picture by CaGi
By Chiara Benassi
PhD Candidate at LSE, Department of Management
Since December 23, 2010, the FIAT plant at Mirafiori (Turin) is no longer covered by the national collective agreement. Instead, a special agreement was signed by two of the three metalworker trade unions, FIM-CISL and UILM, and then ratified by a referendum among the workers themselves. The third, biggest and most representative union, FIOM-CGIL, refused to sign and a clause of the agreement now excludes it from the representation in the plant[i].
Both the content of the agreement and the modalities for negotiation are highly disputable: under the threat of closing the plant, employees accepted toughened working conditions such as the introduction of 10-hour and night shifts, the reduction of break time and sick leaves and the restriction of strike rights.
This article will discuss the meaning and the implications of FIAT CEO Sergio Marchionne’s landmark industrial relations strategy marking the end of national collective bargaining. By doing so, it will draw a parallel between recent developments in industrial relations in Italy and Germany, so as to show the consequences of collective bargaining erosion on the basis of the evidence arising from the German case.
Germany and Italy: two systems of industrial relations at a crossroad?
Over the last fifteen years, Germany has experienced a fast decline of sectoral collective bargaining in favor of decentralization. Therefore, the German experience provides a good case to assess the impact of this new phenomenon.
Collective bargaining coverage among employees shrunk from 76% (Western Germany) and 63% (Eastern Germany) in 1998[ii] to 56% and 38% in 2009[iii]. Since the mid-1990s, plant-level agreements have proliferated as a result of the enactment of the so-called “opening clause”, authorizing the opt-outs of national agreement. Moreover, additional “pacts for employment and competitiveness” have been signed at the plants level, which also depart from the standards bargained at national level and reduce total compensation for workers.[iv]
In Italy, collective bargaining coverage is estimated around 80%. Since the 1990s, however, a progressive decentralization can be observed. In 1993 a tripartite agreement between the government, the employers’ organization Confindustria, and the three confederal unions (CGIL, CISL and UIL) formalized the company-level bargaining, introducing a new representative body for unions and workers and specifying the issues to be negotiated – such as pay enhancements related to company productivity and performance[v]. The agreement signed in 2009 between the government and the two national trade unions, CISL and UIL, allows the application of opening clauses in cases where the company is under restructuring or if employment creation and economic growth can thereby be promoted[vi].
In Germany (and in Italy as well) the membership in the employers’ organization is voluntary, which implies that the coverage of the collective agreements bargained between unions and employers’ organizations at sectoral level is also optional. Therefore, companies have progressively dropped it, exploiting the exit option from the national collective bargaining system[vii]. The opt-outs have been so frequent that since 2006 companies have been given the option to join the employers’ organization without being covered by the national collective agreement (Ohne Tarifbindung – Mitgliedschaft). This phenomenon recalls the recent events between FIAT and Confindustria (the Italian employers’ organization): following Sergio Marchionne’s announcement that FIAT was to leave Confindustria, President of Confindustria Emma Marcegaglia made public the call for a new role of the organization, which would only provide services and political representation to the members, thus leaving to companies the bargaining of wages and working conditions[viii].
The impact of bargaining decentralization on income in Germany
Germany has often been referred to as a positive model in the public debates and articles around the Mirafiori issue, and, quite interestingly, from both those who were pro and against the agreement. This is not surprising: Germany is at the moment the leading economy in Europe with a GDP growth of 2.2% in August 2010[ix]. The export-oriented metal sector is the driving force of German economy. Salaries are much higher for German metal workers than for their Italian colleagues, the former earning a gross monthly salary of around 1,900€ (second wage level)[x], whereas the latter earn 650€ less[xi]. Such success is also attributed to the flexibility of the German economic model, which the abovementioned decentralization of the last decade has contributed to.
However, the GDP growth rate alone does not tell the whole story about Germany. In the metal sector, salaries are high but that should not be attributed to the sole process of decentralization of bargaining and to the proliferation of company level agreements. Salaries are mainly set through national collective agreements, which are negotiated between the employers’ association and the powerful union IG-Metall and cover 65% of the sector (in 2007)[xii]. A few companies, such as the often-cited Volkswagen, pay over the sectoral collective agreement. Nonetheless, the company-level salaries do not result from a kind concession of the employer, but from the bargaining between the management and the works council, which has strong information and co-decisional rights (Mitbestimmung) set by law.
According to reports and academic analyses, decentralization of bargaining is generally associated with inequality and low pay[xiii] and Germany is no exception. Indeed, according to the OECD, “since 2000, income inequality and poverty have grown faster in Germany than in any other OECD country”[xiv], and the declining of sectoral collective bargaining is considered one of the main causes[xv]. The figures below illustrate the recent wage development in Germany and cast some shadows on the German “economic miracle”. Figure 1 shows that Germany is the only EU country where the real wage growth has been negative between 2000 and 2008. Figure 2 compares the size of the low-pay sector in different OECD countries in 2006, showing that Germany follows the US with the second largest low-wage sector (calculated as percentage of low-paid workers on the total workforce).
Source: http://www.boeckler.de/32015_92684.html
Source: Schulten 2010[xvi]
Lessons for Italy
If bargaining decentralization had controversial effects in Germany, this trend raises even more questions with regards to Italy, where the power of workers and unions is limited. Workers’ representation at company level in Italy is much weaker than in Germany, as the representation bodies (Rappresentanze Sindacali Unitarie-RSU) have less information and bargaining rights than German works councils. In addition to this, Italian unions are more fragmented than German unions and this could lead to downward competition between concurring company-level agreements. Therefore, bargaining decentralization could have even more serious effects on income distribution in Italy than in Germany.
As a matter of fact, Sergio Marchionne’s opting out is not likely to remain an exception and other companies will probably exit the national collective agreements. This scenario raises concerns not only, and not particularly, for the metal sector but for the wider economy. The metal sector would probably maintain decent pay levels and working conditions even with a lower coverage of the national collective agreements, given the relatively high unionization and the developed social dialogue. However, the same logic cannot be assumed for other sectors, such as the service sector, where union density is low and social dialogue structures are not in place.
In January 2011, Fincantieri withdrew from the national collective agreement in Genoa and Gorizia. Trying the difficult business of fortune telling, it can be plausibly argued that Fincantieri is only the first victim of the “Marchionne effect”.
[i] Il Post (27.12.2010). “Che Cosa C’ E’ nell’Accordo di Mirafiori.” Retrieved 25.02.2011, from http://www.ilpost.it/2010/12/27/spiegazione-accordo-fiat-mirafiori/.
[ii] EIRO (2010). “Germany. Industrial Relations Profile.” Retrieved 02/03/2011, from http://www.eurofound.europa.eu/eiro/country/germany_4.htm.
[iii] Vogel, S. (2009). “Assessing Employee Representation and Collective Bargaining Coverage.” Retrieved 02/03/2011, from http://www.eurofound.europa.eu/eiro/2010/05/articles/de1005029i.htm.
[iv] Addison, J. T., A. Bryson, et al. (2009). The Extent of Collective Bargaining and Workplace Representation: Transitions between States and their Determinants. A Comparative Analysis of Germany and Great Britain. Discussion Paper No. 4502. Bonn, Institute for the Study of Labour.
[v] EIRO (2009). “Italy. Accordo 23 Luglio 1993.”. Retrieved 26.02.2011, from http://www.eurofound.europa.eu/emire/ITALY/AGREEMENTOF23JULY1993-IT.htm.
[vi] Pedersini, R. (2009). “Cgil Refuses to Sign Agreement on Collective Bargaining Reform.” Retrieved 23.02.2011, from http://www.eurofound.europa.eu/eiro/2009/02/articles/it0902059i.htm.
[vii] Addison, J. T., A. Bryson, et al. (2009). The Extent of Collective Bargaining and Workplace Representation: Transitions between States and their Determinants. A Comparative Analysis of Germany and Great Britain. Discussion Paper No. 4502. Bonn, Institute for the Study of Labour.
[viii] Corriere della Sera (21.01.2011). “Intervista ad Emma Marcegaglia – “Cambio la Confindustria. E Dico Sì alla Partecipazione dei Lavoratori agli Utili” – Marcegaglia: Rappresentanza e Contratti, è Ora di Riformare la Confindustria.” Retrieved 20.02.2011, from http://rassegnastampa.mef.gov.it/mefeconomica/View.aspx?ID=2011012117686933-2.
Il Sole 24 Ore (22.01.2011). “Imprenditori D’Accordo con Marcegaglia: Pronti a Contratti Aziendali e a una Confindustria più Snella.” Retrieved 20.02.2011, from http://www.ilsole24ore.com/art/economia/2011-01-21/imprenditori-accordo-marcegaglia-pronti-224449.shtml?uuid=AaV07m1C.
[ix] Financial Times (19.08.2011). “German Economic Growth Set to Hit 3%.” Retrieved 22.02.2011, from http://www.ft.com/cms/s/0/d164d0da-aba5-11df-9f02-00144feabdc0.html#axzz1GacqYUQz.
[x] The second level has been chosen because the first level covers only the trainees in Germany.
[xi] The salary for German workers is an approximation of the salaries set by collective agreement in different Bundslaender in March, 2010 (Source: WSI-Tarifarchiv:http://www.boeckler.de/549_108038.html, download on 11.03.11).
The source for the salary of Italian metal workers is the Contratto Collettivo Nazionale del Lavoro, signed between Federmeccanica, FIOM, FIM and UILM in January, 2008.
[xii] Vogel, S. and B. Kraemer (2010). “Representativeness of the European Social Partner Organisations: Metal Sector – Germany.” Retrieved 20/01/2011, from http://www.eurofound.europa.eu/eiro/studies/tn0911017s/de0911019q.htm.
[xiii] Blau, F. D. and L. M. Kahn (1996). International Differences in Male Wage Inequality: Institutions versus Market Forces, National Bureau of Economic Research Cambridge, Mass., USA.
Katz, H. C. and O. Darbishire (2000). Converging Divergences. Worldwide Changes in Employment Systems. Ithaca/London, Cornell University Press.
European Commission (2008). Industrial Relations in Europe 2008. Brussels, Directorate General for Employment, Social Affairs and Equal Opportunities.
[xiv] OECD (2008). Growing Unequal? Income Distribution and Poverty in OECD Countries. Germany: Country Note.
[xv] Keune, M. (2009). Introduction. Wages and Wage Bargaining in Europe. B. Galgoczi: 7-27.
Bosch, G., K. Mayhew, et al. (2010). Industrial Relations, Legal Regulations and Wage Setting. Low Wage in the Wealthy Work. J. Gautié and J. Schmitt. New York, Russel Sage Publications: 91-146.
[xvi] Schulten, T. (2010). Deutschlands lohnpolitische Sonderrolle in Europa. Tarifpolitische Tagung. W.-u. S. I. (WSI). Duesseldorf, 21-22 Sept. 2010.
