By Guglielmo Meardi, Professor of Industrial Relations & Director of the Industrial Relations Research Unit, The University of Warwick | 3 min
When the Euro-crisis hit European labour markets in 2010-12 and revealed how far unit labour costs had diverged among Euro-zone countries, the reaction by European policy makers was to blame collective bargaining, guilty of not keeping wage developments in line with productivity growth. Almost ten years later, it is clear that the diagnosis and the prescription were wrong.
The diagnosis was wrong as it mixed up cause and effect. Wage setting does not just follow from productivity – it is part of the employment relations system that determines productivity. The prescription of binning it, or radically decentralising it, is like throwing away the child with the bath water. If we look at the same data on unit labour costs more carefully, including non-Eurozone countries and over a longer time period, the lesson is different. The countries that reacted best to the economic crisis of the turn of the last decade actually have strong employee voice and still relatively strong coordinated collective bargaining: Germany, Austria, Scandinavia. In those countries, coordinated collective bargaining coexists with strong company-level participation rights, through unions or works councils. By contrast, and to the contrary of EU policy recommendations, countries with weak and decentralised collective bargaining, such as the UK and Poland, could only maintain their competitiveness by devaluating their currencies – a trick that by definition cannot be used by all. A broad range of data, including the recent quantitative estimates of industrial relations types, quality of work and competitiveness by the EU agency Eurofound, point at the fact that strong industrial relations go together with a sense of justice, better work quality and so also more competitiveness in terms of productivity and innovation.
Many employers are aware of this and tend to distinguish: they don’t mind company-level employee participation, but they wish the unions’ role in wage setting to be diminished to allow more pay flexibility. But you can’t have one with out the latter: the whole logic of integrative company-level employee participation relies on the separation between participation (by workplace employee representatives) and wage negotiation (by external, sector-level trade unions), so that the unavoidable conflicts of interest on the latter do not necessarily block the former. In other words, looking only at the alleged economic costs of coordinated wage setting misses its important social externalities in terms of trust and social peace. Unsurprisingly, the attacks to collective bargaining in Southern Europe are not improving competitiveness, they are causing instability.
Employee voice mechanisms have to adapt to evolving social settings. In a low-inflation regime, it is apparent that frequent pay campaigns are not the priority for many workers, because they simply don’t make a big difference anymore. Yet, with increasing inequality, a say on pay systems and on employment conditions is increasingly crucial to address the growing feelings of unfairness and insecurity. This is something that policy makers should value, as those feelings are undermining trust bot just with in workplaces, but in society at large. An example is attitudes to labour migration. An important reason why Norwegians and Swiss, despite much larger immigration inflows than in Britain, still overwhelmingly accept freedom of movement is that in those countries the employment conditions of migrant workers are under the control of, in particular, the ‘social partners’: when workers know that they have the right to raise, anonymously through their unions, concerns over social dumping, they are less scared. For business and for society, voice is better than flight.
