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Social dialogue

Weakening collective bargaining hurts recovery

Some governments unilaterally reformed collective bargaining arrangements at the height of the economic crisis. Reversing those decisions and providing policy support for collective bargaining would be key to recovery, according to the ILO.

Analysis | 12 September 2012
GENEVA (ILO News) - Weakening or decentralizing collective bargaining arrangements– as some countries have done during the crisis – is likely to lead to more wage inequalities and social instability, the International Labour Organization (ILO) has warned.

Decentralizing the process and letting companies negotiate in the absence of strong national and sectoral agreements, puts downward pressure on wages and working conditions, says Susan Hayter, ILO’s senior industrial and employment relations specialist.

The sharp rise in wage inequality in the United States and the United Kingdom in recent years can be directly linked to the decline in union membership and the associated decline in coverage by collective bargaining agreements.

But when there is significant policy support for collective bargaining mechanisms, such as in Denmark, Finland, France, the Netherlands and Sweden, the gap between the highest and lowest wage earners is significantly lower. According to Hayter, the position of the ILO is clear: it is up to the parties themselves to decide at what level they wish to negotiate.

During the crisis, many employers, governments and trade unions recognized that collective bargaining was an effective tool to adjust to economic conditions and stay in business.

National and sectoral agreements provided a framework within which firms could tailor their response, thus reducing costs while at the same time preventing layoffs and protecting earnings.

As Hayter explains, examples are to be found in countries in Europe such as Austria, Germany and Belgium and elsewhere in countries such as South Africa, Brazil and Argentina.

Far from dragging businesses down and reducing productivity, there is considerable evidence that collective bargaining agreements actually reduce wage inequality and can contribute to productivity and competitiveness.

When changes in work organization are negotiated with workers and their representatives, improved company performance is often the result, says Hayter.

While wages and working time remain the primary issues for collective bargaining, the process is increasingly being used to address the specific concerns related to the global economic crisis. Pay is being linked to productivity, and flexible working time arrangements are being negotiated to balance work and family life.

And to respond to technological change and rising job insecurity, collective bargaining agendas now also include training and lifelong learning. That’s worked particularly well in Europe, where countries with strong social partners and strong institutional support for collective bargaining have had the most success in setting up frameworks for continuing vocational training, benefiting both enterprises and workers in times of continuing economic uncertainty.