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Wages and European Economic Governance State of play A ugust 2012

Wages and European Economic Governance State of play A ugust 2012. IndustriALL Collective Bargaining Summer School , Palermo rjanssen@etuc.org. A monster with many heads. I. EU policy semester , starts with AGS, ends with specific country recommendations …

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Wages and European Economic Governance State of play A ugust 2012

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  1. Wages and EuropeanEconomicGovernanceState of playAugust 2012 IndustriALL Collective BargainingSummerSchool, Palermo rjanssen@etuc.org

  2. A monsterwithmanyheads I. EU policysemester, startswith AGS, endswithspecific country recommendations… II. First year of the new Excessive ImbalancesProcedure: Country reports III. Troikafinancial ‘bail outs’ and the ECB policy of (promising) to buysovereigndebt if labour markets and wages are made more flexible IV. Commission employment package: Wage Monitoring Group V. IMF and ILO involvingthemselvesthroughgeneral reports and recommendations: G-20 process Manyheads, one single message (with few exceptions): Downwardswageflexibility

  3. I. EU 2020 Country recommendations on wages • Commission proposalfrom the 30th of May • 17 out of 27 MS getrecommendation • General line: Put downwards pressure on wages and bargaining • Wage indexation ,everywherewhereitstillexists (BE, CY,LU,MT plus SP), isbeingquestioned • ‘Magicalformulae’: Alignwageswithproductivity • Macro dimension to influence generaldynamics of wages ( opt out clauses for BE; continue withwagemoderation for FI; improvewage setting atsectorlevel in IT; continue with labour marketreform for SP;) • Micro dimension: More wagedifferentiation to takedifferences in workerproductivityinto account (SW: encourage wageflexibility, notablyat the lower end of the wagescale) • Even minimum wagesfeel the heat (France, Slovenia,Hungary: anydevelopment in MW to support jobs and competitiveness/’contain the increase of the MW) • Troika countries mentioned (RO,PT,IRL,GR). • Exception is Germany, but verycarefulwording (‘create the conditions for wages to grow in line withproductivity’)

  4. EU 2020 Country recommendations on wages • Commission proposaliswhatitsaysitis : a proposal to be (dis)approvedby the EU Council • Remarkable: EU July Council conclusions • Swedishrecommendation on wageflexibility: Scrapped ! • Recommendation on Italy: Not to ‘continue’ but ‘monitor’ labour marketreforms

  5. II. Country reports from Macro EconomicImbalancesProcedure • New procedure • Startswithgeneral Commission report, based on a scoreboard of indicators • Thoseindicatorstargetwages and are biasedtowardsdetectingupward (neverdownward) wagedynamics • Batch of countries picked out (‘in possible danger of imbalance’) • Followed by in depth country reports • Additional country recommendations • Declaration of a country being in ‘excessive imbalance’… • …in latter case sanctions

  6. II. Macro EconomicImbalances: First year • Of the 11 countries under investigation, no single country declared as experiencing an imbalancethatis ‘excessive’ • We do have 11 in depth country reports, withrecommendations

  7. After the scoreboard: A breef look at the ‘in-depth country reviews » • France, Italy, Spain, Finland • Whatis the ‘logic’/ the Commission thinkingbehind ? • How doesthis relate to the standard criticism of ‘symmetricaladjustment’ ? • No graphs!

  8. Common structure • Strongemphasis on current account deficits, highindebtedness (both public as privatesectordebt), competitiveness, wages. • Underlyingthinking: Unsustainableexternaldeficitslead to unsustainable (and external) debt positions • Nextstep: Link high and risingexternaldeficitswithdeterioratingcompetitiveness (However, also a rather good analysis of massive capital flows and Spanishhousing/debt boom) • Ultimatestep: Explaincompetitivenessthroughwages

  9. Whatwagecomparisons ? • France: Rise in nominal ULC’scomparedwithGerman ULC development (1,9% versus 0,5%) • Italy: Increase in nominal ULC’scomparedwith Euro Area average ULC increase (2,3% versus 1,6%) • Spain: High growth of wageswellabove the increase in productivity, ULC wellabove the EA average • Finland: Real wageincrease plus inflation offset by productivityincrease in mostyears, but not in 2008/2009 crisis (ULC mostlybelow EA average: not mentioned). Excess of 2008/2009 to becorrected

  10. Resulting in the wellknownrecommendations • Limit minimum wageincrease in France • Internalise lowproductivity in Italian national/sectoralbargaining • Rapid and vastdownwardswageadjustment in Spain throughimplementation of decentral and opening clauses/end indexation • Finland: Continue withmoderatewage agreement to repair the 2008/2009 wagecostexcess

  11. Surprising: Analyis of non pricecompetitivenessfactors • Germany increasing export shares in world trade, thanksto foreigndemand ,non pricecompetiteveness. Price competitivenessonly a veryminorrole • France:’ non pricecompetitivensslosses have been the main factor behindpoor export performance ’ • Spain: Maintainedits export share in world trade (second best export performer after Germany). Thanks to specialisation in markets and regionsthat are experiencingdynamicdemandgrowth; 1% annual export growthlossbecause of ‘wagecompetitiveness factor ’. Only 1% of firms account for 66% of exports and these are highly productive companieswithlower ULC dynamics: Scale of Spanishcompaniestoosmall (insufficinet to overcomefixedcostswhenseeking to export) • Finland: Demise of Nokia. Finland’s position as innovation leader in the EU isatrisk • Italy: product mix similar to emergingeconomiesinstead of complementingit but Italy’strade has moved up the qualityladder. Firms are toosmall to export (if same size as Germany, 37% more exports)

  12. A second surprise: It’swages all over again • Germany: Wage stagnation not somuchtranslatedintopricecompetitiveness but also in higher profit margins. • Commission claims higher profits explainhigher R and D, innovation, non pricecompetitiveness of Germany • « Innovation capacity of French privatesectorimpaired by a prolongeddearth of investment’. ‘Insofar (!) as itallowscompanies to build non pricecompetitiveadvantages, an improvement of theircostcompetitivenesswould have a long term impact »

  13. Implication: Wageasymmetryis not such a bad but even a desirablething • In the Commission view, if all of us go for wagecost stagnation…. • … the resultis not deflation… • … but increasing profit margins…. • …whichthencanbeused to upgrade/innovate the economy • This is the argument weneed to adress

  14. III. Troika bail outs and ECB dominance • Troika Bail Outs: Direct intervention in wages, seeupcoming ILO publication/seminar • ECB: A ‘WageDeregulator of First Resort’ in return for the ‘Lender of limitedresort’?

  15. IV. Commission’sEmployment package • « Wage setting mechnaims to ensure real wagegrowthreflectsproductivitydevelopments, local labour markets and competitive positions » • « Althoughwagemoderationmightbenecessary for some, targetedwageincreasesmightbefeasiblewherewages have laggedbehindproductivity » • « Setting minimum wagesatappropriatelevels, wagefloors to besufficientlyadaptable and differentiated to uphold labour demand »

  16. Commission’sEmployment package • Proposal for a « Tri partite wage monitoring group » • State of affairs: • DG Employmentwillundertake « long termanalysis » , involving EU social partners. • Meanwhile, wagerecommendationsfromEuropeanpolicysemesterwill continue • ‘Light’ consultation ahead of AGS, technical meeting between Commission (DG V only?) and social partners (October?)

  17. V. Forging the Washington-Brussels/Frankfurt/Geneva Concensus ? • Joint IMF- ILO report to G20 Los Cabos: • « Maintainingpurchasing power of minimum wagesataround 30 to 40% of medianwagessustainsdemand and reducespoverty and inequalities » • « Statutorywagefloorssystematically set abovethatlevelentails the riskthatthesebenefitswouldbe more than offset by lost job opportunities, especially for the young and lowskilledworkers » • Caveat: Undoubtedly good work in manyotherworkfrom the ILO

  18. The problemfor Europe (West and East !) • Thosewho have a statutory minimum wage, all of them are above the 40% thershold… • …startingfrom 45% (Poland) to 55-60% (France)…. • …Exception: CzechRepublic

  19. Is ithaving an impact ? YES!

  20. Is ithaving an impact ? YES!

  21. Is ithaving an impact ? YES!

  22. Is ithaving an impact ? YES!

  23. To end :Parliamantary question on recommendation on Belgianwage indexation (‘move to all in indexation’) • Is theresufficientlegal basis? (art 121) • Should Commission recommendations respect the provision that national practices and institutions on wages are to berespected ? • Is the recommendation on Belgian’s indexation system enforceable ?

  24. Replyfrom the Commissioner • Legal basis of suchrecommendationsis correct and compatible with Social chapter of Treaty and Charter of FundamentalRights • Yes, theyshould and they do since country recommendationsexplicitly state the reformshouldbetaken in consultation with social partners and in accordance with national practices • Enforceableunderregulation excessive imbalances and regulations on excessive deficits

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