The Demise of Social Partnership, Or a Balanced Recovery? the Crisis and Collective Bargaining

The Demise of Social Partnership, or a Balanced Recovery? The Crisis and Collective Bargaining in Slovakia

Marta Kahancová[1]

Abstract

This paper analyzes the crisis effects on processes, outcomes and institutions of collective bargaining in national and sectoral negotiations in the Slovak Republic.It argues that the crisis did not alter the long-term trend of gradual demise of social partnership and trade union marginalization at the national level. At the sector level in the metal and healthcare sectors – two highly organized sectors from the public and private domains of the Slovak economy – the crisis helped consolidating bargaining institutions, but did not produce an improved trade union position through bargaining outcomes. Consolidation has been reached through differing procedural changes to bargaining in each sector: intensified bargaining due to social partners’ common interest in anti-crisis employment measures (in metal); and associational strength of trade unions and employers’ organizations despite escalating post-crisis wage conflicts (in healthcare). Sector-level bargaining thus contributed to a balanced recovery from the crisismore than national-level social dialogue.

Introduction

In the past 20 years, Central and Eastern European (CEE) countries underwent major economic, political and societal changes. In Slovakia, the inflow of foreign investments brought economic and employment growth. Some large foreign employers helped stabilizing the Slovak bargaining system. However, the 2008 outburst of the crisis put the established bargaining system under pressure because of diverging interests of employers (employment flexibility), trade unions (employment security) and the government (employment stability). The aim of this paper is to analyze how the crisis affected collective bargainingprocesses, substantive outcomes and institutions at national and sectoral levels.

The focus on national and sectoral levels is substantiated because of contested tripartism and simultaneously persistent sector-level bargaining in key economic sectors. Bohle and Greskovits (2012) argued that Slovakia underwent a gradual labour exclusion from national-level policymaking. Other authors characterized this trend across CEE as ‘illusory corporatism’ because the formal existence of tripartite bodies failed to produce policymaking with systematic trade union involvement (Avdagic 2005, Mailand and Due 2004, Ost 2000, ICTWSS database 2011, Stein 2002). However, empirical evidence from sector-level studies documents that Slovakia has a reasonably established bargaining coordination and decent sector-level organization of employers (Czíria 2007 and 2010, EC 2013).[2] Sector-level bargaining is widespread in the public sector, including public healthcare, and in some crucial private sectors, e.g., the metal industry. The aim of this paper is to reconcile these contrasting literatures and explore whether bargaining institutions, procedures and outcomes evolve in a path-dependent way, or whether the crisis interrupted the gradual demise of national-level social partnership while maintaining sector-level bargaining coordination.

The sectoral analysis focuses on two key sectors – metal and healthcare – representing the private and public domains of the Slovak economy. The metal sector, especially the automotive industry, is strategically important for Slovakia’s economy and employment. With 106 automobiles per 1000 residents, in 2007 Slovakia became the world’s largest per capita producer of motor vehicles.[3] Due to extensive integration into international markets, the sector is highly exposed to global economic downturns. In contrast, public healthcare has not been affected by crisis through market exposure, but through austerity and long-term reforms, creating divergent interests among healthcare employers and therefore a threat to coordinated bargaining. Despite variation across these sectors in their crisis exposure, they share a high rate of unionization and established sectoral bargaining coordination. It is therefore interesting to explore how the crisis influenced bargaining procedures, outcomes and institutions across these sectors.

Recent evidence suggests that social partnership in Slovakia played an important role in reaching a ‘balanced recovery’ through mediating and overcoming the crisis effects (Czíria 2012). In result, the crisis did not have a major impact on Slovak industrial relations (ibid.).However, this paper argues that crisis effects on bargaining are more complex and vary not only across national and sectoral levels but especially across bargaining institutions, procedures and outcomes.

At the national level, dependence on political support only brought temporary improvements in bargaining outcomes for trade unions (i.e., flat extensions of collective agreements, co-determination in company-level anti-crisis measures and involvement in Labour Code amendments such as the definition of dependent work). While confirming the outcomes-based weakening inclusion of labour in policymaking, formal tripartite institutions remained stable. Bargaining procedures underwent a temporary improvement with the introduction of the Council for Economic Crisis, which was however abolished only a few months later.

At the sectorlevel, the crisis did not undermine coordinated bargaining but contributed to its consolidation in both scrutinized sectors. Instead of accelerated decentralization, bargaining institutions remained stable during the crisis but stability has been reached differently in each sector. In metal, social partners shared an interest in adopting anti-crisis employment measures and therefore remained committed to bargaining coordination instead of opting out of sectoral deals. In healthcare, social partners lacked such common interest but bargaining remained stable because of associational strength of unions and employer organizations. In result, the main changes to bargaining procedures in metal included bargaining intensification, while in healthcare bargaining procedures continued via third party mediationafter social partner disputes. From an outcomes perspective, trade unions were involved in adopting sector-specific anti-crisis measures especially in the metal sector. Although unions favour these outcomes, they benefit employers more than unions. In sum, the crisis fuelled changes to sector-level bargaining procedures that helped consolidating bargaining institutions, but did not produce an improved trade union position through bargaining outcomes.

The paper’s findings draw on in-depth interviews and written communication with social partnersin 2009-2012 within the FP7 project GUSTO and the EC-sponsored project BARSORI. The author conducted 19 interviews on recent changes to contents and procedures of sectoral collective bargaining and national social dialogue.[4]Additional evidence originates from a written questionnaire response of KOZ SR’s vice president on trade union action regarding precarious work, national/local media, statistical information, the ICTWSS database[5] and Czíria (2012) providing original evidence from a 2008 survey on social partners’ views on legislative changes to collective bargaining.

The Slovak industrial relations

Since the late 1990s, the Slovak economy underwent a wide-ranging reform path to reach macroeconomic stability and employment growth. Economic growth peaked with a 10.5% real GDP growth in 2007.[6] Real wages increased in average by 3.8% in 2007-2008.[7]This economic success was accompanied by radical welfare state restructuring that was left without major opposition from the public or trade unions. Several reasons can explain the lack of resistance: first, Slovak citizens aimed at ‘catching up’ with their neighbours and were willing to tolerate austerity (Bohle and Greskovits 2012: 247). Second, the contested position of Slovak tripartism and individual responses of dissatisfied citizens yielded emigration, exit from political participation and the rise of populism (Meardi 2011). The third reason is bargaining decentralization and a declining trade union density (see Figure 1). Since the late 1990s, the established hierarchy of social partners and bargaining institutions accounted for a continuing sectoral bargaining in relevant sectors without regular pattern setting and with weak involvement of peak-level social partners.[8]As company bargaining gradually strengthened, enforceability of sector/industry agreements weakened and bargaining coverage has been systematically declining from 51% in 2000 to 40% in 2009 (see Figure 1). The reason is a declining net trade union density (from 67,29% in 1993 to 17,7% in 2008), low organization of employers (net employer density reaching 29.2% in 2008), and a limited use of legal extension mechanisms to increase bargaining coverage.[9] Bargaining procedures and coverage vary across sectors, with some sectors being more widely covered by sectoral or multi-employer collective agreements (e.g., metal and healthcare), and some sectors with predominant company/establishment-level bargaining (e.g., agriculture). Wages, employment security and working conditions are the most important bargaining subjects (Czíria 2012).

Figure 1: Union density and bargaining coverage trends*

* Union density rate = net union membership as a proportion of wage and salary earners in employment

Bargaining coverage = employees covered by wage bargaining agreements as a proportion of all wage and salary earners in

employment with the right to bargaining, adjusted according to Traxler (1994)

Source: ICTWSS.

The crisis

The crisis interrupted the positive economic developments in Slovakia: after the 10.5% growth in 2007, real GDP growth only reached 5.8% in 2008 and plummeted at -4.8% in 2009 before recovering at 4.5% in 2010.[10]Given the strong (automotive) industry orientation of the Slovak economy, the main crisis effects concentrated at production and labour markets. Industrial production declined by29% and the production of motor vehicles in particular by almost 20% between 2008 and 2009 before fully recovering in 2010.[11]

Such decline reinforced employer restructuring with consequences for employment and collective bargaining.First, employers adjusted through dismissals (external flexibility) that reverted the pre-2008 trend of declining unemployment. Unemployment grewfrom 9.5% (2008) to 14.4% (2010) (see Figure 2). Although reported collective dismissals increased in 2008 and 2009 (see Table 1), firms preferred piecemeal dismissals to mass dismissals.[12]

Figure 2: Unemployment rate in Slovakia

Source: Slovak Statistical Office (ŠÚ SR).

Table 1: Collective dismissals in 2007–2010

Source: Central Office of Labour, Social Affairs and Family (ÚPSVaR), Czíria (2012).

Second, employers opted forworking time and work reorganization (internal flexibility).Although the crisis stimulated legal changes to increase hiring/firing flexibility, large companies preferred core workforce training to dismissals (Czíria 2012). Temporary agency work dropped from 55,377 (2008) to 37,074 (2009) employees and continued to further decline.[13]The share of part-time employment on total employment also declined.Third, the crisis slowed down thewage growth: thereal wage growth reached3.3% in 2008, dropped to 1.4% in 2009 and slightly recovered at 2.2% in 2010.[14]

Policy response to the crisis focused on stabilizing employment and stimulating consumption. The 2007 pre-crisis Labour Code amendment introduced the definition of dependent work and limits to prolongation of fixed-term contracts. The government adopted over 60 anti-crisis policy measures including state allowances to employers avoiding dismissals and temporary opt-out clauses from obligatory social security contributions (Czíria 2009a). The most important policy measures include temporary flexible working time accounts (flexikonto) and short-time work (STW), both used predominantly in the car industry after 2009 (Czíria 2012). Flexikontohas been introduced at the company-level at Volkswagen Slovakia before it became subject of sector-level bargaining and the 2009 Labour Code amendment. The implementation of flexikonto is subject to agreement with trade unions. STW schemesaimed at avoiding dismissals through shortening the working day or week.

The crisis and national-level collective bargaining

The pro-labour government (2006-2010), which introduced the above anti-crisis measures, also fostered the involvement of social partners in policymaking. Anti-crisis measures were subject to tripartite consultations within the Economic and Social Council (Hospodárska asociálnarada,HSR). Social partners were also involved in the Council for Economic Crisis, a new advisory body to the government (Czíria 2010). Through an openly declared cooperation with the leading political party Smer, trade unions benefitted from several gains, including their co-determination right on flexikonto, the introduction of horizontal extensions to sectoral collective agreements, and Labour Code amendments such as the definition of dependent employment.

The crisis therefore initially seemed to strengthened tripartite social dialogue in procedural terms. However, the Council for Economic Crisis was abolished already in late 2009 and formal tripartite procedures resembled the pre-crisis situation. In outcomes,tripartism’s role remained formal and trade union gains were temporary, politically dependent and responsive to government action. Since the government was also under the influence of business lobby, the above union attitude gradually paved the way for more bargaining power for employers. After the 2010 government change trade unions lost political support and thus their main resource in national-level social dialogue. The new government abolished the ergaomnes extension mechanism and introduced higher thresholds for trade union representation at the company level.

In sum, while the crisis brought temporary gains to trade unions in terms of outcomes of tripartite negotiations, these gains did not translate into a procedural and institutional strengthening of tripartism. Therefore, we support Bohle and Greskovits (2012) in arguing that labour is facing a gradual marginalizationfrom national-level policymaking. An external shock like the economic crisis failed to revert this long-term trend.

The crisis and sector-level collective bargaining

Czíria (2012: 23-24) argued that sector-level bargaining procedures remained unchanged during the crisis, but the crisis worsened the relations between social partners, with wage setting being the most common reason for conflicts. Compared to other CEE countries, Slovakia underwent the highest relative reductions in post-crisis increases of collectively agreed base wages. The 5.5% increase in 2009 dropped to 2.2% in 2010.[15] Table 2 reports the average nominal wage increases (in company-level agreements) in selected sectors. In metal, the largest drop occurred immediately in 2009 because of a flexible production response to world markets. In healthcare, post-crisis austerity measures postponed the greatest drop in collective wage increases until 2010.

Table 2 Average collectively agreed nominal wage increases in %

Source: Information System of Working Conditions (Informačnýsystém opracovnýchpodmienkach, ISPP) in Czíria (2012: 25).

* including metallurgy, ** including the energy sector, *** including municipal services.

While these are important findings, our analysis of metal and healthcare sectors reveals changes to bargaining proceduresin each sector. In metal, the crisis fuelled employers’ preferences for individual solutions and simultaneously encouraged bargaining coordination about feasible anti-crisis measures. In result, social partners’ incentives to coordinated bargaining restored sector-level bargaining. In healthcare, escalating wage disputes led to greateruse of conflict settlement mechanisms in bargaining. Despite these differences, in both sector we find path-dependent stability in established bargaining institutions.

In bargaining outcomes, Czíria (2012: 24-25) reports wage moderation, work organization changes including less temporary/agency workers, redundancy pay, conflict settlement and application of flexikonto and STW. The number of multi-employer and single-employer agreements only slightly decreased during 2008 – 2010.[16]However, our analysis again highlights contrasts between sectors. In metal, social partners’ commitment to sectoral bargaining coordination produced a consensus on adopted anti-crisis measures. Although the outcome favours employers more than unions, unions welcome the continuity in concluding sector-level collective agreements. In healthcare, social partners were unable to reach consensus and bargaining outcomes were settled through third party involvement. These findings derive from original empirical evidence discussed below.

Metal sector bargaining

In 2008-2009, industrial production declined by 16% because of declining export performance.[17]Besides steel and electronics, the highly export-oriented manufacturing/car production is the strongest division of the metal sector and has been mostcrisis affected. Its 20% share in industrial production (2008) dropped slightly in 2009.[18]Remarkably car producers did not announce significant dismissals and prioritized other anti-crisis measures, e.g. flexikonto and no temporary agency work or fixed-term contracts.[19]

The sector is well organized in a single sector-level trade union OZ KOVO and several employers’ associations that bargain with OZ KOVO individually. The main long-term challenge of the sector is bargaining decentralization, fuelled by mergers/splits among employers’ associations, legal changes and the state’ weak role in giving employers incentives to bargaining coordination.Mergers/splits however also had re-centralising effects on the car industry. ZAP SR split from other associations and commissioned the Federation of Mechanical Engineering (Zväzstrojárskehopriemyslu, ZSP) to bargain for the whole mechanical engineering subsector.

Despite the long-termbargaining decentralization trend, the crisis did not accelerate decentralization and undermine sector-level bargaining institutions. However, the crisis brought changes to bargaining procedures. Because of employers’ support to revoke horizontal extensions and introduce stricter union representativeness criteria, OZ KOVO’s attitude to employers’ associations worsened during the crisis (Czíria 2012).Overcoming union dissatisfaction and employers’ incentives to opt out from sectoral bargaining and adopt tailor-made anti-crisis measures, social partners found a common stance tonegotiate anti-crisis measures.Their common stance relates mainly to employment stability of skilled workforce. Some employers aimed at preserving skilled labour and offered more generous conditions to skilled employees temporarily in flexikonto or STW arrangements. Others increased pressures onto regular employees to involuntarily accept STW. Finally, some employers opted for dismissals of bogus self-employed and agency workers. With OZ KOVObeing open to tailored employer preferences, the conclusion of annual or bi-annual collective agreements continued without interruption.

Bargaining outcomes refer to the adoption of anti-crisis provisions in all relevant subsectors: mechanical engineering, electronics, and steel. In mechanical engineering, social partners signed an amendment to the 2008-2009 collective agreement stipulating STW, lockouts with 60% wage compensation, and flexikonto. In the 2010-2011 agreement, social partners reinforced their anti-crisis strategy and included additional stipulations on joint support to legal changes aiming at lowering non-productive employer costs.[20] While earlier collective agreements did not include provisions on temporary employment, the 2010-2011 agreement stipulates that temporary contracts should not be prolonged and (bogus) self-employment should be minimized. Upon OZ KOVOinitiative, similar provisions were agreed in electronics’ and steel industry’s 2010-2011 collective agreements.[21]