Collective Bargaining and Harmonious Social Economy

1
Collective Bargaining and Harmonious Social
Economy

• Chang-Hee Lee
• Senior Specialist on Industrial Relations and
  Social Dialogue
• ILO
• ACFTU/ILO Workshop on Collective Bargaining and
  Wage Negotiation
• August 2006, Yinchuan, Ningxia

2

• PART 1 LABOUR RELATIONS AND HARMONIOUS SOCIETY
  IN A MARKET ECONOMY

3
Industrial relations in a market economy

• Move towards what kind of market economy?
• Industrial relations influence on the relations
  between market and its stakeholders, and
  therefore define nature of a market economy (next
  slide).
• What kind of society does ACFTU with more than
  100 million members want to build for the future
  of China?
• Sound IR system is a key to ensuring a harmony
  between economic efficiency and social justice,
  leading to social harmony.

4
Union Density and Collective Bargaining Coverage
(2001)
5
Union Members in China

• Where there is a worker, there should be a
  union
• Campaign for union membership has contributed to
  increase of union membership since 1999
• Recent breakthrough of union organizing in Wal
  Mart!

6
Industrial Relations and Social Policy Challenges
in a Market Economy

• Labor is not a commodity a fundamental principle
  of IR and ILO
• Can we leave wage determination to the market
  alone?
• Workers who possess labor power needs to support
  not only his/her living but also their familys
  living as well. Workers are a source of
  productivity and progress.
• Under individual contracts alone, workers are too
  weak to get equal contract with employers,
  because workers are desperate to find jobs
• Birth of trade union in 19th century and gradual
  spread of collective bargaining in 20th century.
  Take wage out of competition was a goal of
  trade unions. Collective IR emerged
• IR is one of major social policy areas to
  reconcile social justice/equity and economic
  efficiency in a market economy since 19th century

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Importance of autonomous industrial relations

• Pure market forces (in the absence of collective
  representation)
• Competition based upon sub-standard working
  conditions, undercutting living standards
• Social legitimacy eroded, social stability
  undermined
• Government regulation
• Government tends to lack information required for
  wage determination in a market economy
• By its nature, government regulation tends to be
  rigid and uniform, unable to consider specific
  conditions of enterprise and business sectors
• Collective bargaining
• Workers (represented usually by trade unions) and
  employers negotiate working conditions including
  wages
• Considering specific business conditions of the
  enterprise unreasonably high wage will lead to
  loss of competitiveness, damaging workers as
  well too low wage will lead to high turn-over of
  workers.
• Bound to find an equilibrium suitable both for
  workers and employers
• But bad relations between two parties may lead to
  sub-optimal solution

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• PART 2
• RECENT DEVELOPMENT OF INDUSTRIAL RELATIONS IN
  CHINA

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Past achievements and future challenges in China

• Opening of the economy in late 1970s rural
  reform in 1980s urban reform in 1980s and 1990s
  including SOE restructuring accession to WTO
  highest economic growth of largest country in the
  world combined with successful records of poverty
  reduction.
• At the same time, widening gap between the rich
  and poor, and urban and rural areas.
• Explosion of various forms of labour disputes and
  growing concern on social stability.
• Great and urgent need for balanced development
  and social harmony.
• IR institutions intersects society and economy,
  reconcile social equity and economic efficiency.
• Building sound IR is a key condition to
  harmonious society.

10
Major Industrial Relations Development

• Established tripartite consultative committees at
  all levels
• Union membership campaign
• And recent breakthrough of union organizing at
  Wal Mart branches
• Promotion of collective bargaining
• Promotion of wage negotiation

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Tripartite consultation mechanisms

• National tripartite consultation committee set up
  in 2001
• All provinces and most municipalities completed
  TCC establishment, and moving down to district
  level
• Instrumental in spreading collective bargaining
  and coordinating IR
• Issues
• Employers representation
• Scope of agenda for consultation IR or broader
  social and labor policy issues
• Feedback from constituents at enterprise level

12
Spread of Collective Agreements

• Since adoption of the Labor Law in 1995,
  collective bargaining has been rapidly introduced
• Tripartite consultation mechanism further
  accelerated spread of collective agreements
• Experiments of industrial/territorial agreements
  underway

13
Wage negotiation

• Wage negotiation has been actively promoted since
  early 2000s. More than 30 million workers are
  covered by wage agreements.
• By its nature wage negotiation involves
  negotiation over new interests and new conditions
  of work instead of legal minimum.
• Until recently, wage negotiation used to deal
  only with total wage bill of enterprises without
  negotiation of further distribution of wage bills
  among different groups of workers.
• Wage negotiation creates an incentive for workers
  to actively participate in union activities and
  collective bargaining and therefore provides a
  momentum for unions to become more accountable
  and representative to their members.

14
Labour Disputes

• Both individual and collective disputes are on
  rapid rise (three times higher than GDP growth
  rate)
• Spread of CA does not help to reduce the number
  of disputes

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Challenges 1 Improving quality and process of
collective bargaining

• Quantity achieved.
• Need to improve quality of collective agreements
• Need to improve process of collective bargaining

• Need to improve representational structure of
  trade unions at the workplace
• Internal coordination among different categories
  of workers/members within trade union is as
  important as labour-management relations
• Need to find a solution to break the deadlock in
  collective bargaining

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Challenges 2 Wage negotiations

• Policy consideration on relationship between
  local minimum wages, municipal wage guidelines,
  negotiated wages at sectoral (district) and
  enterprise level.
• Also, more active participation in local MW
  setting and municipal wage guideline formulation
  is important.

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Challenges 3 protecting migrant workers and
reversing the trend of widening income gap

• Developing a strategy to organize migrant workers
  and representing them effectively through
  democratic process of collective bargaining
• Developing a union strategies, including wage
  negotiation and social protection strategies, to
  reverse the trend of widening income gap

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• Part 3 Three Models of Collective Bargaining
• Note This part was prepared for a workshop for
  Vietnam General Confederation of Labour in early
  2006.

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Model 1 Purely enterprise bargaining

• Practices in many East Asian countries (Japan,
  most sectors in Korea, China?, Thailand, the
  Philippines etc). Vietnamese labour law and
  practices appear to be based on this model.
• Advantage flexibility and adaptability for
  setting enterprise specific working conditions
  suitable for workers and management in the
  enterprises concerned
• Disadvantage disparity between companies
• Disadvantages in Vietnamese context enterprises
  trade unions are too weak to negotiate with their
  employers at the workplace.

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Model 2 enterprise bargaining, assisted by
professional negotiators of trade unions (and if
agreeable, employers organizations) at higher
level

• Practices in USA, some sectors in Malaysia, a few
  sectors in Korea.
• Same advantage as pure enterprise bargaining
  model
• Disparity between companies may be less, as trade
  unions (and employers organizations) at higher
  level (usually at industry/regional level) may
  have desire to produce more or less similar
  bargaining outcome across the companies in the
  sector concerned.
• Advantages in Vietnamese context trade unions at
  higher level are independent from the management
  of specific companies, while enterprise union
  leaders are close to the management rather than
  workers.
• Still, there is a need to establish strong and
  direct link between trade unions at enterprise
  and higher level, and rank-and-file members,
  through prior consultation before entering into
  CB and approval of tentative agreements by union
  members.

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Model 3 industry bargaining between trade unions
and employers organizations at industry level

• Practices in most continental European countries
  (Germany, Italy, France, Belgium, Sweden etc),
  two sectors in Korea, port workers in Japan, some
  sectors in USA
• Advantages better solidarity among workers, less
  bargaining costs, enterprises are relatively free
  from hassle of negotiation and therefore
  conflicts.
• Disadvantages less flexibility and adaptability
  for each enterprise
• Trend decentralization more towards enterprise
  bargaining (globalization)
• In Vietnamese context, it runs the same danger of
  disconnection between trade unions at higher
  level and their members at the enterprise level.
  Without democratic linkage between unions and
  employers organizations at higher level, and
  their members at enterprise level, this system
  may not function.

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Note and Questions

• Model 2 can be a stepping stone for a transition
  towards model 3.
• It may be also conceivable that model 2 may
  gradually strengthen the capacity of enterprise
  unions to negotiate with their employers at the
  enterprise level.

• Questions
• Any relevance for China?
• What is current situation in China?
• Share your experiences of industrial or district
  bargaining
• What is your view about three models?

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Part 4 Wage negotiation in a broader IR context
wage negotiation, minimum wage policy and
tripartite consultation
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Union strategy on wage negotiation and income
distribution in a market economy

• Union as balancer in a market economy
• Trade unions are a crucial social actor and
  institution in a market economy, ensuring social
  cohesion and harmony, representing voices of
  workers legitimate desire for decent work as a
  human being, against and within the force of a
  market.
• Unions strategy on wage negotiation and income
  distribution has a critical importance in
  ensuring decent work and harmonious society.
• Specific model of a market economy is to be
  shaped not only by market force but also by
  interaction between various economic and social
  actors particularly unions.

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Contradiction is a driving force of progress of
history. And history is not straightforward.
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Factors for Wage IncreaseACFTU Collective
Consultation Text Book (1996)

• External factors
• Inflation
• Economic growth in the locality
• Demand supply of labour
• Interest rates
• Local wage guideline issued by government

• Internal factors
• Enterprise profits
• Productivity
• Labour costs
• Balance sheet of the enterprises
• Debt/Asset ratio
• Wage level of other companies in the same sector
  and region

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Different Priority Factors When Each Party Decide
Their Bargaining Policy

• Government
• GDP growth
• Inflation
• Labor market situation
• Interest rates
• Employer
• Profit
• Productivity
• Balance sheet
• Labor costs etc

• Union at regional level
• Survey of average working familys expenditure
  for decent living
• Inflation
• Labour market and economic situation of the
  locality
• Enterprise union
• Ask its members how much they need and want!
• Fair sharing of profits as workers are main
  contributors to the profit
• Productivity

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• Unions do not need to internalize all factors
  which are main concerns of other parties in the
  beginning of the negotiation process.
• In any case, other parties will bring those
  factors in the consultation and negotiation, and
  therefore final outcome will be produced based
  upon consideration of all factors.

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Case of Korea and Japan

• Before annual wage negotiation, nation centres of
  trade unions announce its demand.
• Their demands are formulated in the form of
  standard living costs for standard workers
  family, through a union survey.
• While also considering GDP and productivity
  growth, they place importance on the concept of
  living wages for standard working family.

• Employers organizations (Korean Employers
  Federation and Japan Business Federation)
  formulate their response based upon GDP growth,
  competitiveness, profitability of industries.
• The proposals by both unions and collective
  employers at national level set the parameter for
  negotiators at lower level.
• Lower level negotiators will consider the
  guideline set by higher level social partners,
  but not necessarily bound by them.

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Other models

• Singapore National Wage Council
• Wage guidelines
• From a non-binding recommendation on wage
  increase rate until mi 1980s
• To a recommendation on flexible wage model

• Ireland wage negotiation in a broader economic
  policy
• From decentralized enterprise bargaining on wage
• To centralized social dialogue on income policies
  (tax, income, training, wages and HR innovation)

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From simple living wage concept to combination of
different factors

• As a staring point, the concept of living wage is
  important for trade unions
• Composition of wages
• Invariable and variable components of wages
• Or basic wages and other benefits
• What to be negotiated at enterprise,
  sectoral/regional and national level?
• Direct wage and social wage components
• What to be negotiated at enterprise,
  sectoral/regional and national level?
• As unions get mature and get involved in various
  policy formulation, other factors come into play
  more and more important role

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Wage negotiation in a broader IR context

• Wage negotiation
• At enterprise level
• At higher levels (sectoral and/or district)
• Minimum wage
• Wage guidelines at municipal level
• Tripartite consultation system

• What are ideal relations between different IR
  processes regarding wage determination?
• What are the policies and approaches of ACFTU?
• What are respective roles of each process?
• What are the implications of these processes for
  harmonious society?

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Minimum wage Policy Goals

• Ideally, MW instrument designed to protect the
  most at-risk workers as a social protection
  measure.
• Social purpose of MW to prevent labour
  exploitation and avoid poverty i.e., the minimum
  wage should provide sufficient purchasing power
  to enable a worker to have a basic standard of
  living.

• However, no single formula for MW policy
• Closely related with other factors such as
  collective bargaining, income policy and social
  protection measures.

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Labor shortage and its impact on minimum wage
adjustments in major cities

• This suggests that wage negotiation does not
  function properly
• This indicates that local MW is close to actual
  wages for unskilled workers.
• Rigidity
• Low wage- low productivity trap
• MW is not ideal tool for actual wage
  determination, economically and socially

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Wage negotiation and MW process

• What is the policy of municipal trade unions
  regarding the relations between MW and wage
  negotiation?
• Ratio of MW to average wage
• Idea of living wages for standard workers family

• How do municipal trade unions participate in MW
  determination process?
• What is should be - the role of municipal wage
  guideline in the context of local MW and
  enterprise bargaining?

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Consultation with and participation of social
partners 2

• Government fixes MW
• No obligation to consult social partners Lao
• Following direct consultation with WE China,
  NZ, Czech, Russia
• Following advice or recommendation of specialized
  body Cambodia, Thailand, Japan, Ireland, UK etc

• Specialized body sets MW
• Australia, Korea, Turkey, Poland etc
• Collective bargaining and other procedures
• Austria, Germany, Greece, Belgium etc

37
Minimum Wage Criteria for adjustment

• Different ways of applying the criteria
• In some countries, strict
• Inflation automatically linked MW adjustment in
  some countries
• In others, loose
• Consideration of general economic condition
  leaves plenty of scope for interpretation

• According to ILO survey, most frequently cited
  criteria for MW fixing are
• Inflation/cost of living
• General economic condition
• Wage levels
• Workers need
• Productivity
• Employment rate

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Questions Municipal unions participation in MW
determination and municipal wage guideline

• You are the leaders of municipal union
  federation. Your city has recently experienced
  labour shortage and workers are not happy with
  current wage levels.
• How do you see respective roles of enterprise
  wage negotiation, municipal wage guideline and
  MW?
• What would you do regarding MW determination and
  formulation of municipal wage guideline?