The Minimum Wage System and Changing Industrial Relations in the UK

Transcription

1 The Minimum Wage System and Changing Industrial Relations in the UK Damian Grimshaw, Claire Shepherd and Jill Rubery September EXECUTIVE SUMMARY Eleven years since the introduction of the UK s first statutory national minimum wage (NMW), most commentators regard it as having made a positive contribution to pay equity both to raising the position of the lowest paid workers and to narrowing the gender pay gap. It is also associated with the fostering of improved social dialogue in the arena of wage-setting, largely as a result of the perceived effectiveness of the independent, tripartite organisation, the Low Pay Commission. Today, all major trade unions and most mainstream employer bodies support the NMW and accept that it provides much needed protection in a labour market characterised by weak and patchy collective bargaining coverage. The aim of this report is to provide further critical insight into these two issues pay equity and social dialogue in order to highlight the issues for policy and practice in the context of continuing developments in the operation of the NMW. We know very little about how employers and trade unions adapt their pay bargaining strategies in response to the NMW. For example, is there a consensus among social partners that the lowest paid in their particular sector or organisation ought to be paid higher than the adult NMW? How do unions sell the idea of improving the position of the lowest paid to their members if it means a compression of differentials with more skilled and experienced members? Where an individual employer is willing to sustain a gap between their bottom rate of pay and the statutory wage floor, is this possible in the absence of a broader industry-wide agreement? And what strategies do unions (and possibly employers) develop in order to address pay equity in the context of ongoing changes in the NMW? Developments in the NMW The Low Pay Commission has been very effective in drawing on commissioned research to recommend changes in the rules governing the administration of the NMW. Examples of rule changes include the introduction of new rates for year olds and for apprentices, as well as changes to what counts as pay in estimating the NMW, such as the exclusion of service charges and tips, for example. It also corrected an early overly cautious approach by explicitly recommending a rise in the level of the NMW that outpaced average earnings growth during There is significant evidence of a consensus approach and the fostering of genuine social dialogue within the Commission, although the current recession and recovery present a real test. The changing IR context Trends in the industrial relations context on the one hand provide increasing justification for statutory minimum wage protection in the UK but on the other hand tend to work against efforts to use the NMW to improve the position of the low paid. Four in five workers in the private sector are not covered by collective bargaining and there is a great deal of evidence of 1 Prepared for the EWERC research project Minimum wage systems and changing industrial relations in Europe VS/2009/0159 (EWERC, University of Manchester) for the European Commission, DG Employment, Social Affairs and Equal Opportunities.

2 vulnerability to exploitation in low paying sectors. Moreover, union density is systematically low among all low paid groups - men, women, full-timers and part-timers. A key problem is the limited use of extension mechanisms (compared with other European countries). At present, there is only one example, namely the extension of the National Health Service public sector pay agreement to private sector contractors. The impact on pay equity At first, the NMW had limited impact on pay equity. However, after 2001 our analysis of UK earnings data reveals significant progress in measures of the gender pay gap and the position of the lowest paid. These improvements coincide with a period of increases in the relative level of the NMW: o Women s average pay compared to men s in full-time employment increased from 74% to 78% during o Women in part-time work experienced the strongest gains, although from a lower level, with a rise from 58% to 64% of average male full-time pay o The bottom decile pay for all employees increased from 46% to 48% during , entirely the result of gains among female employees, especially in part-time jobs o The overall share of workers in low paid jobs, defined as earning less than two thirds of the median, has not changed, fluctuating around 21-22% since Research findings The report draws insights for pay equity and social dialogue from three case studies of company-level pay agreements in the business cleaning sector, security sector and retail sector. The analysis draws on pay information, documentation of pay agreements and 15 interviews with leading pay negotiators from trade unions and employers as well as senior representatives of trade bodies and small and medium sized firms. The key results of each case are as follows: 1. Business cleaning o Extension of a public sector pay agreement to private sector companies providing outsourced cleaning services supported by trade unions and several high performing global firms o A strongly focused low pay strategy of the trade union has improved the gap between the lowest rate of pay and the NMW o The union and employer are supportive of bottom-weighted pay deals, including lump sum payments and elimination of lowest pay points o A key obstacle to progress is the client organisation (in this case the individual National Health Service hospital trusts) since they can delay extension of the pay agreement 2. Security sector o There is some employer support for an industry-wide minimum wage in order to provide a defence against the intensive cost-cutting competition to win contracts o In the company case-study there is mixed success in sustaining and growing a gap between the lowest pay rate and the NMW o A client-led system of pay determination means that some clients favour upskilling and uprating of pay but many favour a low cost approach.

3 o The union has only had limited success in establishing a single company approach to pay across multiple clients despite a very strong and clearly focused low pay strategy o Improving union membership is a key foundation for the union s low pay strategy. 3. Retail o The union has enjoyed the support of the employer in achieving significant improvements in the pay of young workers o The adult wage gap between the lowest pay rate and the NMW has narrowed and the lowest rate lies considerably below the low pay threshold for all UK workers o The union s approach to low pay strategy mainly involves bottom-weighted pay deals such as elimination of bottom pay grades o The company has negotiated reductions in unsocial hours pay premiums and elimination of overtime pay enhancements. Issues for policy and practice The analysis of pay agreements sheds light not only on the interaction between NMW developments and the nature of social dialogue in low paying sectors, but also on some conundrums in pay equity trends. One notable issue is that while an overall rise in the NMW has improved the relative position of the lowest paid workers relative to the average worker, it has not changed the overall share of workers defined as low wage ; this has remained stubbornly high at just over 20% since Our analysis highlights several possible factors. Certain types of bottom-weighted pay deals that benefit only the very lowest paid over other workers may overly compress pay differentials at the bottom and fail to lift workers above the low pay threshold. Also, the declining coverage of collective bargaining works against the rising NMW by weakening an important institutional instrument for negotiating ripple effects further up the wage scale; most workers in the private sector are only protected by the statutory wage floor and many in low paying sectors therefore do not enjoy the kind of pay scales typically negotiated in jointly regulated pay agreements. Finally, low paying jobs in the business services sector, such as cleaning and security, rely very strongly on the willingness of client organisations to pay an appropriate price for the contracted services. The exceptional case of outsourced cleaning for the public health service demonstrates how an industry wage standard can work without upsetting competition. In other areas of the economy, the costcutting focus of client businesses frustrates employer (and union) efforts to improve pay and skills, holding back efforts to build upon the improvements in the NMW.

4 The Minimum Wage System and Changing Industrial Relations in Germany Gerhard Bosch and Claudia Weinkopf September EXECUTIVE SUMMARY Background Since the mid-1990s, wages in Germany have become widely dispersed, and the low-wage sector has grown considerably. This has affected both full-time and part-time employees (including workers with mini-jobs). It is not only specific groups of persons who are affected by low wages, such as young people or the low-skilled, but increasingly also the middle age groups and skilled workers. There have been marked increases in wage differences between large enterprises and smaller enterprises, and between the industries more and less bound by collective agreements. The reason for this is that the binding effect of the German system of collective agreements, which has always been vulnerable to outsider competition, has been further weakened by political interventions. To prevent further growth in the low-wage sector and fragmenting of the wage spectrum, a change of course has been considered in recent years most notably the introduction of minimum wages. New policies for minimum wages The introduction of a statutory national minimum wage, as in the other four countries involved in the study, has been rejected until now. In 2005, the former great coalition formulated a rather complicated compromise on minimum wages with two main routes for industry-specific minimum wages: o Collectively agreed minimum wages at industry level can be declared generally binding in response to an application by the two sides of industry; o A reform of the 1952 Law on minimum working conditions may be applied to industries without collective bargaining to enable the possibility of introducing minimum wages. Only the first route has been used until now in a handful of industries where social partners agreed upon collective agreements with minimum wages. There are pitfalls, however. Some of the newly agreed minimum wages are very low since employer friendly unions have signed a collective agreement with low rates. Also, in some low-wage industries there are no minimum rates due to delays in social partners reaching an agreement. Moreover, even where social partners have successfully negotiated industry minimum wage agreements, the process of implementation is difficult and time-consuming and social partners are confronted with various hostile political interventions from the current government, as well as from the federal employers association (BDA), to prevent minimum rates being declared as generally binding. Finally, the developing system of multiple minimum wages in different industries, combined with limited knowledge about actual pay rates, may generate problems with compliance and control in the future. Enforcement of a simple and well-known national standard is undoubtedly more straightforward. 2 Prepared for the EWERC research project Minimum wage systems and changing industrial relations in Europe VS/2009/0159 (EWERC, University of Manchester) for the European Commission, DG Employment, Social Affairs and Equal Opportunities.

5 but a bumpy road ahead Analysis of the obstacles to the implementation of industry-specific minimum wage rates in Germany in recent years demonstrates quite clearly that the path ahead can be assumed to be a rather bumpy road. The institutional mechanisms devised for the implementation of industryspecific minimum wages provide numerous intended and unintended possibilities for politics, employers, and competing unions to block their practical application. Minimum wages in Germany are thus very slow in their realisation and a patchwork of different minimum wages together with large unregulated zones of wage-setting without binding minimum standards will be the result in the short to medium-term. Minimum wage, pay bargaining and ripple effects in selected sectors The study presents the main features of interaction between developments in industry-specific minimum wages, pay structures and social dialogue in three selected sectors: cleaning, construction and the temporary work agency sector. The main findings are based on the relevant documentation (relevant legislation, collective agreements) and interviews with trade union and employers representatives. In those industries in which the social partners have agreed to introduce minimum wages collective bargaining has been strengthened. Minimum wages are negotiated as a part of the pay grid in the industries. Any increase in minimum wages will automatically push up the wages in the higher wage scales, at least in those companies covered by the collective agreements. The nature and extent of this ripple effect of the industry minimum wages depends, however, firstly on the compliance of companies to the collective agreements, secondly on the coverage by collective agreements, and thirdly on the skill structure in the industries. In practice it is difficult to separate out the impact of these three effects since we do not know in all industries whether workers are paid only the minimum wage because of their job content or because the company is not covered by the collective agreement on the wage grid or the workers are not correctly classified in a wage scale according to their job requirements and skills. The empirical data for the construction industry reveal strong evidence that compliance with the whole wage grid is high in western Germany but very low in eastern Germany where the minimum wage tends to be used as the going rate. Therefore, the ripple effect is high in western Germany mainly because of the high coverage by collective agreements and low in eastern Germany. This explains the different behaviour of the eastern and western German employer representatives in collective bargaining. Our interview partners report that the western German employers were mainly engaged in the negotiations of the pay levels in the wage grid while the eastern German employers were only interested in the levels of the minimum wages. In the cleaning industry most workers are paid only the minimum wage. This largely reflects the fact that most jobs tend to require a low level of qualifications. A similar situation would apply to the temporary work agency industry if minimum standards were implemented there as well. There is evidence from our empirical research that many skilled workers in the temporary work agency industry are incorrectly classified and paid wages for low skilled jobs. Conclusions o The size of the ripple effect of each industry-specific minimum wage on the wage grid varies between industries. It is strong in industries with a high coverage by collective agreements and a high share of skilled workers.

6 o Minimum wages have been introduced until now only in industries in which collective bargaining is already well established or has been developed in recent years. In the industries in which collective bargaining has been only recently developed because of the negotiations on a minimum wage the impact on the whole wage grid and collective bargaining might be expected to increase over time. o Those industries with weak and fragmented collective bargaining have not yet introduced minimum wages. In such industries, we would expect to find a standalone minimum wage without other collective agreements, which could be linked with the minimum standards.

7 The Minimum Wage System and Changing Industrial Relations in Hungary László Neumann September EXECUTIVE SUMMARY Background Hungary introduced a statutory minimum wage covering all workers in This means that the minimum wage is about as old as the rest of the institutions (unemployment benefit, Public Employment Service, severance pay, reforms in labour law etc.) created at the time of transition from state socialism to a market economy. The timing of the introduction of the minimum wage is also interesting because it took place at the same time as earlier central administrative restrictions on wages were gradually lifted and central wage setting was replaced by free wage bargaining. New institutions for national social dialogue, such as the tripartite National Interest Reconciliation Council (Országos Érdekegyeztető Tanács (OÉT)) were set up to moderate new wage-setting processes. Its most important function is to set the annual rate of the minimum wage through consensus among social partners and government. Transformations in the minimum wage system and social dialogue In the last two decades, Hungary has witnessed major developments in the minimum wage and associated processes of social dialogue. During the 1990s, the statutory minimum wage increased at a slow and steady rate roughly in proportion with the inflation rate. Then, in 2000 and 2001, the centre-right government in power at the time took the radical step of practically doubling the minimum wage referred to as the minimum wage shock. At the same time, it undermined the tripartite negotiation process by establishing a new unilateral government competence for setting the minimum wage. Then, in 2002, the socialist-liberal coalition took office and restored the tripartite procedure. However, in the Constitutional Court reviewed the entitlement of social partners to participate in preparing legislation, such as the minimum wage, and found it to be unconstitutional; co-determination rights and the consensus procedure within the OÉT have subsequently been formally repealed. A final development concerns the introduction of a separate minimum wage for skilled workers in 2006, which has established a two-tier minimum wage system. The level, and very existence, of the minimum wage has been a source of acrimonious disputes among social partners. Trade unions argue for a higher level that it should meet either the subsistence income level or the level recommended in the European Social Charter, 60% of average earnings. In recent years, unions campaigned successfully to introduce a separate national minimum wage for skilled workers, designed to offset the weak protection experienced by many skilled workers in companies that fall outside of collective bargaining coverage. For their part, employers argue for more limited increases in the statutory minimum wage and, during the recession, have proposed freezing the minimum wage in order to preserve jobs and economic competitiveness. A third partner in this debate is the mainstream economics profession, which has argued recently for the abolition of the minimum wage on the grounds that this would restore competitiveness, foster job creation and limit wage-push 3 Prepared for the EWERC research project Minimum wage systems and changing industrial relations in Europe VS/2009/0159 (EWERC, University of Manchester) for the European Commission, DG Employment, Social Affairs and Equal Opportunities.

8 inflation. The strong argument largely follows the experience of the minimum wage shock in 2000/01 which triggered a general wage increase, macroeconomic imbalances and austerity measures. And finally, the government has mixed views reflecting its competing roles in the economy. It shares employers concerns for competitiveness and inflation and has an interest in dampening minimum wage increases because it is linked to expenditures on several welfare transfers. However, it also argues for the need to use the minimum wage to curb the grey economy in light of evidence that employers report the minimum wage for their employees in order to minimise tax payments but in practice pay their employees a higher (undeclared) wage (so-called envelope wages ). Pay equity effects The minimum wage in Hungary is pitched at a relatively low level. Until the radical hikes in , the Kaitz index was just 29 percent (the minimum wage as a percentage of the total average gross pay). The level increased to 41 percent by 2002 but has since fallen sporadically and in 2009 registered 36 percent. The wage distribution for 2008 reveals a clear double spike, at double the minimum wage (reflecting the minimum social security contributions required) and at the level of the higher minimum rate for skilled workers. Certain workers are more likely to be in minimum wage jobs, including women, young workers, those with low education and those living in high unemployment regions. The minimum wage and social dialogue in three sectors This country report presents the main features of the interaction between the changing statutory minimum wage, collectively bargained wage structures and the nature of social dialogue in three selected sectors retail, construction and private security. In all three sectors there is a high proportion of small and medium-sized firms, union organisation is low, casual employment is prevalent and use of undeclared employment and envelope wages is common. The findings are based on documentation (relevant legislation, collective agreements) and interviews with trade union and employers representatives. Divergent experiences of sector agreements and wage protection o In construction, the successful negotiation of the sectoral collective agreement was largely due to government efforts to combat informal labour, which resulted in the immediate extension of the agreement. However, in 2009 the employers organisation refused to re-negotiate the agreement and in 2010 only agreed to adjust wages in line with the statutory minimum wage. o In the private security sector both the employer organisation and the trade union are relatively new and weak, and their legitimacy is questioned by rival organisations (notably the Chamber of Bodyguards, Property Protection and Private Detectives, which enjoys the benefits of mandatory membership). Although a sectoral collective agreement including wage tariffs was concluded, it was repealed before its extension. There are therefore many gaps in wage protection. o The retail sector is also weakly organised by trade unions, largely due to their limited presence among small enterprises. Since the main employer organisation in the sector has not been authorized by its members to conclude a sectoral collective agreement, nor a wage agreement, the union s sectoral wage policy rests on two pillars: on the one hand, to achieve and maintain the best possible legal conditions; and on the other hand to encourage the coordination of (and explicit support for) decentralized company level collective bargaining.

9 Public procurement drives cost-cutting o The construction and private security sectors both face a similar market environment: prices are pushed down as a consequence of strong cost-led competition in bidding for work through the public procurement practice o Private security companies are encouraged to bid for work at such a low price that they often can not cover the costs required to pay the minimum wage, nor the related social contributions. Segmented conditions and problems of wage protection within sectors o There is an extensive chain of sub-contractors in the construction and security sectors. The main contractors and large enterprises pay higher wages. Trade unions are only recognised at a minority of them. o In the security sector, many companies pay effective hourly wages below the minimum wage: for example, security guards regularly work stand-by duty, which allows for a monthly working time of 240 hours, but only earn wages for 176 hours. o Until recently, the Trade Act recognised those retail workers in contact with consumers (such as cash-till operators) to be skilled workers. Retail sector employees therefore doubly benefited from both the large hikes in the minimum wage in and the introduction of the minimum wage for skilled workers in However, a recent legal amendment eliminated this definition and legitimized employers earlier efforts to re-define such jobs as semi-skilled or unskilled.

10 The Minimum Wage System and Changing Industrial Relations in Spain Josep Banyuls, Ernest Cano and Empar Aguado September EXECUTIVE SUMMARY The minimum wage has traditionally played a marginal role in the Spanish labour market and in its model of industrial relations. Since its introduction it has been perceived more as a component of social policy and an instrument of macroeconomic policy than a form of labour market intervention. Also, for the social actors it has played a secondary role in their strategies of pay equity. However, the increases in the relative level of the minimum wage during have reopened the debate about its role in the labour market, particularly regarding its potentially negative effects on job creation. These recent developments also raise questions concerning the implications for social dialogue and collective bargaining and for trends in pay structures. This report aims to interrogate the inter-relationship between the current minimum wage system and the model of industrial relations in Spain. In particular, the analysis explores the implications for bargaining strategies of trade unions, employers and government, as well as trends in pay structures in low wage sectors. Minimum wage policy and pay trends A statutory minimum wage was first established in Spain in From the outset it was generally considered a tool for social policy and a range of social and welfare transfers were indexed to it. But in 2004 the government abolished the link with welfare payments and established a new policy goal to elevate the level of the minimum wage. As such, 2004 marks the beginning of a new phase. The newly elected social democratic government introduced a raft of policies in order to improve lowest incomes and increase social cohesion. These included a rise in non contributory pensions and the medium-term goal to raise the minimum wage to a level equivalent to 60 percent of the average wage, as recommended in the European Social Charter. The negative effects on welfare expenditures were minimised by the decision to introduce an alternative benchmark indicator for welfare transfers the Public Indicator of Multiple Effect Income (IPREM). Since 2004, the minimum wage has therefore functioned solely as a labour market intervention and its effects in the labour market are directly related with its level, coverage and enforcement. The effects of the recent hikes in the statutory minimum wage are apparent in the increasing value of the country s Kaitz index (the ratio of the minimum wage to average earnings). Data for the period from the Wage Structure survey suggest an increase from 31 percent to 39 percent. The intersection with the Spanish industrial relations model The model of industrial relations in Spain has a set of specific features that must be taken into account in order to better understand the possible effects of the minimum wage on collective 4 Prepared for the EWERC research project Minimum wage systems and changing industrial relations in Europe VS/2009/0159 (EWERC, University of Manchester) for the European Commission, DG Employment, Social Affairs and Equal Opportunities.

11 bargaining. One of the most significant aspects is its diversity. A highly fragmented bargaining structure generates a very high number of collective agreements. The agreements are structured according to multiple functions (the company or sector) and geographies (locality, province, autonomous region, multiple regions and national). As well as sector agreements there are also a large number of company level agreements. The articulation between the different levels of negotiation is complex and often weak and contradictory. In this context a diversity of pay and employment conditions prevail, even within the same sector of economic activity, owing to the multiplicity of fragmented and uncoordinated collective bargaining agreements. In this context a rising minimum wage could potentially make a positive contribution to wage equity by raising the wage floor, as well as narrowing the gender pay gap. The minimum wage, collective bargaining and pay levels in three sectors Analysis of three low-wage sectors - retail, hospitality and cleaning - suggests the rising minimum wage has not yet had significant effects either on the strategies and practices of social actors in wage bargaining or on the wage structures among the lowest paid. The development of wages in the sectors considered has to some extent followed an industryspecific dynamic, responsive to inflation trends and to customary practices already consolidated in processes of collective bargaining. Social actors do not appear to have adapted to the increases in the minimum wage during One explanation for this is that the minimum wage remains at a relatively low level when compared to the minimum rates negotiated in collective agreements. This is why the increases in the minimum wage in the three sectors studied do not appear to have generated ripple effects on low wages in these sectors. Moreover, our data suggest there has been no change in wage differentials among the different job categories in the wage grids. A second explanation is that unlike other countries, such as the UK for example, the Spanish government makes less extensive use of in-work wage subsidies for low-wage workers. As such, there are far stronger pressures on social actors to maintain pay at a level consistent with a basic living income level. The gap between the statutory minimum wage and the bottom rate of pay for cleaners, sales assistants and waiters in the Valencia region, for example, is in the range of approximately percent, significantly higher than that found in other countries in our comparative study. It seems, therefore, that the minimum wage is still a very weak policy lever for influencing pay equity and collective bargaining strategies. The factors that have greater consequences for wage setting and wage equity in these low wage sectors include, first, the nature of product market competition; in all three sectors firms face very intense price competition and this creates pressures for wage moderation and reduction. Two further inter-related factors are, on one hand, the lack of recognition of skills and, on the other, the fact that the sectors are female-dominated. The undervaluation both of women s skills and the jobs where women are concentrated seems to underpin the legitimation of low salaries. A final factor concerns the highly fragmented Spanish industrial relations model. There is diversity in collective bargaining between sectors, within sectors and throughout the territory. In this scenario, without coordination and without progress in social dialogue beyond bread and butter topics the possibilities to devise and activate interventions in alliance with a rising minimum wage to make a positive contribution to pay equity is very difficult.

12 The Minimum Wage System and Changing Industrial Relations in Croatia Danijel Nestić and Ivana Rašić Bakarić September EXECUTIVE SUMMARY In 2008, Croatia introduced a new Minimum Wage Act that transformed the previous system of minimum wage regulation based on an extended national collective agreement. The Act raised the level of the minimum wage, established a sub-minimum rate for labour-intensive sectors and introduced a specific formula for annual uprating. In addition, new statutory regulation was introduced in an effort to improve enforcement. However, implementation of the Act has not been straightforward. In particular, social partners have arrived at conflicting interpretations of the adjustment formula. The emphasis on a precise adjustment mechanism appears to have displaced mechanisms for consultation and social dialogue, fostering weak trust among social partners. In this context, this study seeks to investigate the wide-ranging implications of the new regulatory system of minimum wages on industrial relations, and vice versa. The study focuses on the particular developments in collective bargaining in three sectors - construction, clothing and retail. Data collection involved interviews with trade union and employers representatives, and with senior representatives of government bodies responsible for facilitating social partnership, as well as the collection of pay data in collective agreements. Minimum wage policy and pay trends The minimum wage in Croatia is defined as a single monthly rate that covers total remuneration for full-time work. The new 2008 Act includes a temporary derogation namely, a sub-minimum rate that applies for the textile, clothing, wood processing and leather industries. During the period the minimum wage was maintained at a similar relative level; the Kaitz index (the minimum wage as a ratio of the average wage for the economy) fluctuated around 33 percent. This changed with the new regulation in The relative level of the minimum wage was increased to approximately 36 percent in The number of minimum wage earners increased as a result, from an estimated 3 percent of total employment pre-2008 to 5 percent in the current regime. The incidence of minimum wage jobs is higher for women, the young, the low-educated and those with fixed-term contracts. Interactions with the industrial relations system The practice of collective bargaining is developing at a slow pace in spite of seemingly robust institutional arrangements. Tripartite social dialogue at the national level is effective and its influence on policy-making is notable. Bipartite social dialogue is much weaker, however. It takes place mostly at the company level and is very weak in small-sized companies. There are few sector-level agreements outside the public sector. For the economy as a whole, the proportion of workers whose pay is covered by collective bargaining is quite high - estimated at 60 percent, with 70 percent in the public sector and 40 percent in the private sector. Government extensions of sector-level agreements explain the high coverage. Trade union 5 Prepared for the EWERC research project Minimum wage systems and changing industrial relations in Europe VS/2009/0159 (EWERC, University of Manchester) for the European Commission, DG Employment, Social Affairs and Equal Opportunities.

13 density is estimated at just 34 percent (and only 17 percent in the private sector) and is declining. Weaknesses in the bargaining process result from a tradition of adversarial relations, on the one hand, and, on the other, a legal framework that reduces incentives for social partner activity at multiple levels. Particular issues arise in association with the widespread use of extension mechanisms (extending agreements to all employees in a company or to all firms in a sector) and the prolonged application of the key terms of the collective agreement after its expiry date. The minimum wage and social dialogue in three sectors This country report presents the main features of the interaction between the changing statutory minimum wage, collectively bargained wage structures and the nature of social dialogue in three selected sectors, construction, clothing and retail. The findings are based on documentation (relevant legislation, collective agreements) and interviews with trade union and employers representatives. Construction o There is a sector-level collective agreement that is regularly updated. It is extended with the support of both social partners and this appears to crowd out company level negotiations. o The sector-level collective agreement sets its lowest basic wage at the level of the statutory minimum wage. o The practice of enhancing the basic rate of pay with a range of pay supplements (seniority pay, supplements for difficult or dangerous work, etc.) increases the total wage by percent. o The incidence of minimum wage earners is very low, but has increased with the crisis. o There is a widespread practice of envelope payments in small construction companies. o Both trade union and employers representatives report significant job losses and wage cuts in the recession, although the terms and conditions of the sector collective agreement have been retained; employers report that wages have not been reduced below the level guaranteed by the agreement. Clothing industry o There is no sector-level collective agreement. o Social dialogue has developed relatively well, in part thanks to a common effort to lobby the government. o The trade union favours company level agreements as the best means to tailor pay and conditions to the specific situation and provide the highest level of worker protection. o The base wage in the case-study clothing company collective agreement is significantly below the statutory minimum wage almost 40 percent lower but workers also receive a pay supplement based on a performance coefficient and seniority. o The incidence of minimum wage earners in the case-study company is high, around 25 percent. Many of these workers meet the standard performance requirements but because the base wage is so low their total remuneration still falls below the minimum wage level and has to be topped up by the company. Retail sector

14 o Experience of social dialogue in the retail sector is mixed, with fruitful partnerships in some companies and avoidance of unions in others. o A sector level collective agreement was concluded in 1998, amended in 2005 and extended to all companies in the sector. There are a small number of company level agreements. o Union representatives claim there are problems of enforcement of the sector agreement, despite the relatively low level of protection it provides. Particular problems are associated with the practice of unpaid overtime working. o The lowest base wage for the simplest jobs provided by the sector collective agreement is more than 40 percent below the statutory minimum wage and the gap has widened in the last decade. As in the clothing sector, several wage supplements fill the gap, such as seniority enhancements, unsocial hours working, etc. o Number of employees receiving minimum wage is still rather low, at least as it comes to larger companies Discussion of key findings The regulatory and product market conditions in each sector are an important influence on the nature and quality of social dialogue at sector and company levels. In the construction and retail sectors, there is strong domestic competition among a small number of leading companies. Sector standards are established through the extended sector level agreement. Nevertheless, these collective agreements provide for only a limited improvement in pay and working conditions for the lowest paid compared to the statutory minimum wage. The reasons include employer mistrust of what is perceived as inflexible legislation and a tradition of adversarial industrial relations. One issue is the extent to which the currently strong emphasis on statutory pay and employment interventions narrows the space for improvements through the practice of collective bargaining. In the views of both trade union and employers representatives, however, the statutory minimum wage regulation does not undermine incentives for collective bargaining. A more pressing issue is the need to improve the enforcement of conditions set out in legal provisions and jointly regulated agreements. In the present crisis, workers and trade unions are ready to accept more flexible arrangements in order to retain jobs, and such trade-offs are at present being negotiated in company level agreements. The recession has reinforced the importance of the minimum wage, especially for the clothing industry. Employers argue that they face strong legal pressures to pay more for the simplest jobs but must compete against low-cost producers around the world. They argue for further government interventions, such as reducing social security contributions for minimum wage workers or introducing tax credits and in-work benefits.