PAY REFORMS IN LOCAL GOVERNMENT ROUND TABLE I Dominique Anxo

1. FINAL CONFERENCE PUBLIC SECTOR PAY AND PROCUREMENT 22-23 November 2012 BRUSSELS PAY REFORMS IN LOCAL GOVERNMENTROUND TABLE IDominique Anxo

2. STRUCTURE OF MY PRESENTATION • Succinct presentation of the various system of wage formation at the local level. Wide varieties of system • Focus on three dimensions: • Impact of the crisis on wage and employment • Pay reforms, (Long-term and more recent reforms 2005-) • Pay gap between private and public providers of tax financed services Dominique Anxo

3. PATTERNS OF UNILATERAL AND JOINT WAGE-SETTING IN LOCAL GOVERNMENT IN FIVE COUNTRIES Dominique Anxo

4. A CONTINUUM OF CENTRALISED AND DECENTRALISED PAY SYSTEMS Dominique Anxo

5. A CONTINUUM OF INTEGRATED AND FRAGMENTED PUBLIC SECTOR PAY SYSTEMS Dominique Anxo

6. IMPACT OF THE CRISIS ON WAGE AND EMPLOYMENT AT THE LOCAL LEVEL • Obviously dependent on the perceived or actual needs of fiscal consolidation • Sweden: No wage freeze or wage cuts. Wage moderation. Due to a countercyclical expansionary p macroeconomic policy the impact on employment in the public sector at the local level has been limited (Increase of sate grants). • France and Germany: Until very recently a majority of local authorities were not concerned with austerity measures in France (No job or wage cuts except the freezing of so Called index points in 2010-2012). In Germany due to budget constraints(structural deficit and increasing debt) staff cuts has been substantial at local level, concentration on non civil servants (non Beamte) Dominique Anxo

7. IMPACT OF THE CRISIS ON WAGE AND EMPLOYMENT AT THE LOCAL LEVEL • HUNGARY : Wage cuts and abolition of the 13th months. Job cuts have mainly affected white collar public service employees. • UK: The government imposed a two year pay freeze and announced a further 2 years of a 1 % cap on pay rises. Deep budget cuts (26% cut 2010-2015) unevenly distributed (largest cuts in deprived low-income areas) led to a rapid downsizing of the local government work force (decline of 7 %). • Evidence from case studies. Between 6 % and 30 % job cut. Reduction of unsocial hours premiums and/or overtime premiums. Two municipality used collective dismissal and re-engagement in order to change the employment contract with worse terms and conditions (abolished pay premiums for week end work and pay cuts). Dominique Anxo

8. PAY REFORMS IN THE PUBLIC SECTOR • SWEDEN • Like the private sector, clear tendency to decentralisation and individualisation/differentiation of wage setting in the public sector, since the second half of 1990s. • Abolition of pay-scale system based on seniority. Nowadays fully individualised performance based wage setting • Re-establishment the pace-setting role of the sector exposed to international competition, regarding wage development.

9. PAY REFORMS IN THE PUBLIC SECTOR, CONT.. • SWEDEN • But still some disparities in the extent of individualisation/differentiations between bargaining areas within the public sector. Low skill/low educated municipal workers (LO) less individualisation / differentiation of wage (resilience of solidaristic wage policy). • Modification of wage structure: Increase of wage dispersion , but up to now limited increase of wage inequality and by international standard. Mainly due to change in the skill composition, high skilled more prone to accept individualisation/differentiati0n. • Sweden: still a regime of negotiated flexibility and negotiated individualisation. Negotiated criteria for individualisation of wage.

10. DEVELOPMENT OF WAGE STRUCTURE (P90=/P10) BY SECTOR (MUNICIPALITIES, COUNTY COUNCILS (HEALTH SECTOR), CENTRAL GOV (STATE) AND PRIVATE) 1992-2008

11. PAY REFORMS IN THE PUBLIC SECTOR, CONT.. • FRANCE • On-going structural reforms concerns the introduction of a performance based individualisation of wage. But in contrast to Sweden strong opposition from many unions and public sector employees. • Centralised determined decline in the purchasing power of the ‘index point’ of the Wage Grid, in addition to the linking of the base minimum wage for the public services to the statutory national minimum wage (SMIC), has had several important consequences in particular at local level.

12. PAY REFORMS IN THE PUBLIC SECTOR, CONT.. • FRANCE • At the low pay level, it has induced a compression of wages among employees of different lengths of tenure (that is, a flattening of the age-earnings profile) • At the same time, however, the starting wage of many skilled occupations in public services has decreased notably in real terms, reducing the gap with the starting wage of people entering low skilled occupations. => Problem of attractiveness for these occupations. • Wage policy at the local level • Try to Compensate for the negative consequences of the flattening of age-earnings profiles and the limited possibilities of promotion for low skilled workers: fast track advancement for all employees, high levels of bonuses and premiums and new fringes benefits. • Some municipalities and other local governments also introduced high premiums and bonuses for specific high skilled occupations (such as engineers).

13. PAY REFORMS IN THE PUBLIC SECTOR, CONT.. • GERMANY • Industry wide bargaining is still common in the German public sector. However clear tendency to decentralization and fragmentation of collective bargaining. • The ‘turning point’ in public sector negotiation: New framework agreements, in 2005/2006. The former highly standardized national agreements which covered the whole public sector were replaced by a multitude of collective agreements. • These new agreements reflect a completely new model for the public sector and include the following key features: • A greater emphasis on performance rather than automatic seniority-related pay; •  the creation of a low-wage pay grade; • dual level collective agreements - one for the Länder (and one for the municipalities and the federal state

14. PAY REFORMS IN THE PUBLIC SECTOR, CONT.. • GERMANY • Performance-related pay, included in the new collective agreement primarily at the request of the employers, has been introduced very cautiously. • No increase in motivation and performance among employees because of the limited financial resources available for performance-related bonuses. • According to the case studies, risk of unmerited bonuses being paid ‘routinely’ exists. In many cases, the wage pot for performance-related bonuses is distributed evenly.

15. PAY REFORMS IN THE PUBLIC SECTOR CONT… UK • Unlike the private sector, the UK has retained a relatively centralised model of public sector pay. • At local level, many municipalities are reacting to austerity by paying the lowest paid more: • Why pay more at a time of major spending cuts and austerity? • Instead: i) politics of addressing local poverty, ii) economic reward for work intensification following job cuts, iii) managerial goal of reducing recruitment and retention costs

16. PAY GAP BETWEEN PRIVATE AND PUBLIC PROVIDERS OF TAX FINANCED SERVICES • Pay differentials might obviously impact on outsourcing decisions • SWEDEN: Minimal differences in average salary levels between public and private providers. If anything, pay is slightly higher among private companies. Pace setting role of public employer at the local level regarding wage determination and wage at entry. Flatter age-earnings profile ?. • FRANCE: Private sector companies are unlikely to pay lower and indeed may often pay higher wages than the public sector but they offer less in the way of seniority enhancements. Dominique Anxo

17. PAY GAP BETWEEN PRIVATE AND PUBLIC PROVIDERS OF TAX FINANCED SERVICES • GERMANY: In the case-study region for Germany, North Rhine Westphalia, a prevailing wage law has been passed in 2012 which may reduce incentives for outsourcing, along with other minimum wage rates such as that for industrial cleaning. • HUNGARY : In Hungary the low pay in municipalities reduces the role of cost factors in inducing outsourcing and externalisation. Dominique Anxo

18. PAY GAP BETWEEN PRIVATE AND PUBLIC PROVIDERS OF TAX FINANCED SERVICES • UK: In contrast in the UK both pay and pension provision differentials are large particularly for low skilled women’s jobs such as care work. • Except for the UK, pay differentials between private and public providers do not provide a core motivation for outsourcing/procurement. • Evidence from the case studies. The incidence of procurement and outsourcing more related to ideological/political lines than cost saving consideration. Also very few evidence of efficiency gains. Dominique Anxo

19. CONCLUSION • SOME ISSUES FOR THE PANEL • Role of national level pay determination • Scope for discretion in adjusting pay and other conditions at local or regional levels • Evidence of trade-offs between job cuts and pay reforms. • Replacement of seniority-related pay increments with performance pay (individualisation) • Labour market consequences of pay reforms (eg. recruitment and retention). Dominique Anxo