CWS 3.0: October 12, 2011 - Vol. 3.28

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Europe: Turning Point in Pay Moderation

The European Industrial Relations Observatory (EIRO) has just published its annual analysis of pay trends in Europe, and the findings are interesting.

Average collectively agreed nominal wage increases were lower in 2010 than in 2009 in almost all 13 countries that record data. However, the more significant fact was that collectively agreed pay did not compensate for inflation, a turning point in many countries.

Note: Almost half of the European Member States have databases that record collective agreements. These databases are run by official authorities, statistical offices or by private providers. Because collectively agreed pay is set at different levels in the various countries, and is recorded differently and analyzed within the databases, cross-country comparisons should be made with caution. More important is the comparison drawn within countries over time.

In 2010, pay increases ranged from just 1 percent in Belgium and the Netherlands up to 3.1 percent in the Czech Republic. Malta was the only country that experienced a larger increase in 2010 compared to 2009. Countries in a weaker condition because of the economic crisis did not necessarily moderate their wages compared with those in a stronger position. Thus, Portuguese and Spanish workers received higher pay increases than German workers in 2010. However, the generally modest settlements in 2010 do indicate that, in recognition of the difficult economic climate, unions have not pushed as hard during negotiations as in prior years.

Average nominal collectively agreed pay based on collective agreements, 2009 and 2010 
Country Percent Increase 2010 Percent Increase 2009
Belgium +1.0% +2.5%
Netherlands +1.0% +2.7%
Austria +1.6% +3.4%
UK +1.8% +2.4%
Germany +1.8% +2.6%
France +1.8% +1.9%
Spain +2.2% +2.2%
Slovakia +2.2% +5.5%
Sweden +2.4% +3.3%
Portugal +2.4% +2.9%
Malta +2.5% +1.8%
Czech Republic +3.1% +4.6%

 

Collectively Agreed Pay in Real TermsFor the EU as a whole, the inflation rate fell sharply from 3.7 percent in 2008 to 1 percent in 2009. The euro zone saw an even greater drop, from 3.3 percent to 0.3 percent. The effect of this steep fall in prices in 2009 was to increase the average collectively agreed real pay rise across the EU countries for which data are available. However, 2010 marks a turning point, as inflation increased to 2.1 percent and in many countries collectively agreed pay did not make up for price developments.

In real terms, pay actually decreased in three countries: Belgium, the UK and Austria. The largest increases in real terms were in the Eastern European markets of Slovakia and the Czech Republic.

Average collectively agreed pay based on collective agreements in real terms, 2009 and 2010
Country Percent Change 2010 Percent Change 2009
Belgium -1.3% +2.5%
Netherlands +0.1% +1.7%
Austria -0.1% +3.0%
UK -1.5% +0.2%
Germany +0.6% +2.4%
France +0.2% +0.7%
Spain +0.2% +2.5%
Slovakia +1.5% +4.6%
Sweden +0.5% +1.4%
Portugal +1.0% +3.8%
Malta +0.5% 0%
Czech Republic +1.9% +4.0%

EIRO also collects data on collectively agreed wage settlements within three sectors; metal, banking and local government.

  • Developments in sector-related collective bargaining in the metal sector are largely in line with reported national developments, with a general tendency of lower levels of agreed pay increases in 2010 compared with 2009, pay freezes or the abstention from collective bargaining.
  • The trends in collectively agreed pay increases in banking were somewhat more favorable for employees compared with the national level or the metal sector. In four countries, increases of collectively agreed pay rises were recorded between 2009 and 2010, and in a further four countries agreed pay increases in 2010 stabilized in comparison with the previous year.
  • The analysis of the reported agreements and other increases shows that the local government sector has been most severely hit by the economic crisis compared with the two other sectors looked at in the EIRO report. A rise in the rate of pay increases has not been reported in any of the countries for 2010.

In total, 20 EU Member States have minimum wages agreed at a national level. The national minimum wage usually applies to all employees, or at least to a large majority of employees in the country. The national minimum wage is enforced by law, often after consultation with the social partners, or directly by national intersectoral agreement (as is the case in Belgium and Greece). While the minimum wage in the majority of countries applies to employees of all ages (full adult rate), some countries have specific rates for younger workers. There are no national minimum wages in either Germany or Italy.

EIRO recorded that eight out of 20 countries recorded no increase in minimum wage in 2010. Five countries have had no increase for the past two years; the Czech Republic, Estonia, Ireland, Latvia and Lithuania. The largest increase in minimum wage in 2010 was recorded in Slovenia, with 22.9 percent growth, followed by Portugal, which recorded a 5.6 percent increase (for the second consecutive year).

Minimum Wage Increases, 2009 and 2010 
Country Percentage Change 2010 Percentage Change 2009
Belgium 2.0% 0%
Bulgaria 0% 9.1%
Czech Republic 0% 0%
Estonia 0% 0%
France 0.5% 1.3%
Greece 0% 5.0%
Hungary 2.9% 0%
Ireland 0% 0%
Latvia 0% 0%
Lithuania 0% 0%
Luxembourg 2.5%  2.0%, followed by 2.5%
Malta 3.97% 2.9%
Netherlands 0.64%, followed by 0.6% 1.81%, followed by 1.26%
Poland 3.2% 13.3%
Portugal 5.6% 5.6%
Romania 0% 11.1%
Slovakia 4.1% 14.0%
Slovenia 22.9% 1.4%
Spain 1.4% 4.0%
UK 2.24% 1.2%

Governments of the euro zone have agreed already in 2011 that there will be an emphasis on keeping costs in line with productivity. There are two ways of thinking about wage increases and how they may harm or benefit the economy. On the one hand, it can be argued that moderate wage developments (in line with or below the level of productivity increases) can foster competitiveness and help to promote an export-led recovery. On the other hand, improving the purchasing power of European workers ahead of price increases can encourage consumption and promote internal demand-led growth.

As the EU Member States continue to deal with the adverse effects of the economic crisis with a variety of measures, it is expected that these will continue to have an impact on wage-related collective bargaining in 2011 and beyond in many countries.

In some parts of Europe, the decentralized process of wage setting and the link between wages and productivity is an ongoing debate. In Finland, the employer organizations seek a further continuation of more decentralized bargaining at a company level. In Greece, derogation mechanisms from sectoral collective agreements have come into being. Reforms of wage bargaining systems are discussed heavily in Luxembourg, Ireland, Slovakia and Sweden. For the remainder of 2011, public servants in many EU Member States will likely experience further cuts in pay or moderation. This has already been reported to date for Denmark, the Czech Republic, Ireland, Italy, Romania and Latvia.

The latest EIRO pay developments report can be accessed in full here.

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