Trends in collective bargaining in 2006

In February 2007, the General Workers’ Union (UGT) published a study examining trends in collective bargaining for 2006. The study found that the dynamics of negotiating collective agreements had improved, collective bargaining coverage had increased and a number of new issues regarding vocational training were taken into consideration. Nevertheless, in significant sectors, the negotiations remain at a standstill, and the results of wage negotiations were compromised by the government’s underestimation of the expected inflation rate.

General trends in collective bargaining
In February 2007, the General Workers’ Union (União Geral de Trabalhadores, UGT) published a report on its evaluation of collective bargaining in 2006 (Balanço Provisório da Contratação Colectiva em 2006 (in Portuguese, 116Kb PDF)). The report highlights the role played by UGT in fostering the dynamics of collective bargaining, with particular emphasis on the two national-level bipartite agreements signed in the last two years. These agreements included the bilateral agreement signed in January 2005 by the confederations represented at the tripartite Standing Committee for Social Concertation (Comissão Permanente de Concertação Social, CPCS) aiming at a revival of collective agreements (PT0604019I) and the bilateral agreement signed on vocational training in February 2006 (PT0603019I).

More workers covered by agreements
According to UGT, the substantial increase in the number of workers covered by collective agreements is one of the main positive results identified, but it still lags behind the number of workers covered before the 2003 Labour Code came into force (Table 1). The other main positive result is the progress regarding the inclusion of vocational training rules in the collective agreements published, which represented a strategic issue for UGT. In the report, UGT also notes that compulsory arbitration processes were required for the first time in 2006 (PT0702029I).

Table 1: Collective agreements concluded and number of workers covered Evolution of the number of collective agreements and workers covered, 2003–2006 Year 2003 342 2004 162 2005 252 2006 244 Number of collective agreements Number of workers covered 1,512,278 600,469 1,074,029 1,454,300

Source: General Directorate for Employment and Labour Relations (DGERT) UGT believes that the increase in the number of workers covered by collective agreements is due to the fact that a number of agreements were concluded in certain sectors with a larger volume of employment. However, despite the return of large sectoral consultations, negotiations remain at a standstill in important sectors, such as the following:

• • • • •

automobile industry (at a standstill since 2003); chemicals industry (on hold since 2003); metal industry (only one collective agreement has been renewed); printing and paper industry (no progress since 1999); ceramics industry (on hold since 2000).

Developments in public sector
UGT notes certain negative developments in the public sector, highlighting the decrease of workers’ purchasing power and the general struggle for better employment conditions and effective negotiations in the sector. However, according to UGT, a positive development in the public sector was also observed,

namely the launching of collective bargaining processes covering employees hired on the basis of individual employment contracts, which took place in public institutes and enterprises. The pattern of collective bargaining, evaluated from the perspective of bargaining levels, has remained relatively stable, with sectoral agreements representing 60% of all collective agreements (Table 2).

Table 2: Types of collective agreements Distribution of collective agreements according to the level of bargaining, 2005–2006 Type of collective agreement Multi-employer agreements Company-level agreements Sectoral agreements Total 2005 11.1 29.0 59.9 100.0 11.4 27.9 60.7 100.0 2006

Notes: Multi-employer agreements (Acordo Colectivo de Trabalho, ACT); Company-level agreements (Acordo de empresa, AE); Sectoral agreements (Contrato colectivo de trabalho, CCT). Source: UGT/DGERT

Qualitative changes in collective agreements
The study evaluates the qualitative changes in the content of collective agreements, focusing on three main points:

• • •

general qualitative changes in the focus of bargaining, for example, on wage issues or more general issues; wage trends and purchasing power; vocational training.

Focus of bargaining
Regarding the first point, the study examines the type of text resulting from collective bargaining, looking at whether the agreement changed only in relation to wage issues (wage changes or wage changes in addition to consolidated text) or whether the text was a complete revision of the previous agreement (change of content related to several other issues). The report highlights that, in the past, the publication of consolidated texts (frequently remaining unchanged for many years) in addition to wage changes, or just wage changes, were the main outcomes of collective bargaining. However, in 2005 and 2006, a clear development took place, as wage changes and the complete revision of collective agreements were the two main outcomes (Table 3).

Table 3: Type of text published Evolution of collective bargaining outcomes, 2004–2006 Year Wage changes Wage changes and consolidated text Complete revision New collective agreements 2004 16 2005 97 2006 153
Source: DGERT

84 46 22

48 88 54

13 21 15

Wage trends and purchasing power
Regarding wage trends and purchasing power, the study emphasises that, in 2006, wage bargaining was once again conditional upon the government’s inaccurate prediction of inflation, namely 2.3%, while in

fact the inflation rate reached 3.1% by the end of the year. The average negotiated wage increase varied between 2.7% and 2.8%, taking into consideration the expected rate of inflation (Table 4). Overall, the result was a slight decrease in workers’ purchasing power.

Table 4: Evolution of wage levels, 1997–2006 (%) Comparison of effective and conventional (collective agreements) wage increases, 1997–2006 (%) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Inflation rate Effective wages - Nominal variation - Real variation Collectively agreed wages - Nominal variation - Real variation Difference between the variation of effective wages and those collectively agreed - Real variation 2.3 1.8 1.7 2.2 0.3 -0.8 -0.7 -0.6 0.3 0.1 3.6 1.3 3.3 0.5 3.6 1.3 3.4 0.5 4.0 3.8 2.9 2.9 2.7 0.4 2.8 -0.3 -0.4 0.2 -0.4 0.5 5.9 3.6 5.1 2.3 5.3 3.0 5.6 2.7 4.3 3.0 2.2 2.3 3.0 2.9* -0.2 -0.1 -0.6 -1.1 -0.1 0.7 2.3 2.8 2.3 2.9 4.4 3.6 3.3 2.4 2.3 3.1

Source: Portugal Central Bank; European Comission; DGERT UGT expresses its concern over wage policy and collective bargaining in the light of productivity trends and the wage drift. The wage drift refers to the difference between the average level of wages actually paid and official wage rates; overtime or bonus payments, for example, can lead to a drift away from the standard rate. The study concludes that the real wage increase has been inferior to productivity gains, while the evolution of the wage drift over the years proves that employers can cope with higher wage increases without compromising their sustainability and competitiveness. Furthermore, the study analyses the annual variation of collectively agreed wages and effective wages, and the differences between both wage types (see Table 4). The report reveals that the effective wage increase has frequently been higher than the conventional wage increase, with the exception of the years 2002 to 2004. In light of these results, UGT rejects the statements attributing the economy’s weak performance and the low levels of competitiveness to the trade unions and to the wage increase negotiated by them. They also oppose the demands for wage moderation, which may result in the decrease of workers’ purchasing power.

Vocational training
Finally, the study examines the content of 60 collective agreements, representing a quarter of the total collective agreements published in 2006. The main conclusion is that, in 2006, a greater emphasis on vocational training was observed, representing a situation that defines a new cycle in collective bargaining. More than 60% of the collective agreements examined show further developments in this area, in contrast to previous years, when collective agreements only mentioned the general employer’s duty to provide vocational training. A number of new issues are currently addressed in the agreements: namely, individual rights to vocational training; career development and vocational training; skills upgrading; distance learning; supporting employees’ initiative to attend vocational training; active promotion of vocational training; evaluation of vocational training; information and consultation; and active recognition of the competences acquired through pursuing vocational training.


Franz Traxler, Department of Sociology, University of Vienna Introduction This overview of bargaining trends and the performance of bargaining systems is based on data on 20 OECD countries, covering the time period from 1970 to the late 1990s and strongly draws from related findings documented in Traxler et al. (2001). As far as the trends in collective bargaining are concerned, the focus is on two dimensions of the bargaining system: the degree of centralization of bargaining, and attempts at macro-coordination of bargaining. The definition of these two concepts may be summarized as follows: Centralization of collective bargaining: bargaining level at which collective agreements are formally concluded Macro-coordination of collective bargaining: synchronization of the distinct bargaining units across the economy for the sake of macro-economic/macro-social goals Trends in Collective Bargaining Bargaining centralization is a popular concept, although its operationalization is more difficult than conventional wisdom suggests. These difficulties come from the fact that a multi-level bargaining system exists in most countries, such that the degree of and change in centralization cannot easily be measured on a one-dimensional scale. For reasons of cross-national comparability, this analysis concentrates on the trends in the most important bargaining level. According to our operationalization, the most important bargaining level covers the largest number of employees and formally binds lower bargaining levels. As table 1 shows, the majority of countries has not seen any change in the most important bargaining level. In a smaller group of countries, there have been short-term fluctuations in this level. In all these cases, this involved the predominance of the central level which was repeatedly supplanted by a lower level, namely the industrial level. Finally, there is a group of countries which witnessed a lasting, unidirectional change in the prevalent bargaining level.

Trend Stability Short-term fluctuations Long-term change Company ? central Central ? industry Industry ? company

Countries Austria, France, Germany, Netherlands, Portugal, Switzerland, Canada, USA, Japan Finland, Norway, Italy, Australia Ireland Belgium, Denmark, Sweden, Spain United Kingdom, New Zealand

With the exception of Ireland, this meant a decentralization in all other countries. There are two variants of decentralization: the shift from the central level to the industry level, and the move from the industry level to the company level. The former has been more frequent than the latter. It is only the UK and New Zealand which underwent a decentralization of bargaining to the company level.

Hence, there is no clear-cut, general trend in bargaining centralization. Stability on the one hand and a rather moderate decentralization from the central to the industry level are the prevailing tendencies. Most essentially, multi-employer bargaining in the form of either central bargaining or industry-level bargaining has maintained its predominant status in all countries but the UK and New Zealand, aside from the countries where single-employer bargaining has prevailed all the time since the end of World War II (i.e. Japan, Canada, the USA). This observation seems to contradict conventional wisdom which suggests more thoroughgoing decentralization processes over the last decades. This contradiction is a matter of conceptualization rather than reality. So far, we have limited our considerations to the most important bargaining level, thus leaving aside what has happened with regard to the other, supplementary levels. In principle, one certain bargaining level may preserve its predominance, while the other bargaining levels undergo alterations. This has indeed happened in almost all countries where the central or industry level has remained prevalent. Put more precisely, these changes below the most important bargaining level have assumed the form of what is often called organized decentralization (Traxler 1995). This means that the focal collective agreement concluded at the predominant level delegates certain bargaining issues to regulation at lower level within a binding framework, set by the focal collective agreement. In the context of organized decentralization, agenda setting and control over the lower level thus remain with the focal collective agreement. As regards comparative classification, this implies that organized decentralization does not cause a change in the most important bargaining level. Organized decentralization has become wide-spread, mainly in the form of a delegation of issues from the industry level to the company. This happened in two waves. From the mid-1980s onwards, working time has become the subject of organized decentralization, while wages have become so since the early 1990s. The second dimension of this analysis, macro-coordination of bargaining, is aimed at synchronizing the distinct bargaining units across the economy. One has carefully to distinguish between centralization and coordination of bargaining. This is because decentralized forms of coordination are established in many countries in that bargaining is coordinated across the economy, without collective agreements being concluded at the central level (Soskice 1990). We will come back to this issue when looking at the forms of bargaining coordination in greater detail below. As regards the development of coordination activities, one can identify three main patterns (table 2). The vast majority of countries is characterized by persistent attempts at macro-coordination. It is, however, important to note that the form of coordination has varied across countries as well as over time (Traxler et al. 2001). In this respect, the main divide is between voluntary and state-imposed forms of coordination. State-imposed coordination was wide-spread in the late 1970s and early 1980s, when corporatist incomes policies in combination with Keynesian demand management encountered growing difficulties. Since the mid-1980s voluntary coordination has seen a renaissance, mainly in the form of tripartite national pacts (Fajertag and Pochet 1997; 2000). Finland and Sweden constitute a second group, since these two countries record a long but discontinuous tradition of coordination, since coordinated bargaining broke down for certain time periods. Finally, all Anglo-Saxon countries but Australia and Ireland moved from coordinated to uncoordinated bargaining.

Main patterns Lasting coordination efforts

Short-term fluctuations in coordination efforts Long-term shift

Countries Austria, Belgium, Denmark, Germany, Ireland, Italy, Norway, Netherlands, France, Portugal, Spain, Switzerland, Australia, Japan Finland, Sweden United Kingdom, Canada, USA,

from coordination to non-coordination

New Zealand

If we consider the trends in centralization and coordination of bargaining altogether, then we observe a tendency towards polarization. On the one hand, there is a group of countries which moved to uncoordinated bargaining on the basis of fully decentralized, single-employer settlements. On the other hand, there is a second group of countries which has sustained multi-employer bargaining at either central or industry level and which at the same time has embarked on organized decentralization. The main reason for this polarization is that the economic developments, namely competition in markets, have imposed ambivalent requirements on the industrial relations actors. On the one hand, intensified market competition has magnified the need for flexibility in the companies. This fosters the decentralization of bargaining to the company level. On the other hand, intensified market competition has also caused growing mutual externalities and growing interdependencies among all actors. This stimulates attempts at bargaining coordination. Organized decentralization can be seen as an effort to reconcile the conflicting requirements for decentralization and coordination of bargaining. This raises the question of why certain countries have adopted organized decentralization, whereas certain others have taken the road to fully decentralized, uncoordinated bargaining. The answer to this question points to the divide between single- and multi-employer bargaining which parallels the observed polarized development. From a cross-nationally comparative perspective, the predominance of multi-employer bargaining in the national bargaining system significantly correlates with attempts at macro-coordination (Traxler 2000).[1] This is because multi-employer settlements give the bargaining outcomes macroeconomic relevance in terms of their impact on employment and inflation. This sets a very strong incentive for all industrial relations actors to seek cooperation with one another. This contrasts with the situation in countries where single-employer bargaining prevails. In this situation, none of the numerous singleemployer settlements can have a notable impact on the economy, such that coordination efforts will not pay. The Economic Performance of the Bargaining System This brings us to the impact of collective bargaining on economic performance. The economic performance of collective bargaining refers to the structural capacity of the bargaining system for internalizing such negative wage externalities as inflation and unemployment. The key argument is that institutional differences in the bargaining systems constitute differences in the structural capacity for internalizing wage externalities which are manifested in long-term differentials in labour cost growth, inflation and unemployment. This line of reasoning raises the question of what institutional properties of the bargaining system matter in terms of performance. In principle, any of our two dimensions of analysis (p. 4) may matter: that is, centralization and coordination of bargaining. Mainstream reasoning on the performance of collective bargaining has concentrated on bargaining centralization. The most influential version of this kind of reasoning has been the so-called hump-shape hypothesis by Calmfors and Driffill (1988) who claim that extreme degrees of centralization and decentralization perform best. However, the explanatory power of all accounts concentrating on centralization is strongly questioned by more recent empirical studies, including those published by the OECD which all could not detect any kind of a robust association between bargaining centralization and performance (e.g. OECD 1994; 1997, Golden 1993, Traxler and Kittel 2000, Traxler et al. 2001). This lack of compelling empirical evidence can be traced to several conceptual weaknesses of all concepts centring on centralization (Soskice 1990, Traxler 2002, Traxler et al. 2001). The most important weaknesses are as follows. First, the debate does not systematically differentiate between centralization and coordination and thus tends to ignore decentralized forms of coordination. This is an essential shortcoming, since – from a

theoretical point of view – it is coordination that constitutes the capacity for internalizing wage externalities, while centralization is just a special form of coordination. Second, debates on centralization do not fully capture the scale of cooperation problems arising from macro-coordination. Related debates concentrate on what may be called thehorizontal coordination problem, while ignoring the vertical problem of coordination. Horizontal coordination is devised to synchronize the distinct bargaining units that are differentiated by distinct types of jobs and sectoral affiliations. The problem of horizontal coordination arises from uncertainty of each bargaining unit about whether the others will either join the coordination efforts or defect, by taking a free ride. The vertical problem of coordination results from the fact that the rank-and-file does not directly participate in collective bargaining but is present in this process only indirectly via certain representatives. Generally speaking, this creates a compliance problem. In the worst case, this results in a lack of compliance of the local level with higher-level coordination activities. It is important to note that the horizontal and the vertical problem of coordination impose conflicting requirements on the bargaining units. This is because attempts at horizontal coordination increase the problems of vertical coordination, since many special interests of the rank-and-file must be filtered out in the course of macro-coordination. Finally, there is a third important weakness of concepts focusing on bargaining centralization, since they tend to ignore the role of the state in industrial relations. The role of the state is of utmost importance, when it comes to resolving the vertical problem of coordination. The reason for this is that collective bargaining and the bargaining parties are voluntary institutions which can hardly bind their rank-and-file by fiat. Hence, they need support from the state as a third party. When taking account of all the weaknesses outlined so far, one arrives at a typology of coordination which differentiates between three main types of horizontal coordination and two types of vertical coordination (table 3).

HORIZONTAL COORDINATION Main types Variants Voluntary peak-level coordination: Bipartite: central-level bargaining the peak associations of business and labour Tripartite: the state joins the have the principal role in the coordination coordination process as a third party, efforts, on a bipartite, tripartite or unilateral while collective bargaining may be basis conducted below peak level Pattern bargaining: Unilateral: the peaks internally a certain bargaining unit or a bargaining cartel synchronize the bargaining policy of below peak level sets the pace for bargaining their affiliates State-imposed coordination Non-coordination VERTICAL COORDINATION High bargaining governability: labour law provides for the legal enforceability (i.e. the law-making function) of collective agreements and for the peace obligation during the validity of a collective agreement Low bargaining governability: legal enforceability and the peace obligation are lacking
A wide-spread type of horizontal coordination is voluntary peak-level coordination, in the course of which the peak associations of business and labour have the leading role in the coordination process. There are

variants of this type which differ in whether horizontal coordination takes place on a bipartite, tripartite or unilateral basis. Second, horizontal coordination by pattern bargaining rests on the leading role of a certain bargaining unit or a cartel of contiguous bargaining units below peak level. The third type of horizontal coordination isauthoritatively imposed by the state. As regards vertical coordination, we distinguish between high and low governability depending on whether labour law either provides for the legal enforceability of collective agreements and the peace obligation or does not.[2] Figure 1 shows how these types of coordination differ in economic performance. The best performing systems are pattern bargaining and peak-level coordination, provided that peak-level coordination is based on high governability. However, peak-level coordination performs worst, if bargaining governability is low. In comparison to pattern bargaining and peak-level coordination, state-imposed coordination and uncoordinated bargaining record an average performance. The most notable finding of this analysis is that the performance of peak-level coordination really contrasts, depending on whether bargaining governability is high or low. This underscores that making the rank-and-file and local bargaining comply with macrocoordination is most difficult, when the coordination activities are performed at peak level. Hence, state support is most strongly needed in this case. Performance


pattern setting

medium low

uncoordinated bargaining

voluntary, centralized (i.e. peaklevel) coordination* with high bargaining governability state-imposed coordination voluntary, centralized (i.e. peaklevel) coordination* with low bargaining governability High

Degree of bargaining centralization


* inter-associational coordination, intra-associational coordination, state-sponsored coordination Monetary policy may act as an intervening variable with regard to the performance effects of coordination. In principle, monetary policy may either accommodate to inflationary wage policies or may be nonaccommodating. The latter means that the monetary authorities (i.e. normally the central bank), when regarding bargaining as inflationary, threaten to tighten monetary policy or actually do so when the bargainers do not moderate wage increases in response to their threat. The tightening of monetary policy aims to contain inflation and may also dampen economic growth and employment, something which in turn tends to discipline the bargainers. Since a non-accommodating monetary policy may thus cause real economic costs (in terms of a decline in growth and employment) as a side effect, an important question is whether the distinct types of coordination differ in their ability to respond to the signals of the monetary authorities. Table 4 summarizes the main findings on this question. Most importantly, uncoordinated bargaining is the only bargaining mode which is not responsive to monetary policy[3]. In contrast to uncoordinated bargaining, a shift from an accommodating to a non-accommodating monetary policy significantly dampens labour cost increases and inflation in all cases of coordinated bargaining. This shift causes a

significant increase in unemployment only in the case of uncoordinated bargaining as a consequence of its lack of responsiveness. Hence, the main divide in terms of responsiveness to monetary policy is between coordinated and uncoordinated bargaining. Again, this follows from the differences of bargaining in macro-economic importance. Coordinated bargaining matters in macro-economic terms, such that there is an incentive for the bargaining parties to anticipate the effects of their bargaining policy. Conversely, the monetary authorities can deliberately target coordinated bargaining systems. All this does not apply to a situation of uncoordinated bargaining. An intentional interaction between monetary policy and collective bargaining for the sake of performance is possible only in the case of coordinated bargaining.

Bargaining institutions

The conditional effect of monetary policy caused by a shift from accommodation to non-accommodation Labour costs+ Inflation Change (increase) in unemployment Uncoordinated bargaining Insignificant Insignificant Significantly increasing* State-imposed coordination Significantly Significantly Insignificant dampening*** dampening*** Pattern bargaining Significantly Significantly Insignificant dampening*** dampening** Peak-level coordination, Significantly Significantly Significantly high governability dampening* dampening** dampening*** Peak-level coordination, Significantly Significantly Insignificant low governability dampening*** dampening**
* p ≤ 0.05, ** p ≤ 0.01, *** p ≤ 0.001 There are three main conclusions which can be derived from the above findings on performance. First, the vertical problem of coordination is especially severe in the case of all forms of peak-level coordination and can be overcome only by state support. Second, the lack of capacity for vertical coordination may be compensated by a non-accommodating monetary policy, insofar as this policy enables peak-level coordination to embark on effective wage moderation even when bargaining governability is absent. Third and finally, coordination is superior to non-coordination of bargaining, in particular when a nonaccommodating monetary policy is pursued. Coordinated bargaining in turn can be implemented only when multi-employer bargaining at either central or industry level prevails in the national bargaining system.

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