that the significant minimum wage increases in recent years have not left extensive maneuvering space for sector-level and company-level wage bargaining. The data in Table 5.4 show that the minimum wage grew faster than collectively agreed wages after 2014.

104  Marta Kahancová and Vassil Kirov Table 5.3  Average collectively agreed nominal wage increases in selected sectors (in percentage, private sector only, 2014–2018) By trade union federation in the sector Trade union federation of workers in mining, geology and oil industry Metalworkers’ trade union federation (OZ KOVO) Trade union federation of energy and chemistry (ECHOZ) Integrated Trade union federation (IOZ) Trade Union Federation of workers in the finance and insurance sector (OZPaP) Trade union federation of agricultural workers in Slovakia (OZPPaP) Trade union federation Woods, Forest, Water Trade union federation of food industry in the Slovak Republic (OZP) Trade union federation of workers in commerce and tourism (OZPOCR) Trade union federation of healthcare and social services (SOZZaSS) Trade union federation of railways (OZŽ) Total

2014

2015

2016

2017

2018

2,8

2,7

4,0

4,0

5,0

3,0

2,9

3,2

3,8

4,5

2,3

1,9

2,0

3,0

4,5

4,2 2,0

3,6 2,0

3,8 1,9

3,5 2,0

4,1 2,5

2,7

3,5

4,4

4,7

4,2

2,6

3,0

2,6

3,1

5,0

2,6

2,2

3,2

6,0

5,1

3,0

3,3

3,5

4,9

6,0

3,4

3,5

3,5

4,3

5,6

2,5 3,2

2,5 3,5

3,0 3,6

6,1 4,5

5,0 5,7

Source: Information system of working conditions (survey data), 2014–2018, Trexima Bratislava and the Ministry of Labour, Family and Social Affairs of the Slovak Republic.

Table 5.4  Wage growth dynamics in Slovakia: % changes to minimum wage, average wage and collectively agreed wage* Year

% growth minimum wage

% growth average wage

% growth average collectively agreed wage

2014 2015 2016 2017 2018 2019 2020

4 8 7 7 10 8,3** 11,5

5,7 3,4 4,7 5,5 6,7 7,4 n/a

3,2 3,5 3,6 4,5 5,7 n/a n/a

* All data refer to changes in nominal gross monthly wages. Collectively agreed wage refers to an average increase negotiated in company-level collective agreements in 11 sectors listed in Table 5.3. ** the actual % of minimum wage growth in 2019 reached 8,3%, while a growth stipulated by the indexation mechanism would have referred to a 3,7% growth in minimum wage Source: authors’ calculation based on the Slovak Statistical office (average wages), minimum wage data at [accessed March 20, 2020], Trend (2018a) and the Information system of working conditions (survey data on collectively agreed wage increases), 2014–2018, Trexima Bratislava and the Ministry of Labour, Family and Social Affairs of the Slovak Republic.

Shaping minimum wages in Central and Eastern Europe 105 The fact that the minimum wage grew higher than collectively stipulated wages leads to two other important challenges in the relationship between minimum wage and collective wage bargaining. The first is the extent to which the statutory minimum wage informs collectively bargained sectoral minimum wages in the private sector and/or contributes to the erosion of sector-level wage bargaining. The second is the challenge to public sector wage setting, where tariffs for the lowest grades have remained for several years below the minimum wage. In the private sector, wage bargaining at the sector level has been facing erosion and currently it is only the metal sector where sector-specific wage setting is implemented. Here the minimum wage and its six statutory levels according to the performed job content are transformed into sectoral standards, which exceed the statutory minimum wage and represent a negotiated sector-specific minimum wage (Kahancová et al., 2017). In some other sectors, multi-employer bargaining is implemented, stipulating sectoral wage increases in percentage terms but not actual sectoral wage levels. In the public sector, until early 2019 the lowest tariffs were actually below the statutory minimum wage and have been subject to recent increases to align the sectoral wage levels with the statutory minimum wages. Annual increases in the minimum wage in 2019 and 2020 have been influenced by the government’s political preferences due to forthcoming elections in 2020 and, as such, have exceeded the rate stipulated by the indexation mechanism and by the annual growth rate of average gross wages (see Table 5.4). In turn, this created major pressures on public sector tariffs, which are subject to annual collective bargaining, separately for state service and for public service (Kahancová and Martišková, 2016). While public sector wage bargaining is regularly practiced on annual basis, the pressure for wage increases in tariffs were stronger after the lowest tariff scales remained below the statutory minimum wage following minimum wage increases. Employers had compensated the difference via individual bonuses. This discrepancy was solved via collective bargaining for public service, stipulating 10% annual wage increases for 2019 and 2020 (Trend, 2018b). With a further minimum wage increase in 2020, the discrepancy with public-sector tariffs again pushed public sector social partners into having to renegotiate tariffs (Trend, 2019). Since in Slovakia public sector negotiations are tripartite with a significant influence of the government, such negotiations take a long time and the outcome of negotiations is subject to the political will of the government. 5.3.2.4 From indexation to fixing the minimum wage at 60% of the average wage In 2019 and 2020, the minimum wage was again increased by governmental discretion after the social partners failed to find a consensus. In 2019, the minimum wage was increased by 8% (to 520 EUR) after a unilateral

106  Marta Kahancová and Vassil Kirov governmental decision and then, in 2020, by 11.5% (to 580 EUR). While the rise of the minimum wage is welcomed by some parts of the society, dissatisfaction with the current minimum wage setting mechanism has been growing. As mentioned above, the main point of criticism is the scope for extensive political influence, which has led to minimum wage levels exceeding the recommended indexation rates; for 2019, the different growth rates were 8.3% and 3.7%, respectively (Trend, 2018a). The debate has therefore now shifted from the fact that the automatic indexation mechanism does not motivate unions and employers to find a consensus about the minimum wage to a new debate, namely, how to limit the extent of political influence of the government on minimum wage setting. Not only employers, but also trade unions are voicing their criticism that the government announced a proposed minimum wage level for 2020 without prior negotiations with representative employers’ associations and trade unions in tripartism (Uhlerová, 2019). Given the growing gap between the government’s and the social partners’ discretion over minimum wage setting, yet another solution to minimum wage setting has been sought. Following a long-term trend of minimum wage increases within the context of the international benchmark that minimum wage should stand at 60% of the median wage to guarantee decent living and working conditions, a parliamentary approval of the Amendment to the Act on Minimum Wage from October 2019 stipulated that from 2021 Slovakia will become the first EU member state to directly fix its minimum wage at 60% of the average wage in the economy (KOZ SR, 2019). In turn, large raises to the minimum wage were expected, but as explained below, the Covid-19 crisis blurred the prospects of such radical minimum wage increases. Trade unions consider this legislative amendment to be their historical victory and claim this piece is the “legislation of the decade” (KOZ SR, 2019). However, viewing this development in the broader context of the erosion of collective bargaining in Europe (Müller et al., 2019), it seems that this automatic minimum wage setting mechanism deepens the tensions in terms of the trade unions’ long-term goals and their role in the post-socialist society. While on the one hand trade unions strive to secure improvements in living standards and consider the rise of minimum wage as instrumental to this aim, at the same time such arrangements increasingly sideline the role of social dialogue and collective bargaining. The introduction of the automatic minimum wage setting mechanism is yet another example showing the preference of weak CEE unions for legislative solutions, which in the long run undermine the role of negotiated minimum wage and collective bargaining. While bargaining is still practiced at sectoral and company level, high increases in minimum wages, coupled with the fact that Slovakia recognises six levels of minimum wage according to job content (Trend, 2018c), leaves little scope for wage bargaining at the sector level. In fact, sectoral wage bargaining has been diminishing and is

Shaping minimum wages in Central and Eastern Europe 107 only present in very few sectors, including the metal sector and the chemical and pharmaceutical industry sector (Martišková et al., 2020, relevant collective agreements). In the 2020 Covid-19 crisis, the introduction of the automatic setting of the minimum wage from 2021 in under strong pressure, claimed as not sustainable in the current crisis. While trade unions remained strongly committed to the agreed mechanism setting the minimum wage for 2021 as 60% of the average wage in the economy in 2019, employers and the government claim the unsustainability of this automatic mechanism in crisis conditions.12 Negotiations about the minimum wage level for 2021 were reopened, but social partners failed to come to a conclusion. In result, the previous mechanism, with unilateral government decision, upon consultation with employers, has been practiced instead of the newly introduced automatic mechanism. For 2021, the government accepted a minimum wage of 623 EUR, which equals to 57% of the average wage in 2019. This governmental proposal will be subject to parliament approval in form of an amendment to the Act on Minimum Wage. During the negotiations, the government proposed a minimum wage for new labour market entrants and long-term unemployed reaching 75% of this amount, however, this proposal was not approved (Teraz, 2020). This result of the 2020 negotiations facilitated an open conflict between the government and trade unions, which call for respecting the already approved Minimum Wage legislation.

5.4 Conclusions This chapter discussed the minimum wage setting procedures and their interplay with collective bargaining in the CEE region. It has provided evidence and analysis of the changing influence of actors on minimum wage setting procedures and the interplay of minimum wage setting with collective bargaining. While CEE resembles a region with declining bargaining coverage and weakening policy influence of trade unions, negotiations over minimum wages still resemble a fundamental issue for the functioning of tripartite social dialogue in the region. Despite different transition paths from state socialism and economic development patterns in the 1990s, all CEE countries introduced a statutory minimum wage already in the early 1990s. Minimum wage negotiations have remained since then a key feature of

12 Since the mechanism is based on minimum wage setting as 60% of the average gross wage from two years ago, there is a discrepancy between Slovakia under crisis and GDP fall in the aftermath of the Covid-19 crisis, while the benchmark for 2021 minimum wage setting is the average wage from 2019 when the Slovak economy experienced economic and wage growth.

108  Marta Kahancová and Vassil Kirov tripartite fora. At the same time, however, the influence of trade unions and employers’ associations on minimum wage setting has diminished in several countries while government discretion has increased. The focus on Bulgaria and Slovakia has highlighted country-specific differences in the actors’ roles in minimum wage setting procedures and the interplay with other levels of wage bargaining in the context of a general erosion of tripartism and growing government power over minimum wage setting. While the Bulgarian example demonstrates how social partners struggled to introduce a transparent mechanism for minimum wage setting, the Slovak example shows how the formal existence of such a mechanism still gave space to politically informed minimum wage determination and undermined the fundamental principles of social dialogue. It also did not decrease the uncertainty in social partners’ strategies regarding the formation of the minimum wage and finally motivated the adoption of an automated minimum wage setting mechanism side-lining the impact of social partners. While in the Slovak case, minimum wage setting involved national industrial relations actors, Bulgaria experienced during the last year a major influence of the European Commission through the new European economic governance of the European Semester and country specific recommendations, which pushed for transparency in minimum wage setting and criticised its growth as a risk for economic stability. Finally, both examples illustrate a certain trap. While in Slovakia employers and trade unions gradually lost discretion to influence minimum wage setting and finally opted for an automated minimum wage setting mechanism that cemented their lack of influence on the minimum wage in the future, in Bulgaria unilateral government decisions and pressures from the EC encouraged actors to agree upon such mechanism. Despite only a distant co-existence of minimum wage regulations with collective wage bargaining at the sector and company levels, we argue that the long-term focus of the debate on national statutory minimum wage and politically motivated minimum wage hikes in the last decade contribute to the erosion of sector-level wage bargaining. This is because a fast rising minimum wage narrows the manoeuvring space for sectoral and company-level actors to negotiate further wage increases.

References Bohle D. and Greskovits B. (2012) Capitalist Diversity on Europe’s Periphery. Ithaca and London: Cornell University Press. Czíria Ľ (2012) Collective Bargaining and Balanced Recovery: The Case of the Slovak Republic. Geneva: ILO Background Paper. Delteil V. and Kirov V. (eds.) (2016) Labour and Social Transformations in Central and Eastern Europe: Europeanization and Beyond. Abingdon: Routledge. Emerging Europe (2018) ‘Romania to increase minimum wage from January 2019’ On-line source, available at https://emerging-europe.com/news/romania-to-increaseminimum-wage-from-january-2019/

Shaping minimum wages in Central and Eastern Europe 109 Eurofound (2017) ‘Statutory minimum wages 2017’ Dublin, available at Eurofound (2018) ‘Statutory minimum wages 2018’ Dublin, available at Eurofound (2020) Minimum Wages in 2020: Annual Review, Minimum Wages in the EU Series. Publications Office of the European Union: Luxembourg. European Commission (2018) ‘Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Bulgaria and delivering a Council opinion on the 2018 Convergence Programme of Bulgaria’ European Commission. Brussels. Eurostat (2019) ‘Eurostat Statistics Explained: Minimum wage statistics’ Available at)

Eurostat (2020) ‘Structure of Earnings Survey 2014 and Minimum wages’ available at https://ec.europa.eu/eurostat/statistics-explained/index.php/Minimum_wage_ statistics#Proportion_of_minimum_wage_earners Fabo B., Kahancová M. and Martišková M. (2013) Industrial Relations and Inclusive Development: The Case of Slovakia. Background study for the ILO. Figart D. M., Mutari E. and Power M. (2002) Living Wages, Equal Wages: Gender and Labor Market Policies in the United States. London: Routledge. Galgóczi B. (2015) ‘Central and Eastern Europe’, in van Klaveren, M., Gregory, D. and Schulten, T. (eds), Minimum Wages, Collective Bargaining and Economic Development in Asia and Europe. A Labour Perspective. Basingstoke: Palgrave Macmillan: 287–306. Galgóczi B. (2017) Central and Eastern Europe Needs a Pay Rise. Brussels: ETUI Working paper 2017/1. Goraus-Tanska K. and Lewandowski P. (2016) Minimum Wage Violation in Central and Eastern Europe. Bonn: IZA Discussion Paper Discussion Paper No. 10098. Grimshaw D. (2013). Minimum wages and collective bargaining: A preliminary characterisation. In Minimum Wages, Pay Equity, and Comparative Industrial Relations: 31–61. Routledge. Hárs A. (2019) Hungary: Developments in Working Life 2018. Eurofound Working Paper. Kahancová M. (2015) Central and Eastern European trade unions after the EU enlargement: Successes and failures for capacity building. Transfer – European Review of Labour and Research 21(3): 343–357. Kahancová M. and Martišková M. (2016) Economic Crisis and Public Sector Employment Relations: The Advantage of Delayed Reforms in Czechia and Slovakia, in Bach, S. and Bordogna. L. (eds.) Public Sector Employment Relations in Europe: Emerging from the Crisis? London: Routledge. Kahancová M., Martišková M. and Sedláková M. (2017) Negotiating Wage Inequality in Slovakia. Bratislava: CELSI Research Report No. 21. Kahancová M., Martišková M. and Sedláková M. (2019) Slovakia: Between Coordination and Fragmentation, in Müller, T., Vandaele, K. and Waddington, J. (eds.). Collective Bargaining in Europe: Towards an Endgame. Brussels: European Trade Union Institute.

110  Marta Kahancová and Vassil Kirov Kirov V. (2019) Bulgaria: Eroding, but Still Existing in Müller, T., Vandaele, K. and Waddington, J. (eds.). Collective Bargaining in Europe: Towards an Endgame. Brussels: European Trade Union Institute. KOZ SR (2019) ‘Vzorec na výpočet minimálnej mzdy považuje KOZ SR za historický úspech vo zvyšovaní životnej úrovne obyvateľov Slovenska [KOZ considers the formula for minimum wage setting a historical success for increasing the living standards of the Slovak population]’ Loukanova P. (2011) Wages in Bulgaria. EEO ad hoc request, April 2011 Martišková M., Kahancová M. and Kostolný J. (2020) With Minimum Wages and Collective Bargaining towards Wage (In)Equality: Evidence from Czechia and Slovakia, Transfer – European Review of Labour and Research (submission under review) Müller T., Vandaele K. and Waddington J. (eds.) (2019) Collective Bargaining in Europe: Towards an Endgame. Brussels: European Trade Union Institute. Nestić D., Babić Z. and Blažević Burić S. (2018) Minimum wage in Croatia: Sectoral and regional perspectives’. Economic Research –Ekonomska istraživanja 31(1): 1981–2002. Ost D. (2000) Illusory corporatism in Eastern Europe: Neoliberal tripartism and postcommunist class identities. Politics & Society 28(4): 503–530. Rubery J., Johnson M. and Grimshaw D. (2020) Minimum Wages and the Multiple Functions of Wages, in Dingeldey, I., Schulten, T. and Grimshaw, D. (eds.) Minimum Wages and Collective Bargaining – Investigating the Roles of Actors and Institutions in Different Sectors and Regions of the World. Routledge. Samardžija V., Butković H. and Skazlić I. (2017) Industrial Relations in Croatia and Impacts of Digitalisation on the Labour Market. Zagreb: Institute for Development and International Relations. Stoiciu V. (2019) ‘Working Life in Romania. Eurofound on-line resource’, Teraz (2020) ‘Krajniak: Minimálna mzda na rok 2021 bude podľa nášho návrhu 620 eur [Krajniak: Minimum wage for 2021 will be 620 EUR according to our recommendation]’

Tomev, L., Daskalova, N., Kostov, L. and Ivanov, M. (2019) ‘What Europe says matters’: the European Semester as a catalyst to overcome national social dialogue blockages? Case study Bulgaria. National trade union involvement in the European Semester (INVOTUNES) project. OSE Working Paper Series, Research Paper No. 36, Brussels: European Social Observatory, May, 37 p. Trend (2018a) ‘Opäť rozhodla vláda: minimálna mzda bude 520 eur, [Again the government decided: minimum wage will stand at 520 EUR]’ Trend (2018b) ‘Platy vo verejnej správe narastú o 10% dvakrát. Pellegrini už podpísal dohodu [Public sector pay will increase by 10% twice. Pellegrini already signed the agreement]’ Trend (2018c) ‚Minimálna mzda od 1. 1. 2019 [Minimum wage from 1. 1. 2019]’

Shaping minimum wages in Central and Eastern Europe 111 Trend (2019) ‘Vydržalo to jeden rok. Minimálna mzda opäť preskočí tabuľky [It lasted for one year only. Minimum wage will again exceed tariffs]’ Trif A., Paolucci V., Kahancová M. and Koukiadaki A. (2021) The impact of trade union actions on precarious work in Central and Eastern Europe: beyond institutional and structural resources. Human Relations (resubmission under review). Uhlerová M. (2019) (Minimálna) mzda ako ekonomický, sociálny a politický problém [(Minimum) wage as an economic, societal and political issue], workshop presentation Reflexie praxe na otázky verejnej politiky a ekonomiky, práva a verejnej správy Slovenska III [Reflection of reality on the questions of public policy, economics, law and public service], November 28, 2019, VŠ Danubius. Vaughan-Whitehead D. (2010) The Minimum Wage Revisited in the Enlarged EU. Edward Elgar Publishing. Williams C. C. (2015) Evaluating cross-national variations in envelope wage payments in East-Central Europe. Economic and Industrial Democracy 36(2): 283–303.

Part II

The combined effects of minimum wages and collective bargaining in different sectors

6

The interplay of minimum wages and collective bargaining in Germany How and why does it vary across sectors? Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf

Compared to many other European countries minimum wages were introduced in Germany quite recently. Traditionally, pay had been negotiated autonomously by employers and trade unions without any direct state intervention in the wage-setting process. The introduction of a statutory minimum wage in 2015 was mainly the result of an ongoing erosion of the German collective bargaining system which began in the mid-1990s. As a result, Germany saw a rapid growth of its low wage sector and a significant increase in wage inequality. Moreover, in the early 2000s there was a widespread view that Germany needs higher wage dispersion in order to tackle its problems on the labour market as unemployment was at that time one of the highest in Europe. It was the former social-democratic chancellor, Gerhard Schröder, who in his speech to the World Economic Forum in Davos proudly recognised that Germany created “one of the best lowwage sectors in Europe” (Schröder, 2005). At the same time, the German trade unions had to recognise, that in growing parts of the economy they had no longer the bargaining power to set effective wage floors. Thus, the debate on statutory minimum wages went beyond expert circles and became a national issue (Bosch and Weinkopf, 2008). The introductions of the statutory minimum wage in 2015, as well as the prior emergence of new collectively agreed and extended minimum wages at sectoral level, have led to the development of a new German minimum wage regime. The traditional German wage-setting system has been replaced by multifaceted systems across sectors with a very different interplay between collective bargaining, sectoral minimum wages and the national statutory wage floor. The great diversity in German wage setting reflects the growing dualisation of the German labour market and the different power resources of the respective industrial relation actors. The aim of this chapter is to analyse the outcome of the new German minimum wage regime as well as the new interplays between minimum wages and collective bargaining. The structure is as follows. Section 1 presents an outline of what has happened with German collective bargaining in the past 25 years and what were the drivers for the change of minds as regards the need for a statutory minimum wage in Germany. Section 2 provides

116  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf an overview on the new German minimum wage regime with the introduction of a national statutory minimum wage and the emergence of new sectoral minimum wages. Section 3 analyses the interplay of minimum wages and collective bargaining and section 4 expands this analysis by providing two case studies on how the statutory minimum wage influences collective bargaining in the low wage sector. Finally, section 5 draws conclusions and discusses possible future developments of Germany’s system of wage formation.

6.1 Erosion of collective bargaining and increase of the low-wage sector Germany had been numbered among the countries with ‘autonomous’ collective bargaining systems, in which companies or employers’ associations and trade unions negotiate pay and many other employment conditions, such as the duration and scheduling of working time, usually at sectoral level and without any direct state intervention. The state had only a supportive role when it comes to the extension of collective agreements. In practice, however, this instrument had been limited to a very small number of sectors (e.g. construction, hairdressing or security services) so that less than 2 percent of all sector-level agreements had been declared as universally binding (Schulten, 2018). In contrast to many other European countries, such as France, Belgium, the Netherlands or Spain, extensions have never been used on a broader base to stabilise collective bargaining especially in sectors with low trade union density (Schulten et al., 2015). There are some fundamental pre-conditions for a successful operation of autonomous wage-setting systems. The most essential elements are strong trade unions that can negotiate with employers and their associations on equal terms. If employers refuse to conclude collective agreements, trade unions need the power to exert collective pressure, which requires a strong organisational base. However, even in the heyday of trade union strength in the 1970s, German unions had never been able to organise little more than one third of the workforce. Consequently, the German system had been particularly dependent on the willingness of companies, without any direct pressure being exerted, to become members of employers’ associations. Until German unification in the early 1990s, Germany had a comprehensive system of sector-level bargaining whereby between 80 and 90 percent of all workers were covered by a collective agreement. The bargaining coverage was several times higher than the union density and depended largely on a much higher organisational density of the employers’ associations. The high degree of employers’ adherence to collective agreements had at least two reasons. The first was the relatively low level of unemployment in former West Germany, which strengthened the trade unions’ bargaining power and made unilateral wage-setting at company level without the protection of the employers’ associations in the event of disputes appear rather unattractive.

The interplay of minimum wages and collective bargaining in Germany 117 Secondly, in the old German corporatist system, with its tightly interconnected companies that took a long-term approach, the employers’ associations and chambers of commerce and industry were also able to push through rules on fair wage competition by exerting moral pressure. 6.1.1  The continuous erosion of collective bargaining Since the mid-1990s, German collective bargaining entered into a period of continuous erosion. In West Germany the bargaining coverage decreased from 76 percent in 1998 to 53 percent in 2019. East Germany was never able to fully adopt West German collective bargaining structures, and the coverage decreased from 63 percent to 45 percent (Ellguth and Kohaut, 2019; Kohaut, 2020; Figure 6.1). The erosion of German collective bargaining reflected some more fundamental changes in the economic and political development of German capitalism (Lehndorff et al., 2009). As a result, more and more employers were no longer willing to accept sector-level collective agreements and switched towards more unilateral forms of employment regulation at company-level. Moreover, the employers’ associations reacted to the declining acceptance of collective bargaining with the introduction of a new membership status whereby the member companies were no longer automatically bonded by the sectoral agreements signed by their associations (Behrens and Helfen, 2019).

Figure 6.1  Collective bargaining coverage in Germany, 1998–2019 in % of workers employed in companies covered by collective agreements. Source: IAB Establishment Panel

118  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf Finally, it became evident that in many sectors the German trade unions did not have the power to defend or to reach compliance with collective agreements. Indeed, since the 1990s union density has shown a strong decline, so that in 2017 only around 15 percent of the workers in Germany were still members of a trade union (Dribbusch et al., 2018). Behind the erosion of German collective bargaining there was also a development of growing sectoral differentiation, so that it is less and less possible to talk about one single German model (Müller and Schulten, 2019; Schulten, 2019). In the public sector as well as in many manufacturing industries such as automobiles, chemicals etc. there is still a large majority of workers covered by collective agreements. In other sectors, in particular in many private services sectors, the collective agreements often cover only a minority of the workforce. All in all, the collective bargaining coverage ranges from only 18 percent in wholesale trade in East Germany to 98 percent in public administration (both East and West Germany) (Table 6.1). The sectoral variation also applies to the distribution of works councils in

Table 6.1  Share of employees with collective agreements, incidence of low hourly wages and representation at workplace level in Germany, 2017 in percent Coverage by collective agreements (employees) Sector Agriculture Utilities, waste, mining Manufacturing Construction Wholesale trade Retail trade Transport & logistics IT-services Financial intermediation Hotels & restaurants Health & education Economic, scientific & professional services Non-profit activities Public administration Total

Incidence of low hourly wages

Share of employees in companies with work councils**

high low

West Germany

East Germany

48 85 63 63 40 40 58 19 83 39 60 49

21 72 35 54 18 28 (27) (18) 66 26 45 50

low high

n. a. 79 63 17 28

medium low low high medium medium

46 35 74 9 44 25

65 98 57

41 98 44

medium low 22.7%

n.a. n.a. 39

* coverage by collective or firm-specific agreement (numbers in brackets are not very reliable due to a small number of observations); ** private companies with 5 or more employees n.a.: no information available Source: Ellguth and Kohaut 2018: 300 (CB-coverage and works councils); Kalina and Weinkopf 2017 (low-pay incidence).

The interplay of minimum wages and collective bargaining in Germany 119

Figure 6.2  Collective bargaining coverage in Germany according to wage quintiles, 2014 in % of workers employed in companies covered by collective agreements. Source: German Structure of Earnings Survey 2014

companies, which are often a precondition for the coverage and successful implementation of collective agreements. The erosion of collective bargaining was particularly pronounced in traditional low-wage sectors. In 2014, the bargaining coverage was only 27 percent among workers in the two lowest wage-quintiles while it was 66 percent among the highest wage quintile (Figure 6.2). In other words, there is a clear correlation between the wage level and the likelihood of being covered by a collective agreement in Germany. Usually, sectors with a low collective bargaining coverage also have a much higher incidence of low pay (Table 6.1). 6.1.2  The strong increase of the low-wage sector International research has revealed that a high bargaining coverage is usually associated with a more compressed wage structure and a much smaller incidence of low pay (Hayter and Weinberg, 2011; Bosch and Weinkopf, 2013). Until the 1990s, this had also been the case in Germany where a high bargaining coverage limited the share of low-wage workers (OECD, 1996). From the mid-1990s onwards, however, the decline in German collective bargaining went along with a significant increase of the low-wage sector (Bosch and Weinkopf, 2008; Bosch, 2018; Kalina and Weinkopf, 2020). The share of low-wage workers increased from 16.6 percent in 1995 to a peak

120  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf

Figure 6.3  Share of low wage earners in Germany, 1995–2018 in % of workers earning below 2/3 of the median wage. Source: Kalina/Weinkopf (2020).

of 24.1 percent in 2011 and slightly declined towards 21.8 percent in 2018 (Figure 6.3). Accordingly, Germany has one of the largest low wage sectors within Europe which is only surpassed by a few Eastern European countries (Eurostat, 2016). The share of low-wage workers was particularly high in East Germany where for two decades it varied between 35 and 40 percent, while only in recent years there was slight decline. In West Germany the low-wage sector increased from nearly 12 percent in 1995 to around 20 percent in recent years (Figure 6.3). To sum up, the declining bargaining coverage and the increase of the low-wage sector are two sides of the same coin which framed the background for the long-standing debate about a statutory minimum wage in Germany and its final introduction in 2015.

6.2  The emergence of a new German minimum wage regime Today, the German collective bargaining system is very heterogeneous and exclusive, which is reflected in significant sectoral differences in the share of low-wage workers and pay levels. These considerable variations across sectors had been an obstacle to form a joint strategy within the trade union movement to campaign for the introduction of a statutory minimum wage (Bosch, 2018; Schroeder et al., 2017). In the first half of the 2000s, the trailblazers had been the Food, Hotels and Restaurants Workers’ Union (NGG) and the Unified Service Sector Union (ver.di). They had already recognised that the chances of negotiating acceptable rates of pay within the existing collective bargaining system were becoming slimmer and slimmer. In other sectors, such as the metalworking and chemical industries, the traditional autonomous bargaining system was still functioning very well. The unions

The interplay of minimum wages and collective bargaining in Germany 121 in these sectors – namely the German Metalworkers’ Union (IG Metall) and the Chemical Workers’ Union (IG BCE) – have originally opposed the introduction of a statutory minimum wage because they feared this would further weaken the collective bargaining and the influence of unions. However, the manufacturing unions also had to realise that the outsourcing of activities to temporary work agencies or subcontractors not bound by collective agreements meant that the low-wage sector was exerting increasing pressure on their collectively agreed rates and was eating away at their membership. After intensive debates within the trade union movement that lasted several years and was initially very heated, the German Trade Union Confederation (DGB) decided at its national congress in May 2006 to campaign for a statutory minimum wage of €7.50 per hour which was raised in 2010 to €8.50 per hour. In addition to a nation-wide statutory minimum, the unions had also called for the introduction of more sectoral minimum wages, which should be determined by collective agreements and afterwards extended to the whole sector. The role model here was the construction sector which had already introduced such a sectoral minimum wage in 1996 (Bosch et al., 2011). The extension of sectoral minimum wages took place on the basis of the German Posted Workers Act – the German transposition of the EU Posted Workers Directive 96/71/EC. Originally, the task of the Posted Worker Act was to avoid the undermining of national collective agreements through companies which hired posted workers from other countries. Because of the increasing low-wage sector, however, this act was diverted from its original purpose. Since 2007, it was mainly used as a ‘reform workshop’ (Däubler, 2012) for also regulating domestic wage competition in certain branches. Until 2013, sectoral minimum wages had been negotiated in more than 10 sectors, including construction, construction related trades (e. g. painting, roofing and electrical trade), cleaning and care services among others (see below). Although the sectoral minimum wages successfully upgraded low-wage jobs wages in the respective sectors, they generated only small aggregate effects in terms of reducing the share of low-wage workers in the economy as a whole. In the sectors with the most low-wage workers, such as retail or hotels and restaurants, the employers and their associations were so fragmented or at odds with each other that no minimum wage agreements ever materialised. Regarding the relatively small number of sectoral minimum wages, they were never able to develop as a substitute for a national statutory minimum wage, so that the latter remained at the core of the political agenda. Initially, there was a strong resistance against a statutory minimum wage coming from all political parties in the German Parliament with the exception of the Left Party (Die Linke). The Red-Green coalition between the Social Democrats (SPD) and the Green Party (Bündnis 90/Die Grünen), who was in power in the first half of the 2000s, had regarded “too high” wages for more simple tasks as one of the major sources for high unemployment in Germany and, therefore, had promoted the increase of the low

122  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf wage sector in particular through the famous “Hartz Laws” (Knuth, 2014). The view was broadly shared by the Liberal Party (FDP) and the Christian Democratic Party (CDU), which since the mid-2000s became again the major ruling party in German Government. A strong opposition also came from the German employers’ and business community which argued that the introduction of a statutory minimum wage would lead to much higher unemployment. In support, they could draw on several studies of German mainstream economists who predicted job losses ranging from several thousand to more than a million (e.g. Bruttel et al., 2019), although studies on sectoral minimum wages in Germany had already shown that there were no negative employment effects (Möller, 2012; Bosch and Weinkopf, 2012; Herzog-Stein et al., 2020). Despite the strong resistance from the political and the economic sphere, the trade union campaigns for the introduction of a statutory minimum wage were able to gain overwhelming support by German people – among them supporters of all major political parties. The unions had mainly drawn on normative arguments, that existing low wage levels were not fair and that every worker should get a decent wage, which allows her or him a life in dignity (Futh, 2018). After the SPD lost the general election in 2009 and had to resign from the Federal government, it finally changed its position and became a strong supporter of a statutory minimum wage. With strong support from the trade unions it put the demand for a statutory minimum wage at the core of the general election campaign in 2013. Afterwards, the SPD made its entry into another “great coalition” with the CDU dependent on the introduction of a statutory minimum wage set at €8.50 per hour, so that finally the CDU also had to agree. The introduction of the statutory minimum wage on 1st January 2015 was eventually part of a legislative package entitled the “Act on the Strengthening of Collective Bargaining” (Tarifautonomiestärkungsgesetz) which also intended to facilitate sectoral minimum wages and the general extension of collective agreements in order to re-strengthen the German collective bargaining system (Schulten, 2018, 2019).

6.3 The interaction of the statutory minimum wage and collective bargaining As international research has shown, there are several different forms of interaction between collective bargaining and statutory minimum wages (Bosch and Weinkopf, 2013; Grimshaw and Bosch, 2013; Grimshaw et al., 2014; Bosch et al., 2019; see also Chapter 1 in this volume). The range goes from systems where the minimum wage has a very strong role and largely determines the development of collectively agreed wages to systems where both forms of wage setting coexist relatively independent from each other. The interactions depend very much on the level of the collective bargaining coverage, the relative value of the minimum wage in relation to other

The interplay of minimum wages and collective bargaining in Germany 123 wages as well as on the concrete institutional setting of wage formation. For Germany, the picture is even more diverse as there are not only one, but several forms of interaction depending very much on the particular circumstances in the various sectors. 6.3.1  Different types of interactions Bosch and Weinkopf 2013 (see also Grimshaw and Bosch, 2013; Grimshaw et al., 2014) developed a typology of interactions between the statutory minimum wage and collective agreements for the comparison of different national wage-setting systems that was updated in the introduction of this volume. Until the mid-1990s, Germany represented a type of “collectively negotiated minimum wages” whereby minimum wages were determined via autonomous collective agreements at sectoral level with – apart from a few extensions – almost no state intervention. Thus, collective agreements functioned as a substitute for a statutory minimum wage. Today, the wage-setting systems in Germany differ so much between sectors that various types can be found. The public service as well as the metal and chemical industries with their high trade union density, strong work council and a high bargaining coverage are still well functioning examples of the old autonomous bargaining system. The agreed minimum wages in these sectors are far above the national statutory minimum wage. Collective bargaining and statutory minimum wages have almost no interaction and represent the institutional type of “distant coexistence”. Other sectors like construction or cleaning have collectively agreed minimum wages which are above the level of the statutory minimum wage and have been extended to the whole sector. These sectors stand for a type of “negotiated minimum wage” at sectoral level. In January 2020, there were nation-wide sectoral minimum wages in 12 sectors (Figure 6.4). In some sectors there were still different sectoral minimum wage levels for West and East Germany. A few sectors such as construction or roofing have two levels of sectoral minimum wage, one for unskilled and one for skilled workers. In general, the level of sectoral minimum wages shows a great variety between €10.00 and €18.00 per hour and is in any case well above the level of the statutory minimum wage. Apart from these sectoral minimum wages, which are all based on a national collective agreement (although it sometimes contains regional differences), there are very few sectors such as hairdressing or security services, where in some regions the wage agreements have been declared generally binding, so that they determine de facto sectoral minimum wages at regional level (Schulten, 2018). Moreover, there are many sectors especially in private services such as hotels and restaurants or retail trade where the collective bargaining coverage is rather low so that for the majority of non-covered workers in these sectors the statutory minimum wage is the only binding wage floor. In these sectors the type of an “isolated minimum wage” is dominating. Finally, there

124  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf

Figure 6.4  Collectively agreed and extended sectoral minimum wages in Germany in € per hour, April 2020. * not yet generally binding. Source: WSI Collective Agreement Archive 2020.

are also sectors in which collective agreements have determined rather low wage levels often close to the statutory minimum wage, so that adjustments of the latter had a direct impact on (the lowest) collectively agreed wages. Examples for this type of “close interaction” are fast food restaurants or hairdressing, which we will analyse somewhat more in detail (see below). 6.3.2 Effects of the statutory minimum wage on collectively agreed wages According to the German Minimum Wage Law (Mindestlohngesetz – MiLoG) there should be a clear hierarchy between collective bargaining and the development of the statutory minimum wage. When it comes to the adjustment of the minimum wage the law states that it should mainly follow the prior average development of collectively agreed wages. The priority of collective bargaining, which is grounded in the strong notion of collective bargaining autonomy, has also been underlined by the composition of the German Minimum Wage Commission. Here, the decision on the minimum wage adjustment is taken as the result of quasi negotiations between

The interplay of minimum wages and collective bargaining in Germany 125 representatives from employers’ associations and the trade unions, while the government can only approve or reject that decision. Considering the wage levels in collective agreements, however, there are some sectors with collectively agreed wage groups nearby the statutory minimum wage, so that changes of the minimum wage can evolve a direct impact on collective bargaining (Bispinck, 2017; Lesch, 2017). Examples for collective agreements with rather low wage levels can be found particularly in some private service sectors such as hairdressing, fast food sector, hotels and restaurants, agriculture, bakery trade or temporary agencies. In agriculture and hairdressing, the lowest collectively agreed wage group for non-qualified workers is explicitly determined at the current level of the statutory minimum wage of €9.35 per hour. According to a recent analysis of the WSI Collective Agreement Archive, in January 2020 only 0.2 percent of all wage groups in current collective agreements were below the level of the national minimum wage of €9.35 per hour (Figure 6.5). Around 4 percent were between the statutory minimum wage and €10. All in all, the direct influence of the statutory minimum wage on collective bargaining is currently rather small and limited to very few sectors. A somewhat greater impact could be expected, if the minimum wage would be increased up to €12 as it is currently demanded by some trade

Figure 6.5  Distribution of wage groups in German collective agreements in January 2020, in %*. * on the basis of around 4.400 collectively agreed wage groups in 42 sectors; covering only agreements which expire after 2018. Source: WSI Collective Agreement Archive 2020.

126  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf unions and political parties in Germany (Schulten and Pusch, 2019). The €12 threshold would affect somewhat more than one sixth (17.8 percent) of all collectively agreed wage groups. However, the lowest wage groups in collective agreements are usually only used for non- or semi-skilled staff. Therefore, the number of workers directly affected by an increase of the minimum wage towards €12 would be much smaller, although there might be some spill-over effects to higher wage groups. Finally, by far the largest part of more than 60 percent of all workers under collective agreements earn an hourly basic wage of between €12 and €20 and would be hardly affected even by a somewhat larger minimum wage increase. The same holds true even more for the about 20 percent of workers with an hourly wage of more than €20. It is likely that the largest influence of the statutory minimum wage on collective bargaining took place when it was introduced for the first time in 2015 at a level of €8.50 per hour. In the years before 2015 there had been a considerable proportion of between 10 and 15 percent of the wage groups in collective agreements which were below that threshold (Figure 6.6). Obviously, the demands and public debates on the introduction of a statutory

Figure 6.6  Wage groups in collective agreements below the threshold of the statutory minimum wage in %*. * on the basis of around 4.800 collectively agreed wage groups in 42 sectors; including expired agreements which are valid only due to the after-effect Source: WSI Collective Agreement Archive 2020

The interplay of minimum wages and collective bargaining in Germany 127 minimum wage already had a significant impact on collective bargaining in some low-wage sectors and supported the above-average wage increases (Bispinck, 2017). When it came to the introduction of the national minimum wage in January 2015, there had been still around 6 percent of the collectively agree wage groups below the threshold of €8.50. A large part of them came from older agreements which had already been expired for several years and were only valid through the after-effect mechanism. In addition to that, there were also a few sectors as agriculture, for instance, which used the opportunity provided by the German Minimum Wage Law to conclude wages below the minimum wage level for a transitional period up to 2018. In the years after 2015, the share of wage groups below €8.50 decreased further down to 1 percent, which came almost exclusively from older and expired agreements. With the first increase of the national minimum wage to €8.84 in January 2017, it passed some collectively agreed wages, so that there were again 5.5 percent of all wage groups below the new minimum wage level (Figure 6.7). The same happened in January 2019 when the second increase of the minimum wage towards €9.19 became valid. At that time, 4.4 percent of the wage groups in collective agreements were below the new minimum wage. A similar situation emerged in January 2020 when the national minimum wage further increased towards €9.35 and 4 percent of all wage groups were below the new minimum wage level.

6.4 Close interaction between statutory minimum wages and collective bargaining – two case studies from the low wage sector While the overall influence of the statutory minimum wage on collective bargaining in Germany has been rather limited, this section analyses two sectors where the introduction and regular adjustments have had a direct impact on pay levels. We selected the cases of the fast food sector and hairdressing, where the lowest collectively agreed wages are typically at the level or only slightly above the statutory minimum wage, so that the introduction and adjustment of the latter had a significant impact on collective bargaining in these sectors. 6.4.1  Fast food sector In contrast to the overall hotel and restaurant sector, the special segment of the fast food sector in Germany has relatively high collective bargaining coverage. There is a nation-wide collective agreement between the food, hotels and restaurants workers union (Gewerkschaft Nahrung Genuss

128  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf

Figure 6.7  Development of the lowest wage grade in the collective agreement for the fast food sector in comparison to the national minimum wage* per hour in €. * in January of the respective year Source: WSI Collective Agreement Archive 2020

Gaststätten, NGG) and the Employers’ Association for fast food restaurants (Bundesverband der Systemgastronomie, BdS). It covers about 830 companies with around 120,000 employees. While the organisational power of the union in the sector is rather limited due to a large number of precarious workers and a high labour turnover, the employers’ association managed to have a rather large number of member companies including larger restaurant chains such as McDonald, Burger King, Starbucks etc. All members of the BdS are obliged to use the collective agreements negotiated by the association, which are regarded as an instrument to improve the image of the sector (Schulten and Specht, 2020). The lowest agreed wage levels in the collective agreement, however, have always been at a rather low level and were actually paid to a significant number of workers, especially to the large proportion of temporary staff. When it came to the introduction of a statutory minimum wage of €8.50 per hour in 2015, the lowest wage levels in the national collective agreement for the fast food sector were far below and needed a significant adjustment (Figure 6.7). Accordingly, the lowest wage rates were increased by €0.80 per hour in West Germany and by €1.44 in East Germany, so that the lowest collectively agreed wage was lifted up to €8.51, just one cent above the statutory minimum wage.

The interplay of minimum wages and collective bargaining in Germany 129 After its first and second increases in 2017 the statutory minimum wage again caught up with the lowest agreed wage in the fast food sector and made a corresponding adjustment necessary. Although the union had called for higher wage increases to create a certain distance from the statutory minimum wage, the employers claimed they were not able to afford it. Between 2015 and 2020 it was de facto the introduction and the adjustment of the statutory minimum wage which was the driver for wage increases in the fast food sector (Figure 6.7) – displaying a type of “close interaction”. In preparation for the 2020 collective bargaining round, however, the union changed its bargaining strategy fundamentally. It no longer called for a certain percentage wage increase but argued that no fast food worker in Germany should be paid below €12 per hour (Schulten and Specht, 2020). An increase of the lowest collectively agreed wage level to €12 would have corresponded to an increase of about 30 percent. However, €12 had already become an established figure in the German public debate as the trade unions, as well as many politicians from various political parties, called for a significant increase of the statutory minimum wage to that level (see below). In the meantime, the hourly wage of €12 became widely regarded as a threshold for a fair and decent minimum wage, so that the union used that notion also for their bargaining strategy. In addition, the fast food employers faced a growing labour shortage in early 2020 and were therefore ready to accept higher wage increases. Finally, an agreement was reached in early March 2020 – just two weeks before the economic lockdown due to the Covid-19 pandemic – according to which significant wage increases were concluded over a period of four years so that the lowest wage grade will be nearly €12 by 2024 (Figure 6.7). With this new agreement, the union was able to break the old bargaining logic and to create a significant distance from the statutory minimum wage. It also became an example of how demands for a higher statutory minimum wage and an increase of collectively agreed wages could mutually enforce each other. Moreover, the example of the fast food sector was also used in the debate as a role model for how to increase the statutory minimum wage gradually to a significantly higher level (Herzog-Stein et al., 2020). In the end of June 2020, the German Minimum Wage Commission proposed a gradual increase of the minimum wage to €10.45 per hour over the next two years, which, due to the Corona crisis, starts slowly at first, but rises much faster later on (Bispinck, 2020). 6.4.2 Hairdressing The collective bargaining landscape in hairdressing is rather fragmented with different agreements at regional or company level. While in West Germany most Federal States have sectoral collective agreements, in East

130  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf Germany there are only a few company agreements mainly for larger hairdressing chains. The bargaining coverage is also rather differentiated, as in many regions only minorities of hairdressing workers are covered by collective agreements, while in a few West German Federal States the regional agreements have been declared as universally binding so that almost the entire sector is covered. Considering the structure of the sector with a dominance of small hairdressing shops, it is extremely difficult for the unions to recruit members and to develop organisational power. The major power resources for the unions are, therefore, the social image of the sector in public and the growing problems of finding sufficient new recruits. The possibility of collective bargaining, however, depends first of all on the employer’s ability to organise the shops within hairdressing guilds and on its interest to determine a certain competitive order for the sector. If a hairdressing guild has an interest in collective bargaining it usually also favors the extension of collective agreements in order to avoid downward competition from outsiders. In the early 2010s the lowest wages both for unskilled (without training and professional experiences) and semi-skilled workers (with some training and professional experiences but without exam) in hairdressing were far below the €8.50 per hour which at the time was the unions’ demand for a national statutory minimum wage. In order to improve the image of the sector, the employers agreed already in 2013 to the introduction of a sectoral minimum wage determined by a national collective agreement, which was declared generally binding. The agreement led to significant wage growth and led to a gradual increase of the sectoral minimum wage, up to €8.50 by 2015. After the introduction of a statutory minimum wage, however, the hairdressing employers no longer saw a need for a sectoral minimum wage. Considering the regional wage agreement for hairdressing in the German Federal State of North Rheine Westphalia, from 2016 the national statutory minimum wage became also the lowest collectively agreed wage for unskilled workers (Figure 6.8). Moreover, the adjustment dynamic became also the driver for the overall wage increases in the sector. In the years 2017, 2019 and 2020 the trade unions were able to negotiate a stronger wage dynamic for semi-skilled workers against the background of increasing labour shortages in the sector. While the lowest agreed wage for unskilled workers continued to follow the statutory minimum wage, the lowest wage rate for semi-skilled workers grew much faster and significantly widened the difference with the statutory minimum wage (Figure 6.8). To sum up, hairdressing is another example of “close interaction” where the statutory minimum wage has had a strong influence on collective bargaining in the sector and has strongly supported the wage dynamic in the sector.

The interplay of minimum wages and collective bargaining in Germany 131

Figure 6.8  Development of the lowest agreed wages for semi-skilled and unskilled workers in the collective agreement for hairdressing in North RhineWestfalia in comparison to the national minimum wage* per hour in €. * in January of the respective year; unskilled = without training and professional experience; semiskilled = two years of training but without exam plus two years of professional experience Source: WSI Collective Agreement Archive 2020

6.5  Conclusions and outlook Until the mid-1990s, Germany was considered as a country with comparatively low income inequality a small share of low wage earners due to a comprehensive system of collective agreements and a high bargaining coverage (OECD, 1996). Since then the situation in Germany had changed dramatically. The German labor market is now split into two different worlds, which do not have much in common. In the core of the German economy, mainly in the public sector and the medium and big companies in the manufacturing sector, we still find a high bargaining coverage, strong works councils, and decent wage levels and mostly supportive employers. In the growing periphery, mainly in private services, but also in the increasing number of small companies in manufacturing, wages are set unilaterally by the employers and because of the absence of works councils even the minimum wage is often not enforced (Bosch et al., 2019). The growing low wage sector had also severe impacts on the core workforces, which were reduced in size due to outsourcing processes and forced into making concessions. This negative ripple-effect of the low wage sector is one major factor behind the continuous decline of collective bargaining. The introduction of a national statutory minimum wage and the emergence of new sectoral minimum wages did not automatically reduce the

132  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf low wage sector. Sectoral minimum wages were only agreed upon in a few industries and the statutory minimum wage was set at a relatively low level. Nevertheless, there was a significant increase of the wage income for those at the bottom of the wage ladder and after a long time of increasing wage inequality even a slight reverse due to wage compression effects in the two lower deciles of the income distribution has emerged. However, the statutory minimum wage has remained not only below the low wage threshold (two thirds of median full-time earnings), but also the poverty threshold, as it corresponds only to 46 per cent of the national median wage (Schulten and Lübker, 2020). Five years after the introduction of the statutory minimum wage the results are rather ambiguous: On the one hand it contributed to a significant wage increase without having any negative effects on employment as predicted by many economists. On the other hand, it was not sufficient to diminish the low wage sector or even to overcome the dualised structure of the German labour market. Moreover, the intersection between the statutory minimum wage and collective bargaining is mainly characterised by “distant coexistence”: The minimum wage mainly affects parts of the economy which to a large extent are not covered by collective agreements, while collective bargaining is mainly relevant for better paid workers. There are only a few sectors in which a positive “interaction effect” between the minimum wage and collective bargaining has occurred so that the minimum wage could help to stabilise collective bargaining and to push up the collectively agreed wages. In order to make the German wage setting system more stable and inclusive, there are currently two approaches under discussion: The first is a more substantial increase of the statutory minimum wage. In the meantime, there is a broad political alliance ranging from the trade unions, the left political parties (SPD, the Greens, Die Linke) to the labour wing of the Christian Democrats which demand a structural adjustment of the minimum wage to the level of €12 per hour which is regarded as a reasonably decent level to live on. From the 2020 level of €9.35 an increase to €12 would correspond to a growth of 28 percent and would cover around 10 million workers (Schulten and Pusch, 2019). The latter would lead to a significant intervention in the wage-setting system as the number of affected workers would be more than twice as high as the number of around 4 million workers affected by the introduction of the minimum wage in 2015. A minimum wage of €12 would also have a much greater impact on collective bargaining as nearly 18 percent of the collectively agreed wage grades are still below that threshold (see Figure 6.5). However, a statutory minimum wage of €12, which would correspond to around 60 percent of the national median wage, has the potential to upgrade the wages in many sectors and would definitively diminish the low wage sector. Whether or not such an extraordinary increase of the minimum wage would also have a positive impact on collective bargaining coverage is, however, far from certain. Therefore, there is a second approach under discussion, which puts much more emphasis on the strengthening of collective bargaining (Bosch, 2019;

The interplay of minimum wages and collective bargaining in Germany 133 Müller and Schulten, 2019; Schulten, 2019). At stake here is the development of new organizing strategies which are often linked to conflicts at company-level regarding the introduction or defence of a works council and/or a collective agreement. As organising strategies require large financial and personal resources and given that union budgets are shrinking, there are also relatively strict limits to such a strategy. Therefore, the preferred revitalisation from “below” has to be complemented by a revitalisation from “above” which relies on political support for collective bargaining. The trade unions agreed upon a list of political demands to strengthen collective bargaining. They include among others less restrictive criteria for the extension of collective agreements, mainly by reducing the veto power of the employers’ representatives in the Collective Bargaining Committees at the Labour Ministries at national and regional level. More extensions are seen as a core element to increase the bargaining coverage (Schulten, 2018). In addition to that the unions call for a stronger use of prevailing wage laws in public procurement and an extension of the so-called after-effect of collective agreements, which continues to bind employers to collective agreements after their expiry and after the exit of employers from the employers’ association. Furthermore, the unions demand re-regulation of atypical forms of work, which hinder trade union representation. However, all these issues are rather technical and much more difficult to campaign for than a single figure for an uprated statutory minimum wage. The two strands of the debate are not yet sufficiently linked. In the secondary segment of the labour market, the focus is more on an increase of the statutory minimum wage, in the primary segment more on strengthening collective bargaining. There is the danger that the dualisation of the labor market is breaking up earlier solidaristic political alliances whose aim was to include all categories of employees (Emmenegger et al., 2012). To reduce income inequality of market incomes substantially both are needed: A higher minimum wage improves the working conditions at the bottom of the income distribution, but as an isolated instrument (as witnessed in the UK in particular) it risks holding back the wage gains for middle income groups, which eroded in the last years. There are also at a certain point limits to the increase in the statutory minimum wage. A fair remuneration of skills, responsibility and a compensation of hard working conditions can only be guaranteed by collective agreements with their differentiated wage grids. The aim must be to bring together the different strands of the demands for a reform of the German wage setting system in a joint campaign.

References Behrens M. and Helfen M. (2019) Small change, big impact? Organisational membership rules and the exit of employers’ associations from multiemployer bargaining in Germany. In: Human Resource Management Journal 29(1): 51–66. Bispinck R. (2017) Mindestlöhne und Tarifpolitik – Ergebnisse des WSINiedriglohnmonitoring. In. WSI-Mitteillungen 70(7): 823–832.

134  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf Bispinck R. (2020) Kompromiss zum Mindestlohn: ein Teilerfolg. In: Gegenblende 1 July 2020, https://gegenblende.dgb.de/artikel/++co++84a9275a-bb80-11ea-a939-­ 52540088cada. Bosch G. (2018) The making of the German minimum wage: A case study of institutional change. In: Industrial Relations Journal 49(1): 19–33. Bosch G. (2019) Tarifverträge-Schlüssel zur Verringerung Der Lohnungleichheit. In: Dullien S. et al. (eds.) Makroökonomie im Dienste der Menschen. Festschrift für Gustav A. Horn. Marburg: Metropolis Verlag, 247–258. Bosch G. and Weinkopf C. (eds.) (2008) Low-Wage Work in Germany. New York: Russell Sage. Bosch G. and Weinkopf C. (2012) Wirkungen der Mindestlohnregelungen in acht Branchen. Expertise im Auftrag der Abteilung Wirtschafts- und Sozialpolitik der Friedrich-Ebert-Stiftung. WISO Diskurs November 2012. FES, Bonn. Bosch G. and Weinkopf C. (2013) Wechselwirkungen zwischen Mindest- und Tariflöhnen. In: WSI-Mitteilungen 66(6): 393–404. Bosch G., Weinkopf C. and Worthmann G. (2011) Die Fragilität des Tarifsystems. Einhaltung von Entgeltstandards und Mindestlöhnen am Beispiel des Bauhauptgewerbes. Berlin: Sigma. Bosch G., Weinkopf C. and Hüttenhoff F. (2019) Kontrolle Von Mindestlöhnen. Wiesbaden: Springer VS. Bruttel O., Baumann A. and Dütsch M. (2019) Beschäftigungseffekte des gesetzlichen Mindestlohns: Prognosen und empirische Befunde. Perspektiven der Wirtschaftspolitik 20(3): 237–253. Däubler W. (2012) Reform der Allgemeinverbindlicherklärung – Tarifrecht in Bewegung? In: WSI-Mitteilungen 65(7): 508–516. Dribbusch H., Lehndorff S. and Schulten T. (2018) Two Worlds of Unionism? German Manufacturing and Service Unions since the Great Recession. In: Lehndorff S., Dribbusch H. and Schulten T. (eds.), Rough Waters. European Trade Unions in a Time of Crises (Second revised and updated edition). Brussels: ETUI, 209–233. Ellguth P. and Kohaut S. (2018) Tarifbindung und betriebliche Interessenvertretung: Ergebnisse aus dem IAB-Betriebspanel 2017. In: WSI-Mitteilungen 71(4): 299–306. Ellguth P. and Kohaut S. (2019) Tarifbindung und betriebliche Interessenvertretung: Ergebnisse aus dem IAB-Betriebspanel 2018. In: WSI-Mitteilungen 72(4): 290–297. Emmenegger P., Häusermann S., Palier B. and Seeleib-Kaiser M.. (2012) „How We Grow Unequal”. In: Emmenegger P., Häusermann S., Palier B. and SeeleibKaiser M. (eds.) The Age of Dualization: The Changing Face of Inequality in Deindustrializing Societies. Oxford, 3–26. EUROSTAT (2016) Structure of Earnings Survey: 1 out of 6 employees in the European Union is a low-wage earner. Situations differ widely across Member States. News Release. 8. Dezember 2016. http://ec.europa.eu/eurostat/documents/ 2995521/7762327/3-08122016-AP-EN.pdf/3f02c5ed-81de-49cb-a77e-74396bac2467. Futh S. K. (2018) Strategische Kommunikation von Gewerkschaften. Die Kampagnen Samstags Gehört Vati Mir, 35-Stunden-Woche und Mindestlohn. Wiesbaden: Springer VS. Grimshaw D. and Bosch G. (2013) Intersections between Minimum Wage and Collective Bargaining Institutions. In: Grimshaw D. (ed.) Minimum Wages, Pay Equity and Comparative Industrial Relations. Routledge, 50–80. Grimshaw D., Bosch G. and Rubery J. (2014) Minimum wages and collective bargaining: What types of pay bargaining can foster positive pay equity outcomes? In: British Journal of Industrial Relations 52(3): 470–498.

The interplay of minimum wages and collective bargaining in Germany 135 Hayter S. and Weinberg B. (2011) Mind the Gap: Collective Bargaining and Wage Inequality. In: Hayter S. (eds.) The Role of Collective Bargaining in the Global Economy. Negotiating for Social Justice. Cheltenham. 136–186. Herzog-Stein A., Lübker M., Pusch T., Schulten T., Watt A. and Zwiener R.. (2020) Fünf Jahre Mindestlohn - Erfahrungen und Perspektiven. Gemeinsame Stellungnahme von IMK und WSI anlässlich der schriftlichen Anhörung der Mindestlohnkommission. WSI Policy Brief No. 42, Düsseldorf, https://www.wsi.de/ de/faust-detail.htm?sync_id=8928. Kalina T. and Weinkopf C.. (2017) Niedriglohnbeschäftigung 2015 – bislang kein Rückgang im Zuge der Mindestlohneinführung. IAQ-Report 2017-06. http://www. iaq.uni-due.de/iaq-report/2017/report2017-06.pdf Kalina T. and Weinkopf C. (2020) Niedriglohnbeschäftigung 2018 – Erstmals Rückgang, aber nicht für gering Qualifizierte und Minijobber*innen. IAQ-Report 2020-05. http://www.iaq.uni-due.de/iaq-report/2020/report2020-05.php. Knuth M. (2014) Rosige Zeiten am Arbeitsmarkt? Strukturreformen und “Beschäftigungswunder”, Expertise im Auftrag der Abteilung Wirtschafts- und Sozialpolitik der Friedrich-Ebert-Stiftung (FES), Berlin: FES, https://library.fes.de/ pdf-files/wiso/10866.pdf. Kohaut S.. (2020) Tarifbindung geht in Westdeutschland weiter zurück, IAB Forum 13 May 2020, https://www.iab-forum.de/tarifbindung-geht-in-westdeutschland-­ weiter-zurueck/ Lehndorff S., Bosch G., Haipeter T. and Latniak E. (2009) From the ‘Sick Man’ to the ‘Overhauled Engine’ of Europe? Upheaval in the German Model. In: Bosch G., Lehndorff S. and Rubery J. (eds.) European Employment Models in Flux: a Comparison of Institutional Change in Nine European Countries. Basingstoke: Palgrave Macmillan, 105–131. Lesch H. (2017) Mindestlohn und Tarifgeschehen: Die Sicht der Arbeitgeber in betroffenen Branchen. IW-Report 13/2017. Köln. Möller J. (2012) Minimum wages in German industries—What does the evidence tell us so far? In: Journal for Labour Market Research 45(3/4): 187–199. Müller T. and Schulten T. (2019) Germany. Parallel Universes of Collective Bargaining. In: Müller T., Vandaele K., and Waddingtom J. (eds.) (2019) Collective Bargaining in Europe: Towards an Endgame, Volume II. Brussels: ETUI, 2239–2261. (1996) Employment Outlook. Paris. Schröder G. (2005) Speech at the World Economic Forum in Davos on 28 January 2005, Bulletin of the German Federal Government No. 8, https:// www.bundesregierung.de/breg-de/service/bulletin/bulletin-2000-bis-2009/ rede-von-bundeskanzler-gerhard-schroeder-792094. Schroeder W., Futh S. and Schulze M. (2017) Der Weg zur Forderung nach einem allgemeinen gesetzlichen Mindestlohn – Gewerkschaftliche Deutungs- und Präferenzkonflikte. In: Sack D. and Strünck C. (eds) Verbände unter Druck. Zeitschrift Für Politikwissenschaft – Sonderheft 2/2016. Wiesbaden: Springer VS, 135–154. Schulten T. (2018) The Role of Extension in German Collective Bargaining. In: Hayter S. and Visser J. (eds.) Collective Agreements: Extending Labour Protection. Geneva: ILO, 65–92. Schulten T. (2019) German Collective Bargaining – from Erosion to Revitalisation? In: Behrens M. and Dribbusch H. (eds.) Industrial Relations in Germany, WSIMitteilungen Special English Issue. Baden-Baden: Nomos, 11–30.

136  Gerhard Bosch, Thorsten Schulten and Claudia Weinkopf Schulten T., Eldring L. and Naumann R. (2015) The Role of Extension for the Strength and Stability of Collective Bargaining in Europe. In: Van Gyes G. and Schulten T. (eds.) Wage Bargaining Under the New European Economic Governance. Brussels: ETUI, 361–400. Schulten T. and Lübker M.. (2020) WSI Mindestlohnbericht 2020, WSI Report No. 55, Düsseldorf, https://www.wsi.de/de/faust-detail.htm?sync_id=8835. Schulten T. and Pusch T. (2019) Mindestlohn von 12 Euro: Auswirkungen und Perspektiven. In: Wirtschaftsdienst 99(5): 335–339. Schulten T. and Specht J. (2020) Tarifpolitik und Mindestlohn: Aktuelle Erfahrungen aus der Systemgastronomie, WSI Blog 15 June 20220, https://www.wsi.de/de/ blog-17857-wsi-blog-tarifpolitik-und-mindestlohn-systemgastronomie-24163.htm.

7

Downward convergence between negotiated wages and the minimum wage The case of the Netherlands Wike Been, Paul de Beer and Wiemer Salverda

Although the Netherlands has had a statutory minimum wage for 50 years now, the interplay between the minimum wage and collective bargaining has changed significantly over time. In this chapter we analyse how the lowest pay of employees in the Netherlands was for a long time primarily determined by collective bargaining at the sectoral level, but recently the role of the statutory minimum wage has become more important due to a general decline of the lowest collectively negotiated wage rates. We pay special attention to the role of minimum youth wages, which are exceptionally low in the Netherlands and which play an important role in some sectors. The overall focus therefore is on questions regarding the interaction between minimum wage setting and collective bargaining and its development. The first section in the chapter starts with a general discussion of the legal framework of the statutory minimum wage and its uprating mechanism. The analysis describes the evolution of the minimum wage rate over time, compared to the overall wage developments, collectively negotiated wage increases and labour productivity. The second section focuses on the role of collective bargaining at the sectoral level and the level of the lowest wage rates in collective agreements, comparing these to the statutory minimum wage and the overall wage development. The analysis demonstrates that the lowering of the relative level of the lowest negotiated wage rates has created room for a strong increase of low-wage employment in the Netherlands – a development encouraged by the Dutch government during the 1990s. The third section seeks to understand the evolution of the lowest wage rates in collective agreements by means of case studies in three sectors: Cleaning, supermarkets and the metal industry. Based on interviews with negotiating representatives from both the employers and the union side, the analysis illuminates the interplay between the minimum wage and collective bargaining as perceived by them. Depending on the employment structure and the power relations between social partners in the three sectors under investigation we find different types of interaction (as lined out in the introduction). The chapter ends by drawing out the key conclusions.

138  Wike Been, Paul de Beer and Wiemer Salverda

7.1  Minimum wage policy and its effects 7.1.1  Legislating the minimum wage The discussion on the minimum wage in the Netherlands should be understood in the context of the Dutch neo-corporatist model, today often called the “polder model”. In this model, the government shares its responsibility for designing and implementing social and economic policies with the social partners, namely the trade unions and the employers’ associations. Although there has been a statutory minimum wage for half a century in the Netherlands (see below), the social partners have nevertheless played a significant (advisory) role in the repeated adjustments of the law and the uprating of the minimum wage. The discussion on the minimum wage goes back to 1945–1946, when unions and employers agreed to a minimum wage sufficient for an unskilled worker to live in one of the big cities with a family with two children. This idea was taken as a guideline by the College van Rijksbemiddelaars, the official body at arm’s length of the government that ratified collective labour agreements (CLA). When in 1963 strong industrial action put an end to the prolonged wage moderation, employers and trade unions agreed to a national minimum income of 100 guilders per week (€45,-), applicable to all male employees older than 24 years and to younger ones already earning the adult wage according to the CLA. That income was deemed to be the minimum necessary for a decent life for a family with children, taking into account children’s allowances provided by the state. However, the social partners could not agree about the uprating and the government set the new amounts (SER, 1966: 5). After two years the minimum wage was extended to female employees due to EU legislation on equal pay. In 1969, more than 50 years ago now, the government introduced a statutory minimum wage for all employees aged 24 and older (down to 23 in 1970). This provided the same entitlement also to workers not covered by a collective agreement which was around 30% in the private sector at the time. The Dutch minimum wage is notorious for the very long tail of youth minimum wages introduced in 1974 by Ministerial Decree of a separate minimum wage for each year of age between 15 and 22 years, each defined as a specific percentage of the adult minimum wage (Figure 7.1). The percentages have been altered several times. Very recently, the applicable age of the adult minimum wage was lowered from 23 years to 22 years in 2017 and then to 21 years in 2019 as a result of collective action by the trade union FNV and youth organisations. In consultation with the Social and Economic Council (SER), the top organism of the “Polder model”, the government proposed this two-step lowering and promised employers a subsidy to cover the costs.1

1 The subsidy is financed from a rise of employers’ social contributions, but its burden will probably be borne by the employees as far as it shrinks the room for wage bargaining.

Downward convergence to minimum wage 139

Figure 7.1  Youth minimum wage ladders 1974, 1983, and 2019 (% of adult minimum wage), and average monthly amounts for 1/1/2019 (euros). Reading note: In 1974 the youth minimum wage at age 15 equalled 40% of the adult minimum wage; as of 1 July 2019 it amounted to €491 per month for a full-time week. Source: Ministry of Social Affairs and Employment

Figure 7.1 shows the monthly levels since the latest change in July 2019 of all minimum wages, running from €491 at age 15 to €1,309 at age 20 and the adult minimum wage of €1636 from age 21. Evidently, this system creates great opportunities for employer arbitrage between youth and adults to the extent that these wage differences exceed possible differences in productivity (which seem small or even non-existent in the relevant, low-skill jobs such as shelf-stacking in super markets). Such options for arbitrage do not only concern the exact youth minimum wages but all levels of youth pay above that level up to the adult minimum wage. The minimum wage excludes overtime pay and other extras but it is legally topped up with an annual holiday allowance of 8%. It is a gross amount including income tax and social contributions borne by the employee but excluding employers’ contributions. The former deducts around 9.5% for a full-time employee, the latter currently adds about 18% of costs to the employer.2 The minimum wage is legally defined as a monthly, weekly or daily amount, depending on the payment period of the company. Notably, it is not defined on an hourly basis as it applies to what is called the “normal working hours”, which in practice amounts to the full-time working week

2 Calculated for the year 2019 at

140  Wike Been, Paul de Beer and Wiemer Salverda which varies across CLAs from 36 to 40 hours per week. Youth minimum wages imply very low hourly pay levels, starting from about €3 at age 15 up to €10 for adults.3 Employees with a part-time job receive a pro rata amount of the minimum wage depending on their own working hours. Note that until 1993 the minimum wage applied only to employees who worked at least one third of those CLA-defined full-time hours. Introducing an hourly minimum wage has been debated on several occasions, e.g. early- 2000s and mid-2010s, but has come to nothing because it would affect different parts of the economy differently because of the variation in working hours across collective agreements and corresponding sectors. Traditionally, minimum wage enforcement was based on private law: Individual workers would have to take their employer to court. In 2007, this was replaced by administrative enforcement, which means that the Labour Inspectorate can impose a fine if it finds an employer violating the law. The effective monitoring and enforcement have become increasingly complicated due to the strong growth of atypical employment relations, such as (bogey) self-employed, on-call contracts, payroll contracts, posted workers, contracting and labour migrants. New legal stipulations in 2016 try to improve this by better pay specifications and legal applicability to piece work and assignment agreements. The statutory minimum wage includes an indexation mechanism for the regular uprating of its level, again based on Ministerial Decrees, aimed at ensuring that minimum-wage earners share in the general growth of prosperity in the country. It is currently operationalised as an automatic adjustment to the average change of the collectively negotiated wages.4 This is commonly done on a half-yearly basis. It was complemented in 1973 with an obligatory evaluation every three years (four years since 1991) of circumstances that could motivate a special adjustment of the level. However, no additional increase due to special uprating has taken place since the 1980s. In the Netherlands, the minimum wage is of crucial importance for the level of social benefits. With the introduction of the minimum wage, the idea was that the adult minimum wage ought to provide a sufficient income for a family to live on (SER, 1966: 10). Thus, the government gradually elevated the public old-age pension to that level between 1970 and 1974, and increased it further afterwards. In 1974 the government introduced the so-called “net-net-linking” which aligned the income from social assistance and from the public pension to 100% of the net income from the fulltime minimum wage. This was formally enacted in 1980. Consequently, the 3 The youth wages lend the Netherlands’ wage distribution as long a tail of low pay as Germany had before it introduced the minimum wage in 2015 (Salverda and Mayhew, 2009, Table 9). This contrasts with the UK or France, for example, where there is hardly any tail below the minimum wage threshold. 4 The change is calculated by the government’s economic think tank, the Netherlands Bureau for Economic Policy Analysis (CPB).

Downward convergence to minimum wage 141 evolution of collectively negotiated wages underlying the uprating of the minimum wage translates into an increase of all minimum social benefits. This led to a renewed discussion about the uprating mechanism that came to a conclusion with a new law in 1992 that codified the current situation. It allows the government to block the uprating if either wage developments are deemed to negatively affect job growth or a growth in the use of social benefits would incite a sizeable increase in social contribution or taxation. The prime implication of this linking concerns the dynamics of uprating, which is written in stone and has remained the basic tenet of the Dutch social security system regardless of the subsequent evolution of the minimum wage until this very day. Consequently, any increase or reduction of the minimum wage is automatically translated into an equivalent change in social-security spending. Thus, any adjustment of the minimum wage rate has direct implications for the incomes of a much larger group of households than simply the workers who earn the minimum wage. Evidently, as the analysis below shows, this has far-reaching implications for minimum wage policy in the Netherlands. 7.1.2  The level of the minimum wage and general wage trends This section addresses the evolution of the level of the minimum wage over time and its relation to the overall wage development. The level of the Dutch minimum wage is driven by its regular uprating. In the mid-1970s the special 3-year adjustments were used to raise the level in order to catch up with the effects of fixed-amount increases in collectively negotiated wages that disproportionally benefited the lower wage rates and lifted them above the minimum wage, and also with the developments in actual earnings exceeding the trend in negotiated wages (SER, 1979: 11). Nowadays the opposite prevails as the minimum wage itself has gained precedence over the lowest collectively negotiated rates and actual earnings trends are ignored. Instead, the government used the special adjustments to freeze the nominal level in 2004 and 2005 (AMvB, 2003). The net-net-linking mechanism implies that a large increase in collectively negotiated wages results in a significant increase in the minimum wage and all minimum social benefits. In the wake of the well-known Wassenaar Accord (Stichting van de Arbeid, 1982), employers and unions in the Social and Economic Council agreed to delink public-sector collectively negotiated wages (Salverda, 2013; SER, 1982: 62–63), social benefits and the minimum wage. All three were nominally lowered by the government in 1984 by 3% - while consumer prices still rose by more than 3% annually – and remained frozen for the rest of the 1980s. Again, the minimum wage was not fully adjusted to the negotiated wage growth in 1992 and frozen from July 1993 until January 1996. In 2004 and 2005 a new freeze was based on a social pact concluded by the government with the social partners. Surprisingly, over the years since the 2008 financial crisis the uprating of the minimum

142  Wike Been, Paul de Beer and Wiemer Salverda

Figure 7.2  Adult minimum wage, average collectively negotiated wages and actual wages, hourly labour productivity, 1964–2017. (wages with CPI deflator, productivity with GDP deflator; 1979=100) Reading note: In 2015 hourly productivity is 56% above the level of 1979. Note: Hourly wage: OECD Economic Outlook no 99 wage, rate corrected for the latest number of employees published by CBS. The average collectively negotiated wage is available as an index number only. Source: CBS (Statline); Ministry of Social Affairs and Employment

wage has not been affected but, evidently, the influence of negotiated wage growth, which has stagnated, has much diminished. Figure 7.2 compares the evolution of the minimum wage to collectively negotiated wages, both deflated by consumer prices. Initially, the minimum wage slightly lagged behind negotiated wages, as the in-built delay of the uprating would suggest. Special uprating occurred in 1973, 1974 and 1976 because of CLA rises that benefited the lowest wage rates and faster growth in actual earnings compared to negotiated wages. However, regular uprating was already lagging behind negotiated wages in 1976, 1979, 1980 and 1981. On balance, the minimum wage increased more strongly than the average negotiated wage and it reached its highest real value in 1979, 61% above the level of 1964. After 1979 both the minimum wage and negotiated wages declined by 13% until 1985. The subsequent freezes shifted the minimum wage further downwards until 1997, opening up a 10% gap with the trend of negotiated wages up to 1985 that has remained largely unchanged since,5 with a slight widening due to the freeze of 2004–2005. In real terms

5 This combines a rise in the private sector with a decline in the public sector (Salverda, 2013).

Downward convergence to minimum wage 143 the level of the adult minimum wage increased by 7% from 1997 to 2003 and then fell again by 2% in 2005, followed by a 4% rise towards 2010, to decrease again towards 2014. Over the 50-year period, 1964–2017, one might claim that average negotiated wages have increased by 38% and the minimum wage by 31% in real terms. However, given that the current real minimum wage level is now equal to that of 1973–74 it is clear that second half of the gains booked between 1964 and 1979 have still not been recovered. A second finding from Figure 7.2 is that collectively negotiated wages themselves have lagged behind the growth of actual average real hourly wages6 and therefore the minimum wage has lagged even more behind average prosperity growth than the CLA wages suggest.7 Actual hourly wages increased more in line with the minimum wage than with negotiated wages over the 1970s and after that showed also a brief (1979–1981) and smaller (−7%) decline. This was followed by a gradual increase up to 25% above the 1979 level in 2009, which has trended slightly down for the rest of the period to 2017. The ratio of the minimum wage to the actual average wage increased until 1976 to around 68% and stayed roughly flat until 1983 but then started a free fall of 20 percentage-points, which was followed again by a slow further decline. In 2014 the minimum wage amounted to about 44% of the average actual hourly wage. The effects for youth minimum wages are stronger because of the 2% reductions of the early 1980s. The average youth minimum wage fell substantially more (−40% between 1979 and 1997) than the adult minimum wage, and it equals about half the adult minimum wage. Actual youth hourly wages sank from 67% of the general average in 1979 to only 45% nowadays – one of the lowest levels in Europe (Salverda, 2015). Thirdly, wage negotiations have for a long time barely compensated for rising prices and left the benefits of productivity growth8 entirely in the hands of employers. During the 1970s, productivity grew in line with the minimum wage and actual wages. Subsequently, productivity kept growing, albeit with some short-lived recessionary fluctuations in the early 1980s, the mid-1990s and 2009, up to a level of 54% above that of 1979. By contrast, both the minimum wage and negotiated wages were at the same level in 2017 as in 1973–74, opening up a 94% gap with productivity growth. Actually earned wages fill this gap halfway, but also lag behind productivity growth, especially after the turn of the century. Thus, workers who have been paid the statutory minimum wage have experienced a multiple decline. They lagged behind collectively negotiated 6 Salverda (2009) discusses the divergence between CLA wages and actual earnings. 7 This is the average over all hours worked. It is a running average and may have grown less due a composition shift as part-time employment has grown very strongly and is on average paid less. 8 Deflating the GDP prices would be more appropriate for comparing to productivity growth. However, the conclusion remains similar: A 11–14% growth for the minimum wage and negotiated wages and a 72% growth in actual earnings still lag 94% productivity growth.

144  Wike Been, Paul de Beer and Wiemer Salverda wages which in turn lagged behind actual earnings which in turn lagged behind productivity growth. Obviously, this evolution has equally affected those receiving social benefits (with a slight exception for the public pension). This prolonged wage moderation seems an important cause for the freeze of real household gross income among the lower half of the income distribution over the last 35 years (Salverda, 2014). 7.1.3  Employers, unions, the government and the minimum wage This section critically assesses the views of the key social actors regarding the statutory minimum wage and the role of the government. Table 7.1 lists the timeline of the Dutch minimum wage to provide a basis for further discussion of the behaviour of the parties involved: The union federations and employer associations – the social partners – and the government. It transpires clearly that the government has played a dominant role in the evolution of the minimum wage. It enacted the statutory minimum wage in the first place, surmounting a long unwillingness of the social partners, and it made it more inclusive over time, extending it to young workers, and putting an end to the exemption of employees working less than one third of the full-time working week. In addition, it has unilaterally determined to the majority of decisions to uprate or even lower the level of the minimum wage. This is illustrated by the unique lowering of the level in 1984, the nominal freezes and the incomplete upratings. This leaves only the years 1990-1991, 1996-2003, and the period 2006 to the present day with undisturbed adjustments. Commonly, the government took the initiative and then discussed this with the Social and Economic Council. In particular, these government interventions reflect the huge significance that the level of the minimum wage has obtained for the level of public spending since the net-net-linking was introduced in 1974. Understanding the role of social partners in reaching minimum wage agreements these have to be placed in historical context – in particular, the post-war rise of communist trade unions (excluded from the negotiations) in 1945-46, and the fierce industrial action in the early 1960s, which put pressure on employers especially because of the expectation that the labour market ought to provide a minimum family income even for the least qualified workers. Increasingly, however, the aim of a minimum income has disappeared from the socioeconomic radar. The rapid expansion of dualearner households complicates the relatively easy relationship between labour-market earnings and household incomes that characterised the fulltime single-breadwinner model. Its demise hampers what social partners can actually do for household incomes, since these are now strongly affected by the number of earners within a household and their working hours. This happened in conjunction with the extension of the minimum wage to workers who would not necessarily have a dependent family to maintain, and also with the expansion of social and employee insurance provisions which reached its apogee in 1975. Ultimately, the direct intertwining of social

Downward convergence to minimum wage 145 Table 7.1  Evolution of minimum-wage legislation and application, 1964–2015 Parties involved Social partners

Year(s)

Events

1945-46

Agreement on minimum pay in bargaining Updating in collective agreements Introduction of negotiated MW at age 25 Uprating Introduction of statutory MW at age 24 Extension of MW to age 23 Frequent uprating Enacting of max. 3-yearly special uprating Introduction of Youth MW ages 15-22 Policy decision of net-net-linking Frequent uprating Lowering of youth MW percentages Legal net-net-linking in WAM act Uprating adjusted Lowering of Youth MW percentages Lowering of Youth MW percentages Nominal freeze of all MW 3% nominal decrease Nominal freeze of all MW Normal uprating Shift from 3- to 4-yearly special uprating

1946-1963 1964 1965-1968 1969 1970 1971-1973 1973 1974 1974 1975-1979 1980

1980-1982 1981 1983

1984 1985-1989 1990-1991 1991 1992

WKA act regulates linking mechanism Adjusted uprating

Collective bargaining

SER/Labour Foundation/ pacts dialogue*

Government

x x x x x x x

x

x

x

x x

x

x x x x x x x x

x

x x

x x (Continued)

146  Wike Been, Paul de Beer and Wiemer Salverda Table 7.1  (Continued) Parties involved Social partners

Year(s)

Events

1993

End of small jobs exclusion from MW Nominal freeze of all MW End of consultation over special uprating No special uprating Normal uprating 4-year evaluation: no uprating 4-year evaluation: nominal freeze of all MW Normal uprating

1993-1995 1995 1996-2003 1999 2004-2005 2005-now

Collective bargaining

SER/Labour Foundation/ pacts dialogue*

Government x x x x

x

x

x

x

x

x

* SER: Social and Economic Council; Labour Foundation of trade union federations and employer associations; Pacts dialogue refers to specific negotiations of the government with the Labour Foundation. Source: SER (1981, Appendix 4) and SZW (2010).

security with the minimum wage seems to have put the government in the driver’s seat of caring for household subsistence, and may have stimulated the social partners to abide by that adage. In its last debate on a special uprating of the minimum wage held in 1999, the Social and Economic Council concluded that the level of the minimum wage, and therewith minimum social benefits for households with dependent children, lagged behind the rise of actual earnings and the incomes of working households and did not share in the general increase in economic welfare (SER, 1999: 28–29). However, both employers and trade unions argued that increasing the minimum wage would reduce low-wage employment, even if the increase could have been small. They advised against a special uprating and instead recommended separate government measures for supporting the real incomes of poor households (SER, 1999: 71–72). Thus, priorities of income policy took the lead while the idea of a minimum household income to provide a decent living of the family – similar to the concept of a living wage (see discussion in Chapter 2) – was dropped. Hence, the role of the minimum wage became restricted to the furthering of fair pay for the efforts and skills of individual workers, their working environment and the broader distribution of wages. Evidently, it can pit unions and employers more easily against each other

Downward convergence to minimum wage 147 when they no longer share a common perspective. As part of these recommendations in 1999, the Social and Economic Council also advised to bring the lowest wage rates in their collective agreements further down to the minimum wage – which is the main topic of the next section.

7.2  The minimum wage and collective bargaining Around 80% of all employees in the Netherlands are covered by a CLA. The lion’s share of CLAs include a list of the wage scales that the employer should use in determining the pay of his employees. Particular wage scales are often related to specific positions and occupations within the company and are usually based on a classification system. A typical wage scale includes ten to twelve annual steps. As a consequence of this system, the impact of the statutory minimum wage on the pay of Dutch workers and on the share of minimum wage earners is largely mediated by collective bargaining. If the social partners in a sector or a company agree on a lowest wage rate that lies above the statutory minimum wage, then no employee in this particular sector or company can be paid the minimum wage. Thus, the incidence of the minimum wage and the lowest pay levels are directly affected by collective bargaining. There may also be an effect in the opposite direction: A change in the level of the statutory minimum wage may affect the lowest wage rates in collective agreements. The most obvious case occurs if a rise lifts the minimum wage above the lowest wage rate in the CLA. The legal minimum wage then in fact substitutes for the lowest collectively negotiated wage in the sector or company (we would term this as close interaction, see introduction). A rise of the minimum wage may also affect collective bargaining. If unions prefer a specific distance between the lowest wage rate and the minimum wage, a consequence of a rise of the minimum wage may be that the unions demand an increase of the lowest wage rate by at least the same percentage (distant interaction, see introduction). Basically, these mechanisms give the social partners a lot of power over the bite of the minimum wage and the size of low pay employment. However, the actual power resources of the unions and the employers vary, both between them and over time. The high collective bargaining coverage rate is mainly determined by the willingness of employers’ associations to close collective agreements, since only one in six employees is a union member, these days. Around 1980 this was still one in three – indicating a strong decline of unions’ organisational power on average. Since all employees who work for a company that is a member of an employers’ association are covered by the collective agreement that the association has closed, it is mainly the membership rate of employers that determines the high collective bargaining coverage rate. Moreover, the collective bargaining coverage is furthered by the mechanism of mandatory extension of sectoral agreements. The (advisory) role of the social partners at the national level is

148  Wike Been, Paul de Beer and Wiemer Salverda largely determined by the willingness of the government to share responsibilities with them. Whereas there were strong institutional ties between the trade unions and political parties in the past, when Dutch society was still characterised by the “pillarization” between a social-democratic, catholic, protestant and neutral or liberal pillar, these ties have been largely severed. This has weakened the societal power of unions. Overall, one could say that the power balance between the employers and the unions has tilted to the side of the employers over time (de Beer and Keune, 2018). The following section analyses the evolution of the lowest collectively negotiated wage rates and the interaction with the statutory minimum wage. 7.2.1 The evolution of lowest collectively negotiated wage rates compared to the minimum wage and their incidence The analysis draws on a dataset of the Ministry of Social Affairs and Employment of 96 collective agreements in 2015. The data cover about 87% of all employees covered by a CLA which is sufficient to draw general empirical conclusions. It is notable that the level of the lowest wage rates in Dutch collective agreements varies widely. Figure 7.3 compares the evolution of the weighted average real level of the lowest collectively negotiated wages (deflated by inflation) with both the minimum wage and average collectively negotiated wages since 1983.

Figure 7.3  Index of the real minimum wage, the weighted average of the real negotiated lowest wage rates and the real average negotiated wage (1983=100). Note: The lowest wage rates are weighted with the number of employees covered by the collective agreements. Source: Salverda (2009, 2010), CLA database SZW, Ministry of Social Affairs and Employment, CBS (Statline); calculations by the authors.

Downward convergence to minimum wage 149 Remarkably, over the entire period, the trend growth in the lowest negotiated wages follows the minimum wage much more closely than the average negotiated wages, with the exception of the years 1985-1990. In this period the nominal minimum wage was ‘frozen’, but the lowest wages in CLAs followed the overall collectively negotiated wage increases. In 1990 they increased even more than the collectively negotiated wages. But after 1994 the lowest negotiated wages followed the minimum wage instead of the collectively negotiated wages. From 1994 to 1997 the nominal lowest negotiated wages were lowered, resulting in a sharp drop of the real level of the lowest wage rates by 8%. After 1997 the lowest wage rates lagged further behind collectively negotiated average wages and increasingly approached the minimum wage trend, indicating that the lowest negotiated wages in the wage distribution have been increasingly influenced by the annual changes in the minimum wage. Between 1985 and 1995 the positive gap between the lowest negotiated wages (on average) and the minimum wage grew from less than 2% to 12%. However, this gap narrowed over the next ten years to just 3% in 2004. After an intermission from 2005 to 2008, the average lowest collectively negotiated wage declined further to less than 2% above the minimum wage in 2017 (Salverda, 2009; 2010). To analyse the evolution of the lowest wages in CLAs further, the remainder of this section focuses on the period from 2005 until 2015, for which data on individual CLAs are available from the CLA database of the Ministry of Social Affairs and Employment. As a consequence of the gradual fall of the lowest negotiated wages relative to the minimum wage, an increasing share of the CLAs sets the lowest wage rate at the same level (or below) the minimum wage. In 2005 only 23% of employees were covered by a CLA that included a lowest wage equal to or below the minimum wage. This number started to increase in 2007, reaching 58% in 2013 and slightly decreased afterwards to 56% in 2015. If we add the employees who are not covered by a CLA (around 20%), the share of employees for whom the statutory minimum wage is the potential floor of their wage, is now about 77%, while this was no more than 43% in 2005. Consequently, the importance of the minimum wage for the lower end of the wage distribution has increased sharply in the past two decades. The level of the lowest wage rates in CLAs relative to the statutory minimum wage can be adjusted in three ways through actors’ strategies. The first way is the basic (initial) percentage increase that is applied to all wage scales as part of a new CLA. This increase keeps the relative level of the lowest wage compared to the other collectively negotiated wages in the particular sector or company constant. The second way is a specific adjustment of the lowest wage rates that deviates from the basic pay rise. Although this is not a standard element of collective bargaining, the union(s) or the employer(s) can have specific reasons to prefer a different adjustment of the lowest wages compared to the other wage scales (see below). In some CLAs the lowest wage rate is explicitly linked to the statutory minimum wage, which means that the change of the

150  Wike Been, Paul de Beer and Wiemer Salverda lowest wage may differ from the general wage increase, if the adjustment of the minimum wage deviates from the general negotiated pay rise. In other CLAs the level of the lowest wages is fixed at a certain nominal amount, meaning that they lag behind both the regular pay rise and the increase of the minimum wage. The third is the introduction of a new lowest wage rate below the existing one or, alternatively, the abolition of the existing lowest rate, as a result of which the second lowest wage rate becomes the new lowest wage rate. A complete analysis of the kinds of wage adjustments negotiated in the many agreements over this ten-year period is outside the scope of this chapter. Nevertheless, it is possible to infer the importance of the various ways of adjusting the lowest wage rates by analysing the size of the year-on-year change of the lowest collectively negotiated wage in individual CLAs compared to the minimum wage (de Beer, Been and Salverda, 2017). By examining all annual changes of the lowest wage rate in CLAs for which we have information in two consecutive years in the period from 2005 to 2015, we conclude that in 55% of the cases (weighted by the number of employees covered by the CLA) the change of the lowest wage was equal to the change of the minimum wage. In 8% of the cases the nominal level of the lowest wage was frozen, which resulted in an average relative decline of the lowest wage compared to the minimum wage by 1.7% annually. In only 1% of the cases, the lowest wage was lowered by more than 5% compared to the minimum wage, which probably indicates that a new lowest wage rate was introduced. In 2% of the cases, the increase of the lowest wage exceeded the rise of the minimum wage by more than 5%, probably indicating that the existing lowest wage rate was abolished. In the remaining 35% of the cases the change of the lowest collectively negotiated wage differed from the change of the minimum wage but by less than 5%, which may signal that the lowest wage was equal to the overall collectively negotiated wage increase. If we add the various types of changes, we conclude that the lowering of the lowest collectively negotiated wage compared to the minimum wage contributed on average 4.5 percentage points to the relative decline of the lowest wage rates in the period 2005-2015, whereas relative increases of the lowest wage rates contributed to a 2.8 percentage point increase of the average distance between the lowest wage rate and the minimum wage. Consequently, an important finding is that the overall relative decline of the lowest wage rates by 1.6 percentage points between 2005 and 2015 appears to be the result of rather diverging developments in different CLAs. 7.2.2 Government policy and collective bargaining on lowest wage rates In trying to explain the evolution of the relative level of the lowest negotiated wages since the mid-1990s, it is important to also look at government policies during this period that might be interpreted as period that might be interpreted as a restriction of unions’ negotiation power.

Downward convergence to minimum wage 151 Although collective bargaining is free in the Netherlands and the government has not directly intervened in collective agreements since 1982, the Minister of Social Affairs and Employment can nevertheless try to influence negotiations. In the 1990s, the government repeatedly insisted on the lowering of the lowest collectively negotiated wage rates in order to increase employment at the lower end of the labour market. In 1994 the Minister of Social Affairs and Employment threatened to withhold the administrative extension of CLAs in which the lowest wage rate was still too far above the minimum wage (Trouw newspaper 11 May, 1995). Although he did not effectuate this threat, it was effective nonetheless, as the average gap between the lowest wage rate and the minimum wage halved from 1994 to 1997, from 12 to 6% (Figure 7.2). We can say that the government encouraged the close interaction of minimum wage and collective bargaining (see introduction). In 2013, the social partners and the government concluded a social agreement that addressed the consequences of the economic crisis for the labour market. One element of the pact was the promise of the employers to create 100,000 jobs for persons with a disability.9 The social partners agreed that all CLAs should include specific lowest wage rates for this group starting at the level of the statutory minimum wage. In a letter of the Labour Foundation of 21 February 2014 (Stichting van de Arbeid, 2014) the peak level organisations of the social partners called on their members to introduce new lowest wage rates starting at the level of the minimum wage, if they did not already exist. As we noticed above, in 2014 the average lowest wages were indeed lowered, although in only four CLAs a new lowest wage rate was introduced – and none in 2015. This time the call on the social partners to create new lowest wage rates therefore appears to have had only a minor effect. 7.2.3  Evolution of the incidence of low-wage employment The impact of a relative reduction of the lowest wage rates in CLAs on low-wage employment is contingent on the extent to which the lowest wage rates are actually used by employers. If the lowest wage rate is empty, i.e. no employee is paid at this rate, then a reduction of the lowest wage rate will have no effect whatsoever. Unfortunately, there is no information about the number of employees in the lowest wage rates in various sectors. However, it is possible to derive some indirect evidence on the impact of the reduction of the lowest wage rates from CBS data on the number of employees that earn up to the minimum wage or 5, 10, 15, 20 or 30%, respectively, above it. The following analysis focuses on employees aged 25 to 65 years old, in order to exclude young workers who are covered by the youth minimum wage.

9 Initially, the current government intended to grant the employers an exemption for paying the minimum wage to this groups, but after fierce protests it decided to withdraw this proposal.

152  Wike Been, Paul de Beer and Wiemer Salverda

Figure 7.4  Percentage change of employment (jobs) by wage group, age 25–65, 2009–2018 (%). Source: CBS (Statline)

Figure 7.4 shows the evolution of the number of jobs (and full-time equivalents) by wage group from 2009 to 2018. It is clear that there has been a profound shift of the wage distribution towards the lower wage groups. The numbers of jobs that are paid up to 115% of the minimum wage increased strongly, whereas the number of better paid jobs hardly grew at all. The number of jobs paid at most 5% above the minimum wage almost doubled, whereas the jobs that were a little better paid (5 to 10% above the minimum wage) increased by more than a third. Almost two thirds of the total net job growth of 278,000 from 2009 to 2018 consisted of jobs that were paid at most 30% above the statutory minimum wage. This is not caused by an increased concentration of part-time jobs among low-wage employment, because the concentration of employment growth in the lowest pay categories is even larger if measured in full-time equivalents. Remarkably, the number of jobs paid equal to or below the minimum wage declined slightly. It is not clear whether this is a real phenomenon or an artefact due to the way that Statistics Netherlands calculates the relation between the actual wage and the minimum wage.10 It is quite likely that this evolution is related to the relative reduction of the lowest negotiated wages in this period, which created a great deal more room for workers to be paid below the level of 115% of the minimum wage. Consequently, 10 Since there is no uniform hourly minimum wage in the Netherlands, because it depends on the standard working hours in a sector, CBS has to estimate the hourly minimum wage in case of part-time jobs.

Downward convergence to minimum wage 153 the changes of the lowest wage rates in the CLAs contributed significantly to the growth of low-wage employment in the Netherlands in the past ten years.

7.3  Collective bargaining on lowest wage rates in three sectors The previous section noted a distinct evolution of the lowest collectively negotiated wage rates and of low-wage employment over time, but national statistics and aggregate information on lowest wage rates in collective agreements do not allow us to infer causal relationships between the minimum wage and the lowest wage rates. Therefore, this third section focuses on the negotiations in three specific sectors: The cleaning sector, supermarkets11, and the metal industry. While the first two sectors are typical examples of low-wage sectors, in which one can expect the statutory minimum wage to have a significant impact on collective bargaining, the third sector is an example of a relatively well-paying sector, where much less influence of the minimum wage is to be expected. For each sectoral case study interviews were conducted with negotiators on both the union side and the employers’ side. The interviews took place in June and July 2016. Union interviews included the negotiators of the FNV as well as of the CNV (the two largest trade union confederations). Employers interviewed involved the negotiators of the most important sectoral employers’ association(s) (see de Beer et al., 2017). Interview questions included views on the minimum wage and the lowest wage rates, the role that these play in collective bargaining, the importance of low-wage employment in their sector, and their expectations and preferences regarding the future of the minimum wage and the lowest wage rates. Interviews were recorded with the permission of the interviewee and transcribed.12 7.3.1  Three sectors compared The nature of employment differs quite strongly between these sectors. The supermarket sector is characterised by a large share of short-hours part-time jobs, mainly occupied by students that hold these jobs besides their school or studies. As a consequence, the youth minimum wage plays an important role. The cleaning sector is also characterised by many short-hours part-time jobs, but they are largely held by (generally lower educated) adults, many of them combining several jobs in the sector. Finally, employees in the metal industry are often better educated and there are many more full-time jobs than in the other two sectors. Table 7.2 presents the characteristics of the three sectors. The supermarket sector having the fewest enterprises out of the three sectors is a reflection of a larger share of big companies. All three sectors have collective agreements that (together) cover the whole sector. 11 In this study we focus on the actual stores. Distribution centers are not included. 12 The work was funded by the Hans-Böckler-Stiftung in Germany (project number S-2014-801-3-B).

154  Wike Been, Paul de Beer and Wiemer Salverda Table 7.2  Characteristics of the cleaning, supermarkets and metal sectors

Total number of enterprises a;b Percentage of small enterprises (