Collective Bargaining and Harmonious Social Economy

1. Collective Bargaining and Harmonious Social Economy Chang-Hee Lee Senior Specialist on Industrial Relations and Social Dialogue ILO ACFTU/ILO Workshop on Collective Bargaining and Wage Negotiation August 2006, Yinchuan, Ningxia

2. PART 1: LABOUR RELATIONS AND HARMONIOUS SOCIETY IN A MARKET ECONOMY

3. Industrial relations in a market economy • Move towards what kind of market economy? • Industrial relations influence on the relations between market and its stakeholders, and therefore define nature of a market economy (next slide). • What kind of society does ACFTU with more than 100 million members want to build for the future of China? • Sound IR system is a key to ensuring a harmony between economic efficiency and social justice, leading to social harmony.

4. Union Density and Collective Bargaining Coverage (2001)

5. Union Members in China • “Where there is a worker, there should be a union” • Campaign for union membership has contributed to increase of union membership since 1999 • Recent breakthrough of union organizing in Wal Mart!

6. Industrial Relations and Social Policy Challenges in a Market Economy • Labor is not a commodity: a fundamental principle of IR and ILO • Can we leave wage determination to the market alone? • Workers who possess labor power needs to support not only his/her living but also their family’s living as well. Workers are a source of productivity and progress. • Under individual contracts alone, workers are too weak to get equal contract with employers, because workers are desperate to find jobs • Birth of trade union in 19th century and gradual spread of collective bargaining in 20th century. “Take wage out of competition” was a goal of trade unions. Collective IR emerged… • IR is one of major social policy areas to reconcile social justice/equity and economic efficiency in a market economy since 19th century…

7. Importance of autonomous industrial relations • Pure market forces (in the absence of collective representation) • Competition based upon sub-standard working conditions, undercutting living standards • Social legitimacy eroded, social stability undermined • Government regulation: • Government tends to lack information required for wage determination in a market economy • By its nature, government regulation tends to be rigid and uniform, unable to consider specific conditions of enterprise and business sectors • Collective bargaining: • Workers (represented usually by trade unions) and employers negotiate working conditions including wages • Considering specific business conditions of the enterprise: unreasonably high wage will lead to loss of competitiveness, damaging workers as well; too low wage will lead to high turn-over of workers. • Bound to find an equilibrium suitable both for workers and employers • But bad relations between two parties may lead to sub-optimal solution

8. PART 2 RECENT DEVELOPMENT OF INDUSTRIAL RELATIONS IN CHINA

9. Past achievements and future challenges in China • Opening of the economy in late 1970s; rural reform in 1980s; urban reform in 1980s and 1990s including SOE restructuring; accession to WTO; highest economic growth of largest country in the world combined with successful records of poverty reduction. • At the same time, widening gap between the rich and poor, and urban and rural areas. • Explosion of various forms of labour disputes and growing concern on social stability. • Great and urgent need for balanced development and social harmony. • IR institutions intersects society and economy, reconcile social equity and economic efficiency. • Building sound IR is a key condition to harmonious society.

10. Major Industrial Relations Development • Established tripartite consultative committees at all levels • Union membership campaign • And recent breakthrough of union organizing at Wal Mart branches • Promotion of collective bargaining • Promotion of wage negotiation

11. Tripartite consultation mechanisms • National tripartite consultation committee set up in 2001 • All provinces and most municipalities completed TCC establishment, and moving down to district level • Instrumental in spreading collective bargaining and coordinating IR • Issues: • Employers’ representation • Scope of agenda for consultation: IR or broader social and labor policy issues • Feedback from constituents at enterprise level

12. Spread of Collective Agreements • Since adoption of the Labor Law in 1995, collective bargaining has been rapidly introduced • Tripartite consultation mechanism further accelerated spread of collective agreements • Experiments of industrial/territorial agreements underway

13. Wage negotiation • Wage negotiation has been actively promoted since early 2000s. More than 30 million workers are covered by wage agreements. • By its nature wage negotiation involves negotiation over new interests and new conditions of work instead of legal minimum. • Until recently, wage negotiation used to deal only with total wage bill of enterprises without negotiation of further distribution of wage bills among different groups of workers. • Wage negotiation creates an incentive for workers to actively participate in union activities and collective bargaining and therefore provides a momentum for unions to become more accountable and representative to their members.

14. Labour Disputes • Both individual and collective disputes are on rapid rise (three times higher than GDP growth rate) • Spread of CA does not help to reduce the number of disputes

15. Quantity achieved. Need to improve quality of collective agreements Need to improve process of collective bargaining Need to improve representational structure of trade unions at the workplace Internal coordination among different categories of workers/members within trade union is as important as labour-management relations Need to find a solution to break the deadlock in collective bargaining Challenges 1: Improving quality and process of collective bargaining

16. Challenges 2 Wage negotiations • Policy consideration on relationship between local minimum wages, municipal wage guidelines, negotiated wages at sectoral (district) and enterprise level. • Also, more active participation in local MW setting and municipal wage guideline formulation is important.

17. Challenges 3: protecting migrant workers and reversing the trend of widening income gap • Developing a strategy to organize migrant workers and representing them effectively through democratic process of collective bargaining • Developing a union strategies, including wage negotiation and social protection strategies, to reverse the trend of widening income gap

18. Part 3: Three Models of Collective Bargaining Note: This part was prepared for a workshop for Vietnam General Confederation of Labour in early 2006.

19. Model 1: Purely enterprise bargaining • Practices in many East Asian countries (Japan, most sectors in Korea, China?, Thailand, the Philippines etc). Vietnamese labour law and practices appear to be based on this model. • Advantage: flexibility and adaptability for setting enterprise specific working conditions suitable for workers and management in the enterprises concerned • Disadvantage: disparity between companies • Disadvantages in Vietnamese context: enterprises trade unions are too weak to negotiate with their employers at the workplace.

20. Model 2: enterprise bargaining, assisted by professional negotiators of trade unions (and if agreeable, employers’ organizations) at higher level • Practices in USA, some sectors in Malaysia, a few sectors in Korea. • Same advantage as pure enterprise bargaining model • Disparity between companies may be less, as trade unions (and employers’ organizations) at higher level (usually at industry/regional level) may have desire to produce more or less similar bargaining outcome across the companies in the sector concerned. • Advantages in Vietnamese context: trade unions at higher level are independent from the management of specific companies, while enterprise union leaders are close to the management rather than workers. • Still, there is a need to establish strong and direct link between trade unions at enterprise and higher level, and rank-and-file members, through prior consultation before entering into CB and approval of tentative agreements by union members.

21. Model 3: industry bargaining between trade unions and employers’ organizations at industry level • Practices in most continental European countries (Germany, Italy, France, Belgium, Sweden etc), two sectors in Korea, port workers in Japan, some sectors in USA • Advantages: better solidarity among workers, less bargaining costs, enterprises are relatively free from hassle of negotiation and therefore conflicts. • Disadvantages: less flexibility and adaptability for each enterprise • Trend: decentralization more towards enterprise bargaining (globalization) • In Vietnamese context, it runs the same danger of disconnection between trade unions at higher level and their members at the enterprise level. Without democratic linkage between unions and employers organizations at higher level, and their members at enterprise level, this system may not function.

22. Model 2 can be a stepping stone for a transition towards model 3. It may be also conceivable that model 2 may gradually strengthen the capacity of enterprise unions to negotiate with their employers at the enterprise level. Questions Any relevance for China? What is current situation in China? Share your experiences of industrial or district bargaining What is your view about three models? Note and Questions

23. Part 4: Wage negotiation in a broader IR context: wage negotiation, minimum wage policy and tripartite consultation

24. Union strategy on wage negotiation and income distribution in a market economy • Union as balancer in a market economy • Trade unions are a crucial social actor and institution in a market economy, ensuring social cohesion and harmony, representing voices of workers’ legitimate desire for decent work as a human being, against and within the force of a market. • Union’s strategy on wage negotiation and income distribution has a critical importance in ensuring decent work and harmonious society. • Specific model of a market economy is to be shaped not only by ‘market force’ but also by interaction between various economic and social actors – particularly unions.

25. Contradiction is a driving force of progress of history. And history is not straightforward.

26. External factors Inflation Economic growth in the locality Demand & supply of labour Interest rates Local wage guideline issued by government Internal factors Enterprise profits Productivity Labour costs Balance sheet of the enterprises Debt/Asset ratio Wage level of other companies in the same sector and region Factors for Wage Increase:ACFTU Collective Consultation Text Book (1996)

27. Government GDP growth Inflation Labor market situation Interest rates Employer Profit Productivity Balance sheet Labor costs etc Union at regional level Survey of average working family’s expenditure for decent living Inflation Labour market and economic situation of the locality Enterprise union Ask its members how much they need and want! Fair sharing of profits as workers are main contributors to the profit Productivity Different Priority Factors When Each Party Decide Their Bargaining Policy

28. Unions do not need to internalize all factors which are main concerns of other parties in the beginning of the negotiation process. • In any case, other parties will bring those factors in the consultation and negotiation, and therefore final outcome will be produced based upon consideration of all factors.

29. Before annual wage negotiation, nation centres of trade unions announce its demand. Their demands are formulated in the form of standard living costs for standard workers family, through a union survey. While also considering GDP and productivity growth, they place importance on the concept of living wages for standard working family. Employers’ organizations (Korean Employers’ Federation and Japan Business Federation) formulate their response based upon GDP growth, competitiveness, profitability of industries. The proposals by both unions and collective employers at national level set the parameter for negotiators at lower level. Lower level negotiators will consider the guideline set by higher level social partners, but not necessarily bound by them. Case of Korea and Japan

30. Singapore: National Wage Council Wage guidelines From a non-binding recommendation on wage increase rate until mi 1980s To a recommendation on flexible wage model Ireland: wage negotiation in a broader economic policy From decentralized enterprise bargaining on wage To centralized social dialogue on income policies (tax, income, training, wages and HR innovation) Other models

31. From simple living wage concept to combination of different factors • As a staring point, the concept of living wage is important for trade unions • Composition of wages: • Invariable and variable components of wages • Or basic wages and other benefits • What to be negotiated at enterprise, sectoral/regional and national level? • Direct wage and social wage components • What to be negotiated at enterprise, sectoral/regional and national level? • As unions get mature and get involved in various policy formulation, other factors come into play more and more important role

32. Wage negotiation At enterprise level At higher levels (sectoral and/or district) Minimum wage Wage guidelines at municipal level Tripartite consultation system What are ideal relations between different IR processes regarding wage determination? What are the policies and approaches of ACFTU? What are respective roles of each process? What are the implications of these processes for harmonious society? Wage negotiation in a broader IR context

33. Ideally, MW instrument designed to protect the most at-risk workers as a social protection measure. Social purpose of MW: to prevent labour exploitation and avoid poverty; i.e., the minimum wage should provide sufficient purchasing power to enable a worker to have a basic standard of living. However, no single formula for MW policy Closely related with other factors such as collective bargaining, income policy and social protection measures. Minimum wage : Policy Goals

34. Labor shortage and its impact on minimum wage adjustments in major cities • This suggests that wage negotiation does not function properly • This indicates that local MW is close to actual wages for unskilled workers. • Rigidity • Low wage- low productivity trap • MW is not ideal tool for actual wage determination, economically and socially…

35. What is the policy of municipal trade unions regarding the relations between MW and wage negotiation? Ratio of MW to average wage Idea of living wages for standard workers’ family How do municipal trade unions participate in MW determination process? What is – should be - the role of municipal wage guideline in the context of local MW and enterprise bargaining? Wage negotiation and MW process

36. Government fixes MW No obligation to consult social partners: Lao Following direct consultation with W&E: China, NZ, Czech, Russia Following advice or recommendation of specialized body: Cambodia, Thailand, Japan, Ireland, UK etc Specialized body sets MW Australia, Korea, Turkey, Poland etc Collective bargaining and other procedures Austria, Germany, Greece, Belgium etc Consultation with and participation of social partners 2

37. According to ILO survey, most frequently cited criteria for MW fixing are Inflation/cost of living General economic condition Wage levels Workers’ need Productivity Employment rate Different ways of applying the criteria In some countries, strict Inflation automatically linked MW adjustment in some countries In others, loose Consideration of general economic condition leaves plenty of scope for interpretation Minimum Wage : Criteria for adjustment

38. Questions: Municipal unions’ participation in MW determination and municipal wage guideline • You are the leaders of municipal union federation. Your city has recently experienced labour shortage and workers are not happy with current wage levels. • How do you see respective roles of enterprise wage negotiation, municipal wage guideline and MW? • What would you do regarding MW determination and formulation of municipal wage guideline?