Download Schulten Athens May 2011

European Coordination of
Wage Policy –
Different Concepts and Developments
Thorsten Schulten
Annual TURI Conference
Athens, 14 May 2011
www.wsi.de
Content
1. Overview on wage developments in Europe
2. Characteristics of the German wage policy
3. Three approaches towards a European
coordination of wage policy

The neoliberal approach

The standard Keynesian approach

The trade union approach
4. Outlook on the current debate
2
Dr. Thorsten Schulten
14 05 2011
ECB harmonised indicator on
competitiveness
on the basis of unit labour costs
(IV 1998 - I 2010, in %)
DE
13,7
AT
5,8
FR
-3,2
BE
-3,2
FI
-3,3
NL
-5,4
GR
-9,1
IT
ES
-11,2
IR
-11,3
-15,0
3
-9,4
-10,0
Dr. Thorsten Schulten
-5,0
0,0
5,0
10,0
Quelle: EZB
15,0
14 05 2011
Ireland
25.4
Finland
19.1
17.2
Denmark
Greece
16.0
Sweden
14.7
Netherlands
14.1
United Kingdom
14.0
10.4
France
Portugal
9.4
Luxembourg
8.3
7.5
Spain
EU 15
7.1
Austria
6.3
Italy
5.7
Belgium
5.4
Germany
Real compensation
per employee
2000-2010, in %
Source: AMECO 2011
-2.6
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Denmark
12.0
Luxembourg
8.7
8.0
Ireland
Finland
7.1
Italy
6.0
United Kingdom
5.3
France
4.2
2.4
Netherlands
Greece
0.7
Portugal
0.7
EU 15
-0.1
Belgium
-0.1
Sweden
-1.5
Spain
-3.5
Austria
-3.9
Differences between
real compensation
and labour
productivity 2000-2010,
in percentage points
Source: AMECO 2011
-8.0
Germany
-10.0
-5.0
0.0
5.0
10.0
15.0
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
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Dr. Thorsten Schulten
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Critique of
German Wage Policy
Christine Lagarde
French Minister
of Finance
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
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Dr. Thorsten Schulten
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Critique of
German Wage Policy
“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 an undesirable
development of the whole
economy and the collective
bargaining system“
Jean-Claude Juncker
Primeminister of
Luxembourg
and Chef of the
Euro-Groupe
Luxemburger Wort, 11 August 2010
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Dr. Thorsten Schulten
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Critique of
German Wage Policy
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Dr. Thorsten Schulten
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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 trust
between 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
Jean Claude Trichet,
Le Figaro, 03 09 2010
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.“
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Three approaches for a
European coordination
of wage policy
 Neoliberal approach
 Keynesian approach
 Trade Union approach
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Neoliberal Approach to
European Wage Coordination
 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
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European Council
Euro 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
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Dr. Thorsten Schulten
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European Council
Euro Plus Pact
After the lip service ‘“respecting national traditions
of social dialogue and industrial relations ’
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
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
14 05 2011
Keynesian Approach to
European Wage Coordination
 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
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Dr. Thorsten Schulten
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Trade Union Approach to
European Wage Coordination
 Wages are not only a macroeconomic variable
but the outcome of a distributive battle
between capital and labour
 Limiting wage competition
Strengthening labour share
 Problems of the Keynesian approach:
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
Acceptance of the current state of
income distribution

No orientation towards national inflation, but
ECB target inflation

Acceptance of current monetaristic regime
Dr. Thorsten Schulten
14 05 2011
Trade Union Approach to
European Wage Coordination
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.
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Trade Union Approach to
European Wage Coordination
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
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