The sovereign debt crisis continues to have profound consequences on industrial relations systems across the European Union. Most notably, collective bargaining has become much weaker and more fragmented in many countries as a result of both domestic and supranational responses to the crisis. But how exactly are policy and legislative changes influencing the extent and nature of collective bargaining at different levels?

We set out to shed light on the new dynamics developing in collective bargaining across Europe by investigating it in those countries most affected by the crisis: Greece, Ireland, Italy, Portugal, Romania, Slovenia and Spain. We deliberately focused on the impact on manufacturing as it has the longest tradition of collective bargaining in these countries. Our view was that if these ‘structural labour market reforms’ were destabilising a sector with the most robust industrial relations institutions, then the risk of disrupting the overall system of industrial relations in each country was substantial. Our research collected data at national, sectoral, regional and company level, inviting around 200 government officials, employer federations, trade unions and companies to share their experiences.

Impact of the structural labour market reforms

The impact of the structural labour market reforms on collective bargaining has been significant in terms of the reduction in higher level bargaining at both the national and sectoral level. In some countries this has directly led to increased single-employer bargaining, a move that represents a landmark shift in the bargaining structure and which moves these countries closer to a UK-style model.

But, significantly, the breakdown in bargaining has presented negative implications for employers as well, as these are now having to deal with the fallout on a day-to-day basis. Not only are many companies facing tougher competition from firms which might now be paying lower wages because of the collapse of collective agreements, but they are also having to deal with the risk of increased conflicts in the workplace as a result of the need to enter into potentially difficult negotiations with workers. This move towards putting more onus on company-level arrangements, and the breakdown of higher-level bargaining forged when many of these countries first embraced democracy in the latter half of the 20^th century, represents a huge societal shift.

Significantly, our research also suggests that the crisis and the resulting labour market reforms are closely associated with negative developments in wages and employment conditions in all seven countries. They have resulted not only in a fall in real wages but also in increasing divisions and inequities in the workforce, such as differences in pay and working conditions between existing and new employees, along gender and age lines, and between those on permanent and more flexible contracts.

In this respect, minimum wages have emerged as an important wage setting institution. Freezes (such as in Portugal) or even reductions (such as in Greece) in the minimum wage have prevented this institutional tool from fulfilling its function of protecting workers from excessively low pay during the recession. This in turn has contributed to exacerbating the downward trend in both bargained and individually contracted wages, with Greece being the most extreme example.

Country differences

While the measures have challenged the regulatory function of collective bargaining, the degree to which different EU member states have been affected is not the same. For instance, in some countries such as Greece and Romania collective bargaining has been close to collapse, yet in others such as Italy the system remains close to the status quo before the crisis.

A number of factors explain the differences. Firstly, while the measures in all seven countries targeted both employment protection legislation and bargaining systems, they varied in terms of how far-reaching they were, with Greece and Romania being where they were most severe.

Secondly, the extent to which the measures were introduced on the basis of dialogue between industrial relations actors and national governments also helps our understanding of why the impact was less destabilising in countries such as Italy, Slovenia and Portugal than in Greece and Romania.

Finally, the pre-existing strength of the bargaining systems was crucial. The best example was Italy where a well-articulated and coordinated system played a protective role both in terms of limiting the scope for employer competition on the basis of wage costs and for the growth of inequalities between different groups of workers.

The approach of the industrial relations actors

In terms of the wider response of trade unions and employers to this changing landscape we found no clear shift in their approach. Instead we have seen a process of change and fragmentation which is uneven and ambivalent.

Employers increasingly adopt strategies to bypass collective worker voices, but the extent of these trends is varied. In countries such as Greece, Romania and Ireland, employers, most notably large ones, have been quick to use the new opportunities to reduce labour standards and undermine the labour movement. But this hasn’t been the case in other countries, such as Italy but even Spain and Portugal to some extent, where employers showed signs of unease about the implications these measures would affect the character of employment relations.

Meanwhile, because austerity has challenged the sustainability of multi-employer bargaining arrangements within labour market regulation in Europe, it also presents significant challenges for the regulatory function of the state and industrial relations actors. Although we have seen an increase in state intervention in setting terms and conditions of employment, this has also been significantly constrained by the transfer of policy-decision making processes from the national to the supranational level through the increased intervention of European institutions and the IMF. Furthermore, there are issues regarding the lack of effectiveness and unbalanced nature of the state – in terms of its labour inspection or its judiciary for example – due to the impact of austerity policies on own resources.

Looking to the future

As the first signs of exit from the global crisis have begun to emerge, and a number of EU member states have exited from assistance programmes, it is crucial that better links should now be developed between wage and productivity growth, promoting fairness and boosting domestic demand. This in turn would involve a shift towards a more supportive environment for multi-level collective bargaining and the strengthening of wage-setting institutions that protect the most vulnerable workers.

At a European level there needs to be a move away from the promotion of ‘regulated austerity’ which comes at the cost of depressed growth in EU member states. Instead, measures for promoting an alternative approach to European wage policy based on strong collective bargaining institutions and equitable wage developments should be promoted by both EU institutions and social partners. At national level, central to this should be a readjustment of public policies within labour market regulation towards viewing collective bargaining as part of the solution to steering EU member states out of the crisis, and not as part of the problem.