The EU is exporting UK neoliberalism to the rest of Europe

29 March 2016

By Aristea Koukiadaki,Senior Lecturer in Employment Law, School of Law, University of Manchester, Isabel Távora, Lecturer in Human Resource Management at the University of Manchester, Alliance Manchester Business School and Miguel Martínez Lucio,Professor of International HRM at the University of Manchester, Alliance Manchester Business School.

In the first of a series of articles highlighting the impact of EU austerity measures on levels of collective bargaining across seven EU member states, the authors provide an overview of their recent research. Their findings are stark. Measures imposed by the Troika on the seven states studied have resulted in limiting trade union powers and reducing workers’ pay. Future blogs will drill down into the specifics of the seven countries studied. Carolyn Jones

Introduction

While laws passed under Thatcher’s government eroded the UK’s tradition of collective bargaining in the 80s and 90s, much of the rest of Europe continued to rely on collective bargaining between trade unions and employers to set pay and terms and conditions of employment within sectors and across their whole economies.

However, since the economic crisis, radical interventions driven by EU institutions (European Central Bank, European Commission), EU Member States and the International Monetary Fund (IMF), have meant that a number of national systems of labour law and industrial relations have been forced to adopt a similar system to that which has become the norm in the UK. That has led to weakened trade union rights and individual workers negotiating for their own pay and conditions against employers that out-leverage them, rather than harnessing the equalising power of the collective.

Limiting trade union powers and reducing workers’ pay

The promotion of labour market deregulation in the EU Member States most affected by the crisis has been presented as the only feasible route to the restoration of competitiveness of national economies. A significant part of these reforms involved limiting trade union powers and reducing workers’ average pay, which it argued would stimulate higher rates of employment and greater competiveness of the national economies (indeed, such objectives are clearly spelled out in the European Commission’s 2012 Labour Market Developments report). However, recent reports from the International Monetary Fund – concede this may not have been the most effective course of action economically, as multi-level bargaining has since been shown to moderate wage levels rather than drive an uncontrolled increase.

These are the findings of research conducted by academics at the University of Manchester and six universities across Europe between 2013 and 2015. As part of that research, interviews were conducted with around 200 employers, employers’ associations, trade unions and government officials across seven countries (Greece, Ireland, Italy, Portugal, Romania, Slovenia and Spain) to better understand how the regulation of labour markets has been affected by policy changes originating with EU institutions and the IMF.

The research discovered significant contractions in inter-sectoral and sectoral bargaining across most of the countries, driven by changes in the statutory legislation that removed the pre-crisis legal/institutional incentives that used to persuade the bargaining parties, especially employers, to achieve consensus. It has been claimed these measures promote firm competitiveness, but there are growing concerns amongst employers about the ability of local management to cope with greater decentralisation and change. At the same time, trade unions have been increasingly constrained in their ability to regulate and monitor the enforcement of agreements and labour standards.

In the coming months, further blogs will analyse each of the seven countries in turn, but this article covers the overall trends across all EU Member States affected by these developments.

The contraction of collective bargaining

Prior to the economic crisis, most of the countries studied (with the exception of Italy) used inter-sectoral bargaining or at least tripartite consultation to set their national minimum wage rates. Further, all countries relied, albeit to a varying extent, on collective bargaining to set sectoral pay grades. Trade unions and employers’ associations negotiated on acceptable pay and conditions, and in many cases, the state would then support the application of these agreements across sectors to set a pay floor; and across firms within a sector for more specialised wage grades and conditions. It was this regulatory framework, as set down in legislation and supported by the parties, that provided the necessary incentives for employers, in particular, to join employers’ associations and for such associations to engage in collective bargaining. Any firm that failed to participate in collective bargaining would lose their stake in negotiations on the wages they were obligated to pay, and conditions they were responsible to provide.

Following the Memoranda of Understanding and other interventions made in the context of the European Semester process, a number of EU Member States have been required to make adjustments to their industrial relations systems, including promoting bargaining decentralisation, in order to reduce wages. As a result, countries that used to be characterised by well-established practices of inter-sectoral and sectoral bargaining have been brought closer to the UK model. This has taken place in two ways. Firstly, the role of the cross-sectoral actors in determining the national minimum wage rates has been constrained. Secondly, the practice of extending collective agreements to all firms within industry sectors has been significantly restricted (e.g. Romania and Portugal) or even suspended (e.g. Greece). Without the legal incentives provided by the regulatory framework, employers have fled from the process for fear of being undercut by competitors with cheaper labour costs. Haemorrhaging members, employers’ associations are now less likely to engage in collective bargaining with trade unions, as they are under pressure from their remaining members not to negotiate for wages and conditions that may put businesses at a competitive disadvantage.

While the austerity measures have challenged the regulatory function of collective bargaining, the degree to which different EU member states have been affected is not though the same. For instance, in some countries such as Greece and Romania collective bargaining has been close to collapse, yet in others such as Italy the system remains close to the status quo before the crisis. How can these differences be explained? Firstly, while the measures in all seven countries targeted the collective bargaining systems, they varied in how far-reaching they were, with Greece and Romania being the most severe. Secondly, the extent to which the measures were introduced on the basis of dialogue between industrial relations actors and national governments also helps our understanding of why the impact was less destabilising in countries like Italy, Slovenia and Portugal than in Greece and Romania. Finally, the pre-existing strength of the bargaining systems was crucial. The best example was Italy where a well-articulated and coordinated system played a protective role.

Work is unstable, unequal and pays less

The undermining of multi-employer bargaining arrangements and the promotion of additional policies designed to increase employers’ flexibility at the workplace level had a negative impact on workers’ wages and led to increasing divisions and inequalities between workers. These included not only lower pay and poorer conditions for the increasing share of workers not covered by bargaining but also differences between existing and new workers and along gender and age lines.

The negative effect of the constraints on collective bargaining was exacerbated by freezes and cuts to minimum wages. In Greece, the minimum wage was reduced by 22% for most workers, and by 32% for the youngest age-group (under 25). These measures created inequality between older and younger workers in the country. Some employers interviewed admitted dismissing more experienced staff on the higher minimum wage to replace them with younger workers who represented less of a cost. In Portugal, women were particularly affected as clothing manufacturers – with mainly female workforces – did not negotiate new collective agreements during the crisis in order to avoid increasing wages.

As a result of the bargaining blockages and a freeze on the minimum wage, most of these low paid female workers did not have any pay increases for 3 years. In Romania, the measures rendered unions unable to protect workers from low pay in a country where wages were already extremely low. Meanwhile, employment insecurity and precarious work rose, with part-time jobs being created outnumbering full-time positions in Greece, which previously had among the lowest levels of part-time work in the EU. Employers also took advantage of deregulation around working conditions, offering more fixed-term, and bogus self-employment contracts. Resources and dispositions to promote equality and to facilitate women’s employment were also constrained in countries such as Slovenia and Spain.

In Italy the impact of the measures was lower due the continuing commitment of both unions and employers to collective bargaining in a process that enabled them to counteract the government’s unilateral initiatives. Moreover, because of the strong relations between employers’ associations and trade unions in Italy, negotiations ran more smoothly in the country, with workers likely to offer flexibility around such conditions as working hours to adapt to the economic downturn. On the other side of the bargaining table, employers applied less pressure on wages than in other countries, where trade unions were being asked to accept dramatic cuts.

The curious approach of employers

Employers have not been slow to adopt a more critical attitude towards the trade union movement as a whole, using legislation to undermine worker representation and voice. This was particularly so in the industrial relations systems mostly affected by the austerity measures, i.e. Greece and Romania, where evidence suggested the austerity measures adopted were biased towards the interests of large firms (in the case of Greece) and multinationals (in the case of Romania). However, this is only part of a more complex spectrum of employer strategies.

In many cases we found that social dialogue and collective bargaining processes have been sustained despite the politicised and changing regulatory environment. While labour market deregulation has been promoted in the name of firm competitiveness, our research revealed that some employers felt they were losing out due to the shift away from collective bargaining. Previously, management were able to rely on potentially difficult negotiations occurring away from their place of business, therefore promoting the maintenance of good relations between employers and their staff. However, now that firm-level bargaining is increasing, and individual workers are in some cases negotiating for their own terms and pay albeit from a position of weakness, relationships within firms are becoming strained. Even in some large companies, human resource managers in some cases – especially those in Portugal, Italy and Spain – showed signs of unease about the collective bargaining reforms due to the way they may unsettle established forms of bargaining and the established role of unions.

The dysfunctional state and problem of enforcement

The findings also suggest that whilst the idea of neo-liberal reform is to let the market ‘get on with it’ and set the basic terms of conditions, the ongoing increase in anomalies and the greater amount of fragmentation in bargaining brings to the fore the role of the courts and the labour inspectorate. As greater space is provided to managers and their right to manage, the more at workers have to seek redress though reference to the labour inspectorate and the courts. Yet the impact of austerity has made the courts and labour inspectorate less able to deal with these new tensions and increasing litigation. In many respects, the state is unable to cope with the negative outcomes of undermining internal and external dialogue between firms and their worker representatives. This mimics some of the developments in the UK since the 1980s which saw the system of Employment Tribunals having to occupy those spaces which were once covered by formal and informal union and management relations (but were undermined by successive Thatcherite legislation) leading to a culture of ongoing litigation.

Reframing the debate

Six years since the start of the crisis, it has become obvious that the austerity measures implemented in a number of EU Member States and the broader direction of the EU economic governance mechanisms are seriously threatening the pre-existing consensus on the European Social Model, which was characterised by its uniqueness in including a high coverage rate of collective agreements and a designated role to trade unions and employers. In doing this, the measures contravene the right to collective bargaining, as recognised by the ILO Conventions, the European Convention of Human Rights, the European Social Charter but also the Charter of Fundamental Rights of the EU itself.

Against this context, it is crucial to reframe the debate on the crisis away from narrowly defined economic considerations and focus more on the lack of legality and legitimacy of the crisis-related measures affecting collective bargaining and labour rights more broadly. Such a debate needs to recognise that policies of austerity are not leading to economic growth and that procedural safeguards are needed for ensuring the development of alternative policies involving the participation of all relevant stakeholder groups.