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European Coordination of Wage Policy – Different Concepts and Developments

European Coordination of Wage Policy – Different Concepts and Developments. Annual TURI Conference Athens, 14 May 2011. Thorsten Schulten. Content. Overview on wage developments in Europe Characteristics of the German wage policy

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European Coordination of Wage Policy – Different Concepts and Developments

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  1. European Coordination of Wage Policy – Different Concepts and Developments Annual TURI Conference Athens, 14 May 2011 Thorsten Schulten

  2. Content • Overview on wage developments in Europe • Characteristics of the German wage policy • Three approaches towards a European coordination of wage policy • The neoliberal approach • The standard Keynesian approach • The trade union approach • Outlook on the current debate Dr. Thorsten Schulten

  3. ECB harmonised indicator on competitivenesson the basis of unit labour costs (IV 1998 - I 2010, in %) 3 Dr. Thorsten Schulten Quelle: EZB

  4. Real compensation per employee 2000-2010, in % Source: AMECO 2011

  5. Differences between real compensation and labour productivity 2000-2010, in percentage points Source: AMECO 2011

  6. Characteristics of German Wage Policy during the last decade • Lowest wage increases in Europe/only country with a decrease in real wages • Strong increase in income inequality and extension of low pay • Continuous decline of the bargaining coverage • Forerunner in the decentralisation of cb both in it “organised” and “disorganised” forms • No wage floor in growing parts of the economy • Prototype of an export-led growth model with a relatively weak domestic demand Dr. Thorsten Schulten

  7. Clearly Germany has done an awfully good job in the last 10 years or so, improving competitiveness, putting very high pressure on its labour costs. When you look at unit labour costs to Germany, they have done a tremendous job in that respect. I’m not sure it is a sustainable model for the long term and for the whole of the [Euro-]group. Clearly we need better convergence." Financial Times, 15 March 2010 Critique of German Wage Policy Christine LagardeFrench Minister of Finance 7 Dr. Thorsten Schulten

  8. “The way how Germany has improved its competitiveness, I would not like to see for our country “ Germany is conducting “wage and social dumping.“ In Germany “there is anundesirable developmentof the whole economy and thecollective bargaining system“ Luxemburger Wort, 11 August 2010 Critique of German Wage Policy Jean-Claude JunckerPrimeminister of Luxembourgand Chef of the Euro-Groupe 8 Dr. Thorsten Schulten

  9. Critique of German Wage Policy Dr. Thorsten Schulten

  10. Germany the new Model for Europe? “Germany's success is due to three things. First, the moderation in unit labour costs: salaries and nominal wages have risen less quickly than the euro area average and productivity has risen. (…) A precondition for this was a high level of trustbetween social partners, which we would like to see in all of the euro area countries. Second, major structural reforms were concluded several years ago, in particular of the labour market, (…) Finally, German companies have been skilful in adjusting rapidly to globalisation The way in which Germany has kept a very close eye on production costs and implemented reforms to increase the flexibility of the economy can serve as an example to all of its neighbours.“ Jean Claude Trichet,Le Figaro, 03 09 2010 Dr. Thorsten Schulten

  11. Neoliberal approach Keynesian approach Trade Union approach Three approaches for a European coordination of wage policy 11 Dr. Thorsten Schulten

  12. Wages as the central adjustment variable for competitiveness German wage moderation as the model Wage freezes or wage cuts in deficit countries Nominal wages in line with productivity (no adjustment to inflation) at sectoral/company level Decentralisation of collective bargaining Deregulation of the labour market Neoliberal Approach toEuropean Wage Coordination 12 Dr. Thorsten Schulten

  13. European CouncilEuro Plus Pact Under the headline ‘Foster Competitiveness’ • Assessment of ‘wage and productivity developments’ and ‘competitiveness adjustment needs’ (…) • Monitoring of unit labour costs (ULC) … • Wage increases should not lead to an erosion of competitiveness and declining market shares for exports. Council Conclusion – 24/25 March 2011 Dr. Thorsten Schulten

  14. European CouncilEuro Plus Pact After the lip service ‘“respecting national traditions of social dialogue and industrial relations ’ • review the wage setting arrangements, and, where necessary, the degree of centralisation in the bargaining process, and the indexation mechanisms, while maintaining the autonomy of the social partners in the collective bargaining process; • ensure that wages settlements in the public sector support the competitiveness efforts in the private sector (bearing in mind the important signaling effect of public sector wages) (…) • labour market reforms to promote ‘flexicurity’ Dr. Thorsten Schulten Council Conclusion – 24/25 March 2011

  15. Wages as the central adjustment variable for price stability and domestic demand ‘Symmetric’ adjustment: Higher wage increases in the surplus countries Lower wages increases or freezes/cuts in deficit countries ‘Golden wage rule’: Wage increases in line with productivity and target inflation rate of the ECB Keynesian Approach toEuropean Wage Coordination 15 Dr. Thorsten Schulten

  16. Wages are not only a macroeconomic variable but the outcome of a distributive battlebetween capital and labour Limiting wage competitionStrengthening labour share Problems of the Keynesian approach: Acceptance of the current state of income distribution No orientation towards national inflation, but ECB target inflation Acceptance of current monetaristic regime Trade Union Approach toEuropean Wage Coordination 16 Dr. Thorsten Schulten

  17. What have unions done so far? Defining their own target(national inflation plus productivity as minimum) Setting up their own monitoring systems In practice: Only little influence on actual wage bargaining at national level. Trade Union Approach toEuropean Wage Coordination 17 Dr. Thorsten Schulten

  18. An alternative view on European wage policy: Turnaround of wage policy in the surplus countries with wages above the inflation plus productivity margin No wage cuts or freezes in the deficit countries, but increases in line with the inflation plus productivity margin Reversing the trend toward more income inequality: European minimum wage policy Strengthening the institutions of wage formation Trade Union Approach toEuropean Wage Coordination 18 Dr. Thorsten Schulten

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