CIVIL SOCIETY PLATFORM / / ПЛАТФОРМА ГРОМАДЯНСЬКОГО СУСПІЛЬСТВА УКРАЇНА-ЄС
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6th meeting, Brussels, 12 April 2018
Wage Formation in the Context of the European Social Model
Drafted by: Mr Andrzej Adamczyk, EESC member
Introductory remarks
The issue of social policy, partnership and social dialogue, including the question of wage formation, remains a central focus of attention for both employers and workers and of course the national public administration, particularly in the context of the transformation of the legislative system and its alignment with the Community acquis in the process of implementing the EU-Ukraine Association Agreement. This process has given rise to the hope that such an adjustment will not only help to improve the functioning of the social sphere and social partnership but will also automatically bring European solutions to a number of issues which have in the past posed a serious problem, including that of wage formation, thus in turn increasing the standard of living. This may happen, but all those who expect the technical implementation of the European social model to result in a rapid transformation will be disappointed. Any solution will require a strong Ukrainian intellectual input, taking account of local specificities and a joint effort by all partners to implement agreed solutions. The European Social Model can only provide a certain framework which needs to be fleshed out with local institutions, rules and practices; it will also require a huge amount of goodwill that transcends sectional interests, short-term advantage and efforts to achieve a dominant position.
The European social model
The European Union’s competences in the area of social policy and the labour market are limited by the Treaties and only include the areas set out therein. The general principle of proportionality also applies, meaning that the content and scope of EU measures cannot exceed what is necessary to achieve the objectives of the Treaties, as does the subsidiarity principle, which stipulates that in areas not falling within its exclusive competence, the EU shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the individual Member States and if they can be better achieved at EU level. This means that the development and implementation of social policy remains primarily the responsibility of Member States. The same principle will apply to Ukraine, which will, however, be required to comply with rules derived from European law, irrespective of whether they are based on the Treaties, directives, regulations or decisions of another kind.
The set of principles on social policy, the labour market, social dialogue and the labour code is often referred to as the “European social model” (ESM). However, as a large number of the competences in these areas remain at Member State level, there is often an academic discussion of whether or not there is one ESM or perhaps a set of 28 social models. This discussion relates to the controversy about whether the EU has sufficient powers in the social field or whether the transfer of further powers to Community level would strengthen the EU’s social dimension and the consistency of its policies. For the time being, this debate is of secondary importance to Ukraine. What is important, however, is to make it clear that the rules in the social acquis, i.e. the tools of the ESM, form the basis of what is expected from Ukraine as it implements the social dimension of the Association Agreement.
The social dimension of the EU is primarily based on the Treaties. The Treaty on European Union states that the single market is based on a social market economy, aiming at full employment and social progress. In addition, the Union combats social exclusion and discrimination, and promotes social justice and protection. The Treaty on the Functioning of the European Union also specifies that, when setting and implementing its policies, the EU shall aim to combat all forms of discrimination and shall take into account requirements linked to promoting a high level of employment, ensuring social protection and tackling social exclusion. Taking account of the differences between national systems, the Union recognises and supports the role of the social partners, respecting their autonomy. Furthermore, the Lisbon Treaty recognises the legal value of the Charter of Fundamental Rights of the European Union, which is binding and may be invoked before a court. It guarantees, among other things:
workers’ right to information and consultation within undertakings
the right to collective bargaining and the right to strike
the right to access placement services
protection in the event of unjustified dismissal
the right to fair and just working conditions
prohibition of child labour and protection of young people at work
a work-life balance
social security.
In addition, there is an entire legislative network consisting of directives which often serve to implement bilateral agreements between social partners, and other horizontal or sectoral level decisions. These go to make up the European social dimension and cover, inter alia, the following issues:
the protection of employees in the event of the insolvency of their employer
various occupational health and safety rules
prohibition of forced labour
rules on the posting of workers
protection of the right of employment in the event of a change of owner of the undertaking
special rights of workers in the event of collective redundancies
organisation of working time
teleworking
parental leave
employment by temporary employment agencies
fixed-term employment contracts
part-time work
rules on employee representation.
The Ukrainian context
Despite the shortcomings referred to above, the implementation of the Association Agreement between the European Union and Ukraine will have important implications not least in terms of adapting Ukrainian employment law and social policy to European standards. The text of the Association Agreement addresses the issue of core labour standards with a view to strengthening democratic principles, the rule of law, respect for human rights, fundamental freedoms and anti-discrimination measures. However, it does so in very general terms, as a contribution to a stronger national reform process. The jointly agreed association agenda is slightly more precise, referring to full respect for trade union rights and core labour standards based on International Labour Organization conventions, and to measures to promote effective use of collective bargaining. It also deals more specifically with cooperation between both sides in the field of social policy, specifying, inter alia, measures to boost administrative capacity in order to implement occupational health and safety rules as well as labour law, with an emphasis on labour inspection. It also stresses the need to develop a strategic approach to employment in order to ensure decent working conditions and transform the informal sector into formal employment and to promote anti-discrimination measures with a view to guaranteeing equal opportunities. Of key importance is the agenda’s focus on support for the development of social dialogue and measures to strengthen the social partners.
It is clear that the enactment of such a large number of laws will be costly and will take time. However, it is important even now, as Ukraine amends its laws and introduces new legislation, to take account of their compatibility with the fundamental spirit of the ESM, and thus to take into consideration norms such as the fundamental right of association, collective bargaining and collective action, and the right of workers to information and consultation. This calls for the strengthening of the social partners, measures to provide them with an appropriate platform for dialogue, respect for their independence and thus the possibility to develop wider public legitimacy for action. At the same time, the tripartite consultation system involving the social partners and the government should be reinforced.
Wage formation
In a market economy the institutions and mechanisms of wage formation are a combination of various regulatory tools, among which collective bargaining usually plays a key role. However, their scope, the level at which they take place, their dominance over other regulatory tools or, conversely, their subordination to other instruments vary considerably from country to country and as a result of decisions by the social partners sanctioned by the State as a result of constraints imposed by the economic, social and political sitation of the country.
Three main elements of the regulatory system shaping wages are market forces, State intervention and collective bargaining. The situation on the labour market has a crucial impact on wages, as in an open economy market forces will not be entirely subordinated to administrative decisions. Political, legislative or administrative regulations may play an important role. For example, a generally applicable minimum wage has an effect on overall wages and an automatic indexation mechanism (adjustment of wages to take account of inflation) has an impact on wage development.
Political decisions on interference in wage formation may hinder or promote the functioning of collective bargaining. Where generally applicable regulations play a direct and important role in wage formation by establishing legally binding minimum wages or indexation mechanisms, the scope of collective bargaining is of course limited, as negotiations are only meaningful if they can lead to the minima laid down by law being exceeded. Thus, the higher the minimum wage or level of indexation established by law, the less significant the role and importance of the social partners, especially trade unions, whose work has already been done by politicians. A similar role is played by legal mechanisms limiting wage increases, which mean that wage negotiations conducted successfully by trade unions cannot prevail against limitations imposed from above and resulting from legal barriers.
An interesting example of a legal restriction on wage growth was the tax on excessive remuneration levied in Poland in the early 1990s. Using a complex calculation mechanism it limited wage increases at company level by imposing draconian taxes on firms wishing to exceed the limits imposed. The objective of the tax was to reduce the high level of inflation, an objective it achieved. Despite fierce attacks, particularly from the trade unions, whose wage bargaining freedom was dramatically reduced, the tax remained in force for a year in private companies, two years in the public sector and more than four years in state-owned enterprises. The tax had a number of shortcomings and was manifestly in conflict with the liberal approach to the economy and the principle of non-intervention in market mechanisms, but it did its job as an economic stabiliser. In addition to reducing inflation, the tax prevented the failure of a great many companies that were forced to resist the temptation to pay excessive wages.
Collective bargaining can also be promoted by law by providing for specific protection, making it impossible for one of the parties to boycott the negotiations, by establishing mediation procedures, or government-sponsored tripartite negotiations for certain issues, e.g. the minimum wage, or by introducing the possibility of enlarging the scope of collective agreements beyond the signatory organisations, then making them universally applicable.
Generally speaking, all the legal guarantees and provisions affecting wage formation and limiting wage growth deprive the social partners of their negotiation capacity. Therefore, in many EU countries (e.g. in the Nordic countries) the social partners are categorically opposed to such guarantees and regard as fully valid only arrangements arrived at by collective bargaining. The question therefore remains as to why more and more countries, under pressure from trade unions, are introducing such guarantees, for example in the form of a general, cross-sectoral minimum wage. One answer is that trade unions, which are losing members and thus impact, are increasingly willing to rely on policy instruments. However, the most common reasons for introducing a minimum wage are the increasingly smooth operation of the European single market in economic terms, the fragmentation of the European labour market and separate national social policies. And when account is taken of the controversial judgements by the European Court of Justice on posted workers, this mixture leads to the primacy of economic freedoms over social rights, which is exploited for social dumping. Setting up certain safeguards such as the introduction of a general minimum wage makes it possible to provisionally reduce the pressure of social dumping, e.g. by making it impossible to pay posted workers less than the minimum wage. If, however, the current European legislative procedure for the revision of the Posting of Workers Directive succeeds, resulting in the introduction of the principle: equal pay for equal work in the same place, guarantees in the form of a minimum wage will become superfluous and the situation may be reversed, with greater emphasis on negotiated wage formation and the role of the social partners.
Evolution of social partnership and wage formation in the CEECs
Although almost three decades have passed since the start of the political transformation of these central and eastern European countries, which since 2014 have also been Member States of the European Union, their wage formation systems have certain characteristic features, some practices having been retained from the previous system and some resulting from the choice of a social partnership model specific to the region. That specificity is due to the relative weakness of trade unions and the declining degree of unionisation, the lack of established employers’ organisations and a general unwillingness on the part of employers to organise, the absence of practices and traditions of bilateral sectoral collective bargaining and the much lesser prevalence of employment contracts governed by collective agreements (due in part to the lack of a developed mechanism for extending agreements to include businesses which did not take part in the negotiations). In addition, a strong formal tripartite consultation system, promoted by the International Labour Organization, has developed in these countries, which to a large extent has replaced classic sectoral bilateral negotiations. Moreover, in the tripartite consultation system governments often have a de facto dominant position, which naturally redirects decision-making processes towards legal mechanisms at the expense of negotiating practices. As a result, the collective labour agreements concluded are mostly decentralised at company rather than sectoral level.
Employee representation at company level
The relative decentralisation of collective bargaining negotiations and their transfer to company level occurs to a greater or lesser extent in many EU countries. As a result, employee representative bodies at company level assume greater importance. They exist in various forms in all EU countries, although their structure, institutional competence, powers, responsibilities and strength depend on the legal framework established for them in the individual countries. This diversity reflects the diversity of systems of collective labour relations in the EU. The degree of involvement of such representative bodies in wage bargaining can also vary considerably.
The situation where the employee representative body is convened by a trade union is relatively transparent, as there is no question of a division of labour and competences with other employee bodies. However, the adoption of the Directive on employee information and consultation has, on the one hand, considerably strengthened employee rights, but on the other hand led to dual employee representation at company level. This does not change the fact that the representation of employees under the Directive may simply be through different structural forms of trade union, but even where a totally independent additional body (works council) is convened, it is generally associated formally or informally with trade unions, where they operate. The operation of works councils is of particular importance in businesses where there are no trade unions, but it must be stressed that, despite the great diversity of their competences in the individual countries, they do not play a significant role in wage formation - the right to conduct collective bargaining is reserved for trade unions through social dialogue.
Conclusions
It is not expected that the implementation of the EU-Ukraine Association Agreement and the approximation of Ukrainian law to the acquis communautaire will impose a specific system of social dialogue, wage formation, industrial relations or social policy in general. Under the Treaties, these are areas that fall under the competence of individual Member States and not the EU. The European social model, the related EU directives, and ILO standards which are independent of the EU, are defined by a certain framework.
What is most important is the strengthening of social dialogue, respect for the autonomy of the social partners and the joint development of a system of industrial relations and wage formation adapted to the situation in Ukraine and its efforts to implement the Association Agreement and ensure social justice leading to the stability needed for the political transformation process which the country is undergoing.
Gdańsk, 6 March 2018Andrzej Adamczyk
EESC-2018-01250-00-00-TCD-TRA (PL) 1/6