Minimum Wages, Pay Equity, and Comparative Industrial Relations 9781136682124, 9780415818810

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Minimum Wages, Pay Equity and Comparative Industrial Relations

With growing concern about the conditions facing low-wage workers and new challenges to traditional forms of labor market protection, this book offers a timely analysis of the purpose and effectiveness of minimum wages in different European countries. Building on original industry case studies, the analysis goes beyond general debates about the relative merits of labor market regulation to reveal important national differences in the functioning of minimum wage systems and their integration within national models of industrial relations. There is no universal position on minimum wage policy followed by governments and social partners, nor is it true that trade unions consistently support minimum wages and employers oppose them. The evidence in this book shows that interests and objectives change over time and differ across industries and countries. Investigating the pay bargaining strategies of unions and employers in cleaning, security, retail and construction, this book’s industry case studies show how minimum wage policy interacts with collective bargaining to produce different types of pay equity effects. The analysis provides new findings of ‘ripple effects’ shaped by trade union strategies and identifies key components of an ‘egalitarian pay bargaining approach’ in social dialogue. The lessons for policy are to embrace an interdisciplinary approach to minimum wage analysis, be mindful of the interconnections with the changing national systems of industrial relations and interrogate the pay equity effects. Damian Grimshaw is Professor of Employment Studies at the Manchester Business School, University of Manchester, UK and Director of the European Work and Employment Research Centre (EWERC).

Routledge Research in Employment Relations Series editors: Rick Delbridge and Edmund Heery, Cardiff Business School, UK.

Aspects of the employment relationship are central to numerous courses at both undergraduate and postgraduate levels. Drawing from insights from industrial relations, human resource management and industrial sociology, this series provides an alternative source of research-based materials and texts, reviewing key developments in employment research. Books published in this series are works of high academic merit, drawn from a wide range of academic studies in the social sciences.

1 Social Partnership at Work Carola M. Frege 2 Human Resource Management in the Hotel Industry Kim Hoque 3 Redefining Public Sector Unionism: UNISON and the Future of Trade Unions Edited by Mike Terry 4 Employee Ownership, Participation and Governance A Study of ESOPs in the UK Andrew Pendleton

7 Inside the Factory of the Future Work, Power and Authority in Microelectronics Alan Macinlay and Phil Taylor 8 New Unions, New Workplaces A Study of Union Resilience in the Restructured Workplace Andy Danford, Mike Richardson and Martin Upchurch 9 Partnership and Modernisation in Employment Relations Edited by Mark Stuart and Miguel Martinez Lucio

5 Human Resource Management in Developing Countries Pawan S. Budhwar and Yaw A. Debrah

10 Partnership at Work The Quest for Radical Organizational Change William K. Roche and John F. Geary

6 Gender, Diversity and Trade Unions International Perspectives Edited by Fiona Colgan and Sue Ledwith

11 European Works Councils Pessimism of the Intellect Optimism of the Will? Edited by Ian Fitzgerald and John Stirling

12 Employment Relations in NonUnion Firms Tony Dundon and Derek Rollinson

19 Management in the Airline Industry Geraint Harvey

13 Management, Labour Process and Software Development Reality Bytes Edited by Rowena Barrett

20 Trade Unions in a Neoliberal World British Trade Unions Under New Labour Gary Daniels and John McIlroy

14 A Comparison of the Trade Union Merger Process in Britain and Germany Joining Forces? Jeremy Waddington, Marcus Kahmann and Jürgen Hoffmann

21 Diversity Management in the UK Organizational and Stakeholder Experiences Anne-Marie Greene and Gill Kirton

15 French Industrial Relations in the New World Economy Nick Parsons

22 Ethical Socialism and the Trade Unions Allan Flanders and British Industrial Relation Reform John Kelly

16 Union Recognition Organising and Bargaining Outcomes Edited by Gregor Gall 17 Towards a European Labour Identity The Case of the European Work Council Edited by Michael Whittall, Herman Knudsen and Fred Huijgen 18 Power at Work How Employees Reproduce the Corporate Machine Darren McCabe

23 European Works Councils A Transnational Industrial Relations Institution in the Making Jeremy Waddington 24 Trade Unions and Workplace Training Issues and International Perspectives Edited by Richard Cooney and Mark Stuart 25 Minimum Wages, Pay Equity and Comparative Industrial Relations Edited by Damian Grimshaw

Minimum Wages, Pay Equity and Comparative Industrial Relations Edited by Damian Grimshaw

I~ ~~o~J!~~~:UP NEW YORK AND LONDON

First published 2013 by Routledge 711 Third Avenue, New York, NY 10017 Simultaneously published in the UK by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Routledge is an imprint of the Taylor & Francis Group, an informa business © 2013 Taylor & Francis The right of the editor to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging in Publication Data Minimum wages, pay equity, and comparative industrial relations / edited by Damian Grimshaw. p. cm. — (Routledge research in employment relations ; 25) Includes bibliographical references and index. 1. Minimum wage—Europe. 2. Pay equity—Europe. 3. Industrial relations—Europe. I. Grimshaw, Damian. HD4920.5.G75 2013 331.23094—dc23 2012037722 ISBN: 978-0-415-81881-0 (hbk) ISBN: 978-0-203-57972-5 (ebk) Typeset in Sabon by Apex CoVantage, LLC

Contents

List of Figures List of Tables Acknowledgments 1 Introduction and Plan of the Book

ix xi xiii 1

DAMIAN GRIMSHAW

PART I Wage-Setting Institutions, Intersections and Pay Equity Effects 2 Minimum Wages and Collective Bargaining: A Preliminary Characterisation

19

DAMIAN GRIMSHAW

3 The Intersections between Minimum Wage and Collective Bargaining Institutions

50

DAMIAN GRIMSHAW AND GERHARD BOSCH

4 The Distributive Functions of a Minimum Wage: First- and Second-Order Pay Equity Effects

81

DAMIAN GRIMSHAW AND JILL RUBERY

PART II Sector Case Studies 5 Business Cleaning: How Important and Effective are Minimum Wage Standards in a Sector with Strong Cost-Led Competition?

115

CLAUDIA WEINKOPF, JOSEP BANYULS AND DAMIAN GRIMSHAW

6 Pay Bargaining and Cost Minimization in the Private Security Services Sector: A Hungary–UK Comparison LÁSZLÓ NEUMANN AND DAMIAN GRIMSHAW

141

viii

Contents

7 Minimum Wages and Collective Bargaining in the Construction Industry

168

GERHARD BOSCH, DANIJEL NESTI̗ AND LÁSZLÓ NEUMANN

8 Wage Compression among Sales Assistants? Pay Bargaining and Ripple Effects in the Retail Sector

194

JOSEP BANYULS, DAMIAN GRIMSHAW, DANIJEL NESTI̗ AND LÁSZLÓ NEUMANN

PART III Conclusions 9 Minimum Wages and Egalitarian Pay Bargaining in Comparative Perspective

227

DAMIAN GRIMSHAW, GERHARD BOSCH AND JILL RUBERY

List of Contributors Index

261 263

Figures

2.1 The competing interests of government, employers and unions towards minimum wage policy 2.2 A timeline of minimum wage policy changes: nine countries, 2001–2011 2.3 The value of the statutory minimum wage, Kaitz index 2009 2.4 The value of sector-based minimum wages in Germany and Sweden 2.5 Trade union density and employers’ organization density, 2009 3.1 Collective bargaining coverage in countries with and without a statutory minimum wage, 2009 (EU-27 plus Croatia) 3.2 Minimum wage value and strength of collective bargaining coverage and union density, 2009 3.3 Five types of intersections 3.4 A best-fit portrait of countries by intersection type 3.5 Trends in the minimum wage value (Kaitz index): 1991, 2000, 2008, 2010 3.6 Trends in the minimum wage value relative to average earnings, national wage data, 1995–2011 3.7 Change in minimum wage value (Kaitz index 2000–2009) and strength of collective bargaining coverage (averaged over 1995–2006) 4.1 The relationship between the Kaitz index and low pay (two sources of data) 4.2 Changes in the Kaitz index and the incidence of low pay, 2000–2010 4.3 The relationship between the Kaitz index and the D5/D1 pay differential (averaged 2006–2008 data) 4.4 Change in the Kaitz index and the D5/D1 pay ratio, selected countries, 2000–2002 to 2006–2008

24 28 32 33 36

52 53 54 59 69 72

76 94 95 97 98

x

Figures

4.5 Incidence of low-wage employment by gender (full-time equivalent), 2008 4.6 The relationship between the Kaitz index and women’s risk of low pay compared to men 4.7 Combined effects of collective bargaining and minimum wages on the incidence of low-wage employment 5.1 Trends in employment and revenue in business cleaning, indexed to 2005 5.2 Composition of the business cleaning sector by firm size and employment 5.3 The interactions between the minimum wage, median pay and collectively bargained pay in the cleaning sector 5.4 The gap between the minimum wage and collective agreements for the cleaning sector in selected provinces in Spain, 2009 5.5 Pay distribution in the UK cleaning sector compared to the minimum wage and the low-pay threshold, 2010 6.1 Employment trends in the security sector 6.2 The minimum wage ‘bite’ on pay of male full-time employees in the security sector 6.3 Trends in the distribution of gross hourly pay in the security sector 7.1 Industry wage tariffs for manual workers in Hungarian construction as a percentage of statutory minima, 2007–2011 7.2 Minimum wages and collective agreements in six European countries, 2010 8.1 Retail trade: employment share and employment growth 8.2 UK trends in retail sector pay relative to the statutory minimum wage 8.3 Pay trends in the retail sector in Hungary, 2000–2010 8.4 Retail pay trends in Croatia: the collectively negotiated base wage and average pay relative to the statutory minimum wage 8.5 Average monthly pay of shelf-stackers and shop assistants in Hungary compared to the statutory minima, 2005–2010 8.6 The collectively negotiated base wage for sales assistants and the national minimum wage in Croatia 9.1 Five pay equity outcomes of minimum wage and collective bargaining intersections

99 101 104 116 118 127 128 129 145 151 153 182 186 195 210 211 212 216 218 249

Tables

1.1 1.2 1.3 2.1 2.2 2.3 3.1 3.2 4.1 5.1 5.2 5.3 5.4 6.1 6.2 6.3 6.4 6.5 7.1

Variety of minimum wage and collective bargaining systems Selection of sectors for case-study research List of organisations where interviews were conducted Key characteristics of minimum wage systems in nine countries, 2010 Characteristics of employer and union peak organizations (confederations), 2010 General arrangements for collective bargaining in nine countries, 2009 Country summaries by type of intersection Minimum wage policy in Europe during the recession, 2008–2010 Minimum wage policy targets, theoretical rationales and issues for vulnerable workers Key features of the business cleaning sector in Germany, Spain and the UK, 2009–2010 Features of social dialogue and collective bargaining in business cleaning Minimum wages in Germany’s business cleaning sector, 2012 Evolution of the gap between lowest pay for hospital ancillary workers and the minimum wage, 1999–2010, UK Structure of the security sector by firm size Regulatory bodies and industrial relations in the security sector Pay differentials in the UK security sector, 2000–2011 Improving the wage premium over the minimum wage: SecurityUK cash transit division Improving the wage premium over the minimum wage: SecurityUK security services agreement with a banking client Key indicators of the construction industry in six countries

7 9 9 29 37 40 62 71 85 117 123 132 135 143 148 154 160 163 173

xii

Tables

7.2 Number of E101 certificates for posting by sending and destination country, 2009 7.3 Intersections between minimum wages and collective bargaining 8.1 Key characteristics of the retail sector 8.2 Characteristics of employers’ associations, trade unions and collective bargaining in the retail sector 8.3 The main types of intersections in the retail sector 8.4 Gap between the lowest collectively bargained pay rate at RetailCo UK and the minimum wage, 1999–2010 8.5 Annual wage agreements at a supermarket chain in Hungary 8.6 Trends in Spain in the gap between the national minimum wage and base rates in selected retail collective agreements 9.1 Comparing national and sector intersections between minimum wage and collective bargaining systems 9.2 Industrial relations and forms of pay bargaining in four sectors in five countries

174 188 196 198 203 215 217 220 236 242

Acknowledgments

The job of putting together this book would not have been possible without the help of an enthusiastic and reliable network of colleagues. I have enjoyed and benefited from several years of cooperation with the other six contributors to this book. We have worked together in different European projects, enjoyed joint research visits and shared conference experiences, and this has helped forge a common ‘language’ in understanding our respective country institutions and rules, as well as revealing the rather more opaque forms of custom and practice that lie hidden behind official accounts of policy reforms and labour market behaviour. The idea for this book came about from a collaboration that five of us were involved with in 2008, with a project organized by the International Labour Office that investigated minimum wage policy developments in Europe (country chapters are published in the 2010 book, The Minimum Wage Revisited in the Enlarged EU, edited by Daniel Vaughan-Whitehead). This work showed quite clearly that there were gaps in our comparative understanding of a variety of issues concerning, on the one hand, the influence of statutory minimum wage policy on wider processes of wage determination and, on the other, the effects on pay equity. Therefore, during 2009 and 2010, we established a new programme of research to investigate these issues in more detail and were supported by funding from the European Commission (DG Employment, Social Affairs and Equal Opportunities, DGV). The research project, ‘Minimum wage systems and changing industrial relations in Europe’ (VS/2009/0159), involved a network of five country teams with the seven lead network members contributing to this book. I am very grateful to Andrew Chapman, Deputy Head of the Social Dialogue Unit within DGV for his advice and support throughout the project. It was great to have Andrew participate in project workshops while we were debating issues of research design and sharing preliminary findings, as well as to have his support in introducing the two-day conference, which we organized in Brussels to disseminate the results. I am also very grateful to the other members of the five-country network who are not represented in this book as chapter co-authors but who made valuable contributions as co-authors of project documents and in providing research or administrative support.

xiv

Acknowledgments

These include Claire Shepherd for the UK team, Ernest Cano and Empar Aguado for the Spanish team and Ivana Raši Bakari for the Croatian team. The research project was designed in such a way as to maximize collaborative learning and communication among the country teams. We had three very enjoyable project workshops (in Manchester, Duisburg and Valencia), and I would like to thank Claire from the UK, Claudia and Gerhard from Germany and Josep from Spain for organizing and hosting these meetings. An additional critical feature of the project was the effort by all five country teams to develop a good working relationship with the interview participants who provided the case-study data (on collective bargaining, minimum wage policy and pay equity strategies) on which Part Two of this book draws extensively. Many of these participants—senior pay negotiators from trade unions, employers’ associations and government departments—were invited to attend a final project conference in Brussels in September 2010, and I am especially thankful for their generosity in commenting on our work and contributing to roundtable discussions. These participants were Daniel Albarracín (Spain, CCOO FECOHT), Katalin Buday (Hungary, Commercial Employees’ Trade Union, KASZ), Werner Buelen (European trade union, EFBWW), Johannes Bungart (Germany, cleaning industry employers), Domenico Campogrande (European Construction Industry Federation FIEC), Massimo Frattini (Italy, Filmcams CGIL Naztionale), József Kaló (Hungary, security industry employers), Zdenko Karakaš (Croatia, Construction employers), Mihály Nádas (Hungary, Federation of Private Security Union), Bojana Percan (Croatia, Commercial Trade Union) and Owen Reidy (Ireland, Sector Organiser Contract Cleaning and Security, SIPTU). The conference was considerably enriched by the contributions of five keynote speakers to whom I am also very grateful—Laszlo Andors (DGV Commissioner), Reinhard Bispinck (Hans Böckler Stiftung), Inmaculada Cebrián (University of Alcalá), Richard Freeman (LSE and Harvard) and Mark Keese (OECD). The mix of participants—policy-makers, practitioner and academic—is hopefully reflected in the perspective adopted by this book, which seeks to contribute to policy and practice in the arenas of minimum wages and collective bargaining, as well as to provide a reference point for academic debates. I would like to especially thank people from outside the European project team who helped in the preparation of this book: to Jerome Gautié, Jaan Masso, Brian Nolan and Per Skedinger for invaluable correspondence clarifying up-to-date policy developments in France, Estonia, Ireland and Sweden, respectively, and for providing national minimum wage data; to Marcela, my wife, for correcting prose and to my eldest daughter Helena for checking references (her first paid job! Tessa, you can help next time!); to Andy Wilson for editing services for Part Two; and to Lauren Verity, Deepti Agarwal and Laura Stearns from Routledge who supported and managed the production of the book. The arguments presented in Chapters 3, 4 and 9 have been strengthened and refined in response to fruitful discussions following invited

Acknowledgments xv seminar presentations (especially with Paul Marginson and Trevor Colling at Warwick University and with Michael Reich and Sylvia Allegretto at the Institute of Research on Labour and Employment at the University of California, Berkeley). Some of the material in Chapters 3, 4 and 9 also appears in a paper published in the British Journal of Industrial Relations entitled ‘Minimum wages and collective bargaining: what types of pay bargaining can foster positive pay equity outcomes?’ Finally, although I take responsibility for putting the book together, its overall quality and accuracy benefits enormously from the fact that my six colleagues—Claudia, Josep, Gerhard, Danijel, László and Jill—have been very generous both in responding to my never-ending email queries on the details of country systems and in commenting on multiple drafts of the chapters in Part One of this book. I enjoyed working together very much and look forward to our next research collaboration. Damian Grimshaw, Manchester, July 2012

1

Introduction and Plan of the Book Damian Grimshaw

We know from historical and comparative research that unfettered labour markets are not reliable instruments for serving the changing social and economic needs of individuals, households and society. In response to their failure to correct a range of problems, including high rates of unemployment, excessive working hours, spiraling executive pay or a low-skill workforce, governments, unions and employers have intervened in a variety of ways in efforts to narrow the disconnects, or distortions, between norms of societal progress and labour market functioning. One significant distortion is the failure of free, competitive labour markets to prevent the payment of exploitative wages—a practice that has fuelled social and academic commentary for decades, whether in the early twentieth-century critiques of ‘parasitic’, low-wage factory employers (Webb 1912) or in the contemporary theoretical accounts of women’s undervalued work in the care sector and evidence of poor treatment of migrant workers in the agriculture and food-packaging industries (e.g. England and Folbre 2003; Ruhs and Anderson 2010). At the centre of the ongoing academic debates and societal conflicts over how best to address labour market exploitation is a set of questions about a country’s system of minimum wages and its effectiveness in achieving a better distributive outcome. While minimum wages may be effective in defining a wage floor, thereby preventing employers from paying very low wages, the evidence for some countries suggests they can also generate a substantial spike in wage distribution at the minimum wage level because employers pay exploited workers the minimum wage rather than laying them off, or reduce the wages of some workers paid more than the minimum wage in order to offset the additional costs. The problem is that a minimum wage can, in these circumstances, reinforce or even exacerbate a low-wage problem. This issue was illuminated in Richard Freeman’s (1996) assessment of the likely effects of the introduction of a statutory national minimum wage in the UK in 1999. In a response to widespread fears that it would stoke wage-led inflation, he correctly forecasted that most retail employers would not restore pay differentials among their weakly unionised, female part-time workforce; the result, he argued, would be a growing segment of workers

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Damian Grimshaw

paid at or only slightly above the minimum wage. But what conditions shape this particular effect? We know that in other countries, the character of minimum wage policy, the forms of wage-setting and the distributive outcomes are different. For example, when the national minimum wage in France is increased, because it interacts with base rates in many extended collective wage agreements and because these collective agreements define a ‘wage grid’ of established pay differentials, a minimum wage increase has a knock-on impact (a ‘ripple effect’) on higher rates of pay so that a rise in the minimum wage is accompanied by rises in pay for jobs paid above the minimum wage (Gautié 2010). The more far-reaching these ripple effects are, the more likely workers will be lifted out of low wages (assuming that the minimum wage rise is not replicated all the way up the wage distribution, which would cancel out its distributive purpose). As well as general country differences, there are major differences across sectors within countries. Some sectors are more unionised than others, some are more likely to be protected by extended collective wage agreements than others and some suffer from worse problems of noncompliance. Also, the relevance of a minimum wage depends very much on the proportion of workers in the sector earning low wages. The distinctiveness of sectors is especially relevant in Germany because it has recently developed a new system of legally binding minimum wages that sets multiple wage floors for a growing number of sectors in line with sector collective agreements. In each sector, the strength of trade unions, the power of employers, the particular product market conditions and sector-specific skill requirements forge distinctive conditions that influence both the fixing of the minimum wage floor and its effects on the wage grid of pay differentials within and across firms in the sector. A focus on the interaction between minimum wages and collective bargaining opens up the question about the different outlooks of employers and unions towards minimum wages. Employers are thought to oppose statutory minimum wage regulation, but comparative, historical evidence suggests a more nuanced picture with positive support sometimes motivated by a desire to weed out parasitic firms or to establish a realistic labour market benchmark upon which to build a productive model of interfirm competition. The position of unions is also nuanced. They may play a role in campaigning for and supporting a legally mandated minimum wage, or during certain periods may display a distinct preference for wage protection through voluntary collective bargaining. And, while minimum wage rules are designed largely with a distributive goal in mind, these may or may not align with union strategies towards pay equity. On the one hand, unions may be able to dovetail the development of minimum wage policy with campaigns to reduce wage inequality, improve job quality and strengthen gender pay equity. But, on the other, they may be concerned that erratic policy changes put at risk established pay differentials, or that a minimum wage fixed at too high a level might erode the influence of collective bargaining as a force for setting wages for low-wage workers. Governments are

Introduction and Plan of the Book 3 similarly unlikely to adopt a universal position towards the design and use of minimum wage policy. At particular moments, government may favour active intervention to further policy goals of reducing wage inequality or addressing working poverty, even where it harbours concerns about the risk of inflation, problems of wage competitiveness or job losses. The motivation for this book grew out of the need to understand this complex constellation of country differences in minimum wage rules, sectorspecific forms of collective bargaining, and the diverse and changing outlooks of unions and employers towards minimum wage policy and pay equity. Despite the fact that the primary goal of any country’s minimum wage system is to change the distribution of the wage structure, there is very limited research explicitly focused on this. Most research is in the economics discipline and focuses on modelling employment effects, an issue we address in the final chapter of this book. The novelty of this book, therefore, is its analysis of original comparative data on employer and union approaches to wage bargaining in different country and sector settings, its focus on pay equity processes and outcomes, and its framing of the issues in the context of diverse developments of minimum wage policy and collective bargaining. The book’s approach is comparative and institutionalist. It draws on original research conducted in five European countries (Croatia, Germany, Hungary, Spain and the UK), as well as secondary data and literature for Europe and the United States. It interrogates the different rules and functions of minimum wages in their country settings, analyses the intersections with a country’s model of industrial relations and explores the role of pay equity both in shaping patterns of policy development and collective bargaining and as an outcome of different combinations of wage-setting institutions. Overall, the book seeks to contribute to institutionalist theories of labour markets, to empirical analysis of minimum wages and pay equity, to policy debates about how to generate fairer labour market outcomes through embedding processes of social dialogue and to the development of union, employer and government actions towards pay equity and the rooting out of noncompliance. This short introduction serves three purposes, which are addressed in the following three sections. It identifies the theoretical and empirical points of departure for the programme of research and sets out the key research questions. It provides an overview of the research project, especially its design, method and description of primary data sources. Finally, it provides a summary outline of the chapters of the book.

1.1 POINTS OF DEPARTURE AND RESEARCH QUESTIONS In order to improve our understanding of the different approaches of governments and social partners towards minimum wage policy and the varying pay equity effects, this programme of comparative research set out to interrogate the intersections at multiple levels between a minimum wage system and a

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Damian Grimshaw

country’s model of industrial relations. It aimed to shed light on the way minimum wage systems interact with the pay bargaining strategies of trade unions and employers through the analysis of secondary data and collection of primary data in diverse country and sector environments. Several theoretical and empirical insights from complementary fields of study provide key foundations, or starting points, for the book. First, the book is grounded in an institutionalist analysis of labour markets and their functioning within the wider society rather than a neoclassical economics approach. The problem with neoclassical economics is not that it is uninterested in institutions. It has borrowed many examples from the institutionalist and industrial relations literatures in attempts to renew models of competitive labour markets, including notions of fair wage differentials, union bargaining power, long-term employment relationships and discriminatory hiring, among others.1 But such analyses are limited in their tendency to rework a stylised institutional fact into an economic construct and then integrate this into the given framework of market forces of supply and demand (with transaction and information costs), still assuming rational behaviour on the part of individualist actors. By contrast, an institutionalist approach attempts to explain the dynamic interrelationship between institutions, economic organisation and societal context through an interdisciplinary lens; the potential for contradictions, variety and change is favored over an economics focus on Pareto optimality, universalism and equilibrium. This drives three key points of departure for an institutionalist analysis of minimum wages, pay equity and collective bargaining: (i) because unfettered labour markets generate unequal bargaining power at the point of labour market exchange, institutions for collective labour organisation and statutory employment protection can improve the balance; (ii) labour markets are segmented and discriminatory, and this generates specific employment practices and conditions in sectors and organisations with an overrepresentation of workforce groups (especially women, young workers, migrant workers and minority workers); and (iii) labour market institutions have heterogeneous effects across countries and within countries at different points of time due to the different interlinking and embedding with economic conditions and with other institutions (especially those associated with welfare, social, industrial, legal and corporate governance policies) (for recent contributions, see Deakin and Wilkinson 2005; Kaufman 2010; Lee and McCann 2011; Levin-Waldman 2011; Reich 2008; Rubery 2007). Building on these insights into the comparative, cross-national effects of labour market institutions, a second important foundation for this book concerns recent developments in the interdisciplinary analysis of varieties of models of capitalism (e.g. Bosch et al. 2009; Coates 2000; Hancké et al. 2007; Morgan et al. 2010). These studies analyse the contradictions between major

Introduction and Plan of the Book

5

dimensions of employment models, thereby identifying both the causes of new conflicts of interests among social actors (such as government, unions and employers) and the triggers for institutional adaptations. Moreover, as the collection of studies in Streeck and Thelen (2005) demonstrate, institutional change only occasionally involves rupture and transformation. More pervasive is the type of ‘gradual transformative change’ involving the incremental displacement or erosion of one set of institutional arrangements with another. A country’s past legacies are critical in defining current and future paths; growing pressures of liberalisation do not dictate a universal route of change (op. cit.). This type of approach emphasises the need to interrogate the possibilities for both complementarities and tensions in country models of wage-setting institutions, which is a key concern of this book. The comparative approach focuses on tensions at national, sector and organisation levels and seeks to understand the multiple perspectives of government, employer and unions, and to trace the diverse trajectories and outcomes of change in policy and practice. A third point of departure for this book is the treatment of country and sector dynamics in recent comparative industrial relations research, especially Marginson and Sisson’s (2004) comprehensive treatment of industrial relations institutions and outcomes in Europe and the international comparison of multilevel changes in employment practices and systems by Katz and Darbishire (2000). Part Two of the book is designed around detailed empirical analysis of four sectors in order to emphasise the varying patterns and processes through which national institutions operate at sector and company levels. A fourth insight is largely empirical, and derives from recently conducted international research on minimum wage systems and low pay (EC 2008; Schulten et al. 2006; Vaughan-Whitehead 2010), which clarifies certain institutional patterns: in particular that (i) countries with high levels of effective collective bargaining coverage tend to enjoy a high value statutory minimum wage, and (ii) the higher the minimum wage value, the lower the incidence of low pay and the narrower the gender pay gap. The research presented in this book seeks to contribute to these findings by showing how aggregate-level institutional interactions and pay equity effects are articulated through the processes and outcomes of collective bargaining and, in doing so, to add new arguments about how the role and effectiveness of minimum wage policy is shaped by distinctive national and sector patterns of industrial relations. This book asks the following four interrelated research questions: • What are the varied strategies and actions of governments, employers and trade unions towards the development of minimum wage systems in different countries? • What factors influence the intersections between the dual wage-setting institutions of a country’s statutory minimum wage and collective bargaining? • What are the characteristics of particular forms of pay bargaining at sector and organisation levels that may be said to respond to either an active or weak/absent minimum wage policy?

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Damian Grimshaw • What are the implications of different forms of pay bargaining—in distinctive contexts of collective bargaining and minimum wage setting— for pay equity?

These four questions were designed to guide our cross-national comparative analysis of how the pay equity effects of minimum wage systems are articulated through the processes and outcomes of collective bargaining. The analysis in Part Two of the book responds to a significant gap in our knowledge about the details of pay bargaining for low-wage work. For example, a rising minimum wage may align with trade union strategies to compress the wage structure among members, generating an especially strong effect at the lower end by truncating the bottom tail of the pay distribution among organised workers. Similarly, both employers and unions may seek to build on a minimum wage floor through complementary efforts to address gender pay equity through pay bargaining (Dickens 2000). But how do pay bargaining strategies modify and shape the ripple effects (Pollin et al. 2008) associated with a rising minimum wage? Do unions and employers believe that the lowest paid in their particular sector or organisation ought to be paid higher than the legally binding minimum wage? If so, what is an appropriate pay gap (or ‘legitimate differential’—Checchi et al. 2010), and moreover, should the pay gap be sustained even during a period of above-average increases in the minimum wage? Where a minimum wage is absent or is perceived to be too low, are there alternative mechanisms to establish binding wage floors? Is compliance with a binding minimum wage associated with patterns of noncompliance with collectively bargained wage rates? In cases where the base pay in a collective agreement is at or even below the legal minimum, what are the reasons for this and do social partners renegotiate other pay supplements to pay for a higher base rate? And is there evidence that specific sector conditions encourage employer and union coalitions to design pay measures that can underpin positive pay equity effects?

1.2 THE RESEARCH DESIGN This book draws upon the results of a five-country comparative project that was funded by the European Commission’s unit of ‘Social Dialogue, Industrial Relations’ and undertaken during 2009 and 2010.2 The project collected primary interview data with key actors in positions of influence over pay bargaining in the selected sectors, as well as secondary pay data, collective wage agreements (at sector and company levels), and government and union public statements on minimum wage policy. This mixed-method approach, combining qualitative and quantitative approaches, is suitable for addressing the research questions (in the previous section) that require an interdisciplinary framework for data analysis and inference. While Part One of the book expands the detailed country coverage to nine European countries, with reference to all European Union (EU) member

Introduction and Plan of the Book 7 states where relevant, the bulk of the book focuses on an analysis of five countries—Croatia, Germany, Hungary, Spain and the UK. These five countries were selected to include old, new and candidate EU member states and to provide interesting examples of minimum wage policy developments and responses by social partners. Prior research on minimum wages and wage inequality in Europe (Kohl and Platzer 2007; Schulten et al. 2006; VaughanWhitehead 2010) highlighted key policy issues in these five countries: in Croatia, the 2008 Minimum Wage Act generated controversy because it risked weakening the perceived complementarity with patterns of collective bargaining; policy was rapidly changing in Germany during the late 2000s in light of evidence that a growing share of low-wage workers lacked wage protection; both Hungary and Spain had experienced minimum wage increases and questions about the nature of responses from social partners; and in the UK, weak unions had been unable to prevent the minimum wage from being used as ‘the going rate’ in the private sector, leading to a growing spike at the wage floor and a persistent high share of low-wage employment despite a rising value of the minimum wage. These five countries also reflect a valuable mix of industrial relations models against which to explore minimum wages, collective bargaining and pay equity effects. Table 1.1 locates the five countries, together with the additional four countries (Estonia, France, Ireland and Sweden, listed in italics), which are examined in Part One of the book, along three dimensions of variety—the strength of collective bargaining coverage, the type of minimum wage system and the relative level of the minimum wage. It was important for our selection to include examples of different mixes of collective bargaining strength and minimum wage type, as well as minimum wage value: Estonia, the UK and Table 1.1 Variety of minimum wage and collective bargaining systems  Weak  Collective bargaining coverage  Strong  Statutory national MW Level relative to median wage: 0.40–0.45 0.46–0.50 0.51–0.55

Estonia

Croatia

Ireland

0.56–0.60 Collectively agreed sector MWs

Spain

UK, Hungary France Germany

Sweden

Source: detailed 2009 data on collective bargaining coverage from Chapter 2 (Table 2.3); detailed 2009 data on minimum wage value from Chapter 2 (Figure 2.3a).

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Hungary are illustrative of countries with relatively weak protection provided by collective bargaining and a low-to-medium minimum wage value (in terms of its level relative to median earnings of full-time employees); France provides a contrasting combination of strong collective bargaining coverage and a high level minimum wage (the highest in Europe in fact); Croatia and Spain provide a curious mix of relatively strong collective bargaining and very low level minimum wages; Ireland sits in the middle; and Germany and Sweden are illustrative of the group of seven out of 27 European member states that set multiple minimum wage levels in sector-based collective agreements. The programme of research was designed to produce original evaluations of country systems through engaging a team of country specialists. Experts from the five countries carried out original case studies of sector and company collective wage agreements and produced reports to a common format that included an analysis of secondary wage data, industrial relations and minimum wage policy and sector/company case studies. The team was constituted as follows: – – – – –

Danijel Nesti and Ivana Rai-Bakari for Croatia; Josep Banyuls, Ernest Cano and Empar Aguado for Spain; Gerhard Bosch and Claudia Weinkopf for Germany; László Neumann for Hungary; and Damian Grimshaw, Claire Shepherd and Jill Rubery for the UK.

The analysis in this book draws directly on the five country reports, as well as the comparative report completed for the European Commission. Full details of the national reports can be found in the reference lists at the end of each chapter where appropriate and are referenced throughout the book as follows: Banyuls et al. (2010, national report), Bosch and Weinkopf (2010, national report), Grimshaw et al. (2010, national report), Nesti and RašiBakari (2010, national report) and Neumann (2010, national report).3 Moreover, all country experts collaborated to provide updated information in this book during 2011 and 2012. Part Two of this book is designed around the empirical evidence from four sectors of economic activity—commercial cleaning, security services, construction and retail. The choice of sectors derive from a process of collective selection among the project team that sought to follow three points of guidance: (i) each country team selected three sectors that were influential in framing minimum wage policy developments (such as the construction sector in Germany) and/or were likely to be influenced by the minimum wage (such as the cleaning and retail sectors where the incidence of minimum wage workers is known to be high in some countries); (ii) the selection facilitated cross-national comparison of four sectors; and (iii) it provided examples of male- and female-dominated sectors. Table 1.2 lists all sectors investigated by each country team and highlights the country mix of data for the four sectors presented in Part Two of this book.

Introduction and Plan of the Book 9 Table 1.2 Selection of sectors for case-study research Croatia Sectors included in this book: Commercial cleaning Security services Construction X Retail X Other sectors in the national reports: Clothing manufacture X Hospitality Temporary work agencies

Germany Hungary

Spain

UK

X

X

X X

X

X

X

X X X

X X

Table 1.3 List of organisations where interviews were conducted

Sector

Employer/trade bodies

Croatia Construction: Construction employers’ association (HUP-UPG) Clothing: Textile and leather industry employers’ association (HUP-UTKI) Retail: Employers’ trade association (HUP-UT) Total interviews: 12 Germany Construction: Construction employer associations (HDB, ZDB, ZVOB, BVMB) Cleaning: Cleaning sector employer association (BIV) Temp agency: Temp agency employer associations (BZA and IGZ)

Trade unions

Companies/local unions

Trade union of construction industry (SGH) Croatian trade ClothCo union for textile, footwear, leather and rubber (TOKG) Commercial trade RetailCo union (STH)

Construction trade union (IG BAU)

Cleaning trade union (IG BAU) German federation Large temp of trade unions agency company (DGB)

Total interviews: 16 (Continued)

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Table 1.3 (Continued)

Sector

Employer/trade bodies

Hungary Retail:

Spain

UK

Trade unions

National Commerce Federation (OKSZ) Construction: National Federation of Hungarian Contractors (EVOSZ) Security: Employer Association of Hungarian Security Companies (MBVMSZ) Total interviews: 13 Retail: Valencian retail employers’ association (FEMEVAL, FEDACOVA, COVACO) Hospitality: Valencian hospitality employers association (FEHV) Cleaning: Valencian cleaning employers’ association (APELVA), National employers association (ASPEL) Total interviews: 13 Retail: —

Trade Union of Commercial Employees (KASZ) Federation of Building, Wood and Material Workers’ Unions (ÉFÉDOSZSZ) National Alliance of Property Security Trade Unions (VSZOSZ)

Cleaning:

British Institute of Cleaning Science

Public services union (Unison)

Security:

British Security General and Industry Association municipal union (GMB)

Total interviews: 15

Companies/local unions Local union at RetailCo BuildCo manager Small business owner Local union at BuildCo Two security firms Local union at SecurityCo

Retail trade union — representatives (CCOO and UGT)

Hospitality trade — union representatives (CCOO and UGT) Cleaning trade — union representative (CCOO)

Retail trade union RetailCo (Usdaw) CleanCo, ServiceCo, SMECleanCo SecurityCo, SMESecureCo

Introduction and Plan of the Book 11 A second collective process guided the choice of interviewees and question design. Interviews were a preferred method because of their flexibility in heterogeneous circumstances (different sectors and countries) and their capacity for exploratory discovery (between data collection, inference and analysis) (Yin 1994). A total of sixty-nine interviews were completed (Table 1.3). Interviewees were mostly selected on the basis of their expertise in pay bargaining, including HR managers in companies and senior pay negotiators from both unions and employer bodies. Other interviewees included persons with relevant knowledge about the broader implications of minimum wage policy for the management of pay. All interviews were transcribed and coded manually following collective and country-specific research themes.

1.3 PLAN OF THE BOOK The book is organised into three parts. Part One provides a critical assessment of minimum wages and collective bargaining, the range of possible institutional intersections and reflections on the distributive effects. Chapter 2 presents an overview of institutions of minimum wages and collective bargaining in nine European countries. It assesses the reasons underpinning the diverse and changing outlooks of governments, unions and employers towards minimum wage regulation. It presents a cross-national comparative assessment of the variety of rules, levels and forms of implementation of minimum wage systems and also provides a comparison of country models of industrial relations and collective bargaining. In Chapter 3, Grimshaw and Bosch present a novel framework that identifies the different types of intersections between minimum wage and collective bargaining systems. These intersections are constituted by tensions and complementarities and provide different opportunities for government and social partners to design and apply pay equity strategies in the respective countries, sectors and organisations exposed to minimum wage policy developments. It draws on these insights to reassess country models of minimum wage and collective bargaining systems and to interpret trends in minimum wage values in Europe. Chapter 4 draws on an eclectic political economy tradition to interrogate the distributive functions of a minimum wage. Grimshaw and Rubery identify four key policy targets and theoretical rationales—exploitative pay (the need to support the social cost of labour), powerful employers (workers’ unequal wage bargaining power), undervalued women’s work (gender-segmented labour markets and welfare policy) and destructive wage competition (the need for long-run dynamic efficiency). The chapter explores evidence of the pay equity effects of minimum wages using three indicators: the incidence of low pay, wage inequality in the bottom half of the wage distribution and gender pay equity. Part Two presents the four sector case studies, each structured around a relatively similar format that interrogates the business and employment

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character of the sector, the structure of industrial relations and collective bargaining, pay trends and the relevance of the minimum wage for pay bargaining, especially with respect to evidence of ‘egalitarian pay bargaining’. In Chapter 5, Weinkopf, Banyuls and Grimshaw investigate evidence of pay bargaining practices in the business cleaning sector in Germany, Spain and the UK. They find that while all three countries experience similar pressures of price-led bidding for services contracts and high shares of low-wage work, the approaches and scope for pay bargaining vary against diverse conditions of collective bargaining and minimum wages: the new binding sector minimum wage in Germany is relatively high and social dialogue well developed; in the UK, a pay clause in public sector outsourcing contracts helped boost pay for many subcontracted cleaners; and in Spain, high collective bargaining coverage has maintained wages above the very low statutory minimum wage. In their investigation of the security services in Hungary and the UK in Chapter 6, Neumann and Grimshaw argue that effective union mobilisation can foster success in widening the gap between sector and company pay rates and the statutory minimum wage but that such efforts can be easily undermined by downward cost pressures exerted by client organisations (that is, the organisations that purchase services from the security companies) and hindered by employers’ reluctance to improve coordination across the industry. The result is a sector that typically pays the minimum wage as the going rate and, with a few notable exceptions, is either unwilling or unable to pass on to clients the additional wage costs justified by improved skills and technology use. In Chapter 7, Bosch, Nesti and Neumann compare the wage-setting systems in the construction industry of six European countries. For added comparative detail, this chapter draws on the results of related research in France, the Netherlands and the UK originally presented in Bosch and Philips (2003) and updated here. The chapter finds that the arduous conditions characteristic of construction work make it necessary to pay wages above the statutory minimum, with premiums for skilled workers. Industrywide collective agreements with wage grids differentiated by skill level serve such requirements and are widespread in this industry even in liberal market economies such as the UK. Cross-border postings have led many governments and social partners to strengthen the obligatory pay thresholds using the Posted Workers Directive. The retail sector in Croatia, Hungary, Spain and the UK is the focus of Chapter 8. Banyuls, Grimshaw, Nesti and Neumann examine the extent to which pay bargaining is influenced by minimum wage developments and the consequences for pay equity and social dialogue. They find that in all four countries a weak union presence is reflected in an inability to maintain a stable positive gap between collectively agreed-on base rates and the statutory minimum wage, despite evidence of bargaining strategies to raise the relative position of the lowest paid. Common evidence of pay compression in sector and company pay scales results from varying interactions between pay bargaining approaches, minimum wage policy and union influence.

Introduction and Plan of the Book 13 Part Three concludes the book by drawing together and systemising the key results of Part Two and elaborating the implications for an institutionalist approach towards understanding pay equity. In Chapter 9, Grimshaw, Bosch and Rubery locate the contribution of the book’s findings with respect to theoretical debates about the significance of institutions in shaping wage structures, specifically the roles of social actors and national versus sector effects. It also provides an original systemisation of the major findings from Part Two by identifying two general forms of pay bargaining (responses to changes in the statutory national minimum wage and responses to the absence or weakness of a statutory national minimum wage) (see, also, Grimshaw et al. forthcoming) and five pay equity effects linked to patterns of minimum wage policy, industrial relations and forms of pay bargaining. These pay equity effects describe the effects on the relative position of the wage floor, the form and size of ripple effects, and the prevalence of spikes and wage compression. Combined together, the chapters in this book provide convincing analytical reasoning and cross-national comparative empirical evidence that advances our thinking about labour market institutions from an international perspective. The austerity crisis and long economic depression that continue to plague several European countries at the time of writing is putting intense pressure on minimum wages and processes of social dialogue in wage-setting and potentially generating new forms of intersections between labour market institutions that will have major implications for pay equity outcomes, with a likely stagnation or even reversal in prospects for low pay and gender pay equity. The evidence in this book places the role of national governments, trade unions and employers’ associations centre stage in shaping and reacting to the design, operationalisation and outcomes of labour market institutions. Wage cuts made in the name of restoring macroeconomic performance are likely to aggravate the crisis by reducing consumer purchasing power and worsening aggregate demand. Competitive labour markets are imperfect entities and the greater the macroeconomic pressures of turbulence the greater is the need for established and renewed processes of social dialogue to work through the disconnects and mismatches between the changing social and economic needs of workers, the restructuring of conditions in low-wage sectors, and the national and international policy frame of governments.

NOTES 1. See the detailed review of economics studies in Grimshaw and Rubery (2003). 2. The project reference is ‘Minimum wage systems and changing industrial relations in Europe’ VS/2009/0159. The grant was provided by the Social Dialogue unit within DGV (Employment, Social Affairs and Equal Opportunities), European Commission. 3. See the References for full references. All reports are available for download at http://www.mbs.ac.uk/research/europeanemployment/projects/minimumwage.aspx.

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REFERENCES Banyuls, J., Cano, E. and Aguado, E. (2010) ‘Minimum wage systems and changing industrial relations: National report Spain’. Prepared for the EC funded project VS/2009/0159, https://research.mbs.ac.uk/european-employment/Ourresearch/ Pastprojects.aspx. Bosch, G., Lehndorff, S. and Rubery, J. (eds.) (2009) European Employment Models in Flux: A Comparison of Institutional Change in Nine European Countries, Basingstoke: Palgrave. Bosch, G. and Philips, P. (eds.) (2003) Building Chaos. An International Comparison of Deregulation in the Construction Industry, London: Routledge. Bosch, G. and Weinkopf, C. (2010) ‘Minimum wage systems and changing industrial relations: National report Germany’, Prepared for the EC funded project VS/2009/0159, https://research.mbs.ac.uk/european-employment/Ourresearch/ Pastprojects.aspx. Checchi, D., Visser, J. and van de Werfhorst, H. G. (2010) ‘Inequality and union membership: the influence of relative earnings and inequality attitudes’, British Journal of Industrial Relations, 48 (1):84–108. Coates, D. (2000) Models of Capitalism: Growth and Stagnation in the Modern Era, Cambridge: Polity Press. Deakin, S. and Wilkinson, F. (2005) The Law of the Labour Market: Industrialization, Employment and Legal Evolution, Oxford: Oxford University Press. Dickens, L. (2000) ‘Collective bargaining and the promotion of gender equality at work: Opportunities and challenges for trade unions’, Transfer, 6 (2):193–208. England, P, and Folbre, N. (2003) ‘Contracting for care’ in J. Nelson and M. Ferber (eds.), Feminist Economics Today, Chicago: Chicago University Press. European Commission (EC) (2008) ‘Wage setting, minimum wages and industrial relations’, Chapter 3 in Industrial Relations in Europe, Brussels: EC. Freeman, R. (1996) ‘The minimum wage as a redistributive tool’ Economic Journal, 106 (May): 639–649. Gautié, J. (2010) ‘France: towards the end of an active minimum wage policy?’, in D. Vaughan-Whitehead (ed.) The Minimum Wage Revisited in the Enlarged EU, Cheltenham: Edward Elgar. Grimshaw, D. and Rubery, J. (2003) ‘Economics and industrial relations’ in P. Ackers and A. Wilkinson (eds.) Understanding Work and Employment: Industrial Relations in Transition, Oxford: Oxford University Press. Grimshaw, D., Shepherd, C. and Rubery, J. (2010) ‘Minimum wage systems and changing industrial relations: National report UK’, Prepared for the EC funded project VS/2009/0159, https://research.mbs.ac.uk/european-employment/Ourresearch/ Pastprojects.aspx. Hancké, B., Rhodes, M. and Thatcher, M. (2007) ‘Introduction: beyond varieties of capitalism’ in B. Hancké, M. Rhodes and M. Thatcher (eds.) Beyond Varieties of Capitalism, Oxford: Oxford University Press. Katz, H. and Darbishire, O. (2000) Converging Divergences: Worldwide Changes in Employment Systems, Ithaca, NY: Cornell University Press. Kaufman, B. (2010) ‘Institutional economics and the minimum wage: broadening the theoretical and policy debate’, Industrial and Labor Relations Review, 63 (3): 427–453. Kohl, H. and Platzer, H.-W. (2007) ‘The role of the state in Central and Eastern European industrial relations: the case of minimum wages’, Industrial Relations Journal, 38 (6): 614–635. Lee, S. and McCann, D. (eds.) (2011) Regulating for Decent Work: Directions in Labour Market Regulation, Geneva: ILO.

Introduction and Plan of the Book 15 Levin-Waldman, O. M. (2011) Wage Policy, Income Distribution and Democratic Theory, London: Routledge. Marginson, P. and Sisson, K. (2004) European Integration and Industrial Relations, Basingstoke: Palgrave. Morgan, G., Campbell, J., Crouch, C., Pedersen, O. K. and Whitley, R. (eds). (2010) The Oxford Handbook of Comparative Institutional Analysis, Oxford: Oxford University Press. Nesti, D. and Raši-Bakari, I. (2010) ‘Minimum wage systems and changing industrial relations: National report Croatia’, Prepared for the EC funded project VS/2009/0159, https://research.mbs.ac.uk/european-employment/Ourresearch/ Pastprojects.aspx. Neumann, L. (2010) ‘Minimum wage systems and changing industrial relations: National report Hungary’, Prepared for the EC funded project VS/2009/0159, https://research.mbs.ac.uk/european-employment/Ourresearch/Pastprojects. aspx. Pollin, R., Brenner, M., Wicks-Lim, J. and Luce, S. (2008) A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States, Cornell University Press. Reich, M. (ed.) (2008) Segmented Labor Markets and Labor Mobility: Volumes 1 and 2, Cheltenham: Edward Elgar. g Rubery, J. (2007) ‘Developing segmentation theory: a thirty year perspective,’ Économies et Sociétés, 28 (6): 941–964. Ruhs, M. and Anderson, B. (2010) Who Needs Migrants? Oxford: Oxford University Press. Schulten, T., Bispinck, R. and Schäfer, C. (eds.) (2006) Minimum Wages in Europe, Brussels: ETUI-REHS. Streeck, W. and Thelen, K. (eds.) (2005) Beyond Continuity: Institutional Change in Advanced Political Economies, Oxford: Oxford University Press. Vaughan-Whitehead, D. (ed.) (2010) The Minimum Wage Revisited in the Enlarged EU, Geneva: ILO. Webb, S. (1912) ‘The economic theory of a legal minimum wage’, Journal of Political Economy, 20 (10): 973–998. Yin, R. (1994) Case Study Research: Design and Methods, Newbury Park, CA: Sage.

Part I

Wage-Setting Institutions, Intersections and Pay Equity Effects

2

Minimum Wages and Collective Bargaining A Preliminary Characterisation Damian Grimshaw

INTRODUCTION Within any particular country, government, unions and employers adopt different approaches towards statutory minimum wage regulation reflecting diverse objectives and competing interests. While a statutory national wage floor is supported by most European country governments, the motives and policy goals are mixed, and this shapes the consequences of minimum wage setting. Also, employers and unions each display varied outlooks towards minimum wages across Europe, creating complex trajectories of regulatory adjustment. In Germany, for example, the right of government to set a basic wage standard in the labour market is resisted by employers and some unions as stepping outside the accepted boundaries of public policy into areas of regulatory responsibility controlled by unions and employers. By contrast, unions and employers in the UK now accept the statutory wage floor as providing needed protection against damaging cost-led competition in markets where opportunities for joint wage regulation have substantially diminished since the late 1970s. Much of the balance of dialogue and conflict among government, unions and employers is shaped by the context of collective bargaining, including factors such as the strength unions enjoy in the arena of joint wage-setting, the share of workers whose pay is not protected by collective bargaining and the use by government of legally binding extension measures. Building on recent comparative studies of minimum wage systems in Europe (Eyraud and Saget 2005; Kohl and Platzer 2007; Schulten et al. 2006; Vaughan-Whitehead 2010) and the five national project reports described in Chapter 1, this chapter presents a preliminary exploration of these issues for nine European countries—Croatia, Estonia, France, Germany, Hungary, Ireland, Spain, Sweden and the UK—thereby providing a somewhat broader comparative country context for the subsequent detailed analysis of the five countries (Croatia, Germany, Hungary, Spain and the UK) in Part Two of this book. Section 2.1 assesses the diverse outlooks of governments, unions and employers towards statutory minimum wage regulation. Section 2.2 presents a cross-national comparative assessment of the variety of different

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rules and other characteristics, such as level and form of implementation, of minimum wage systems. Section 2.3 provides a comparison of collective bargaining systems and Section 2.4 provides a concluding overview.

2.1 THE OUTLOOK OF GOVERNMENT, EMPLOYERS AND TRADE UNIONS While a majority of countries in Europe have established a statutory minimum wage, the operationalisation of the policy is likely to be a continuing source of conflict and tension. For evidence of this, Europe has had many changes in the direction of minimum wage policy, recurring debates over the appropriate method and size of uprating of the minimum and conflict over the relative weights of interests of government, employers and unions with regard to shaping the objectives of minimum wage policy. In their international review of minimum-wage fixing criteria, Eyraud and Saget argue that such conflicts are inevitable: It is precisely because the minimum wage is a powerful and flexible instrument of economic and social policy that its use varies across countries, resulting in a host of different arrangements and national models. Nevertheless, this diversity gives rise to both problems and contradictions. (2005: 2) In part, evidence of the contested terrain of minimum wage policy reflects competing views about the role of government regulation in labour markets. The setting of a statutory minimum wage is one of a number of instruments of public policy at the disposal of governments—along with, for example, minimum working hours and minimum paid holidays—to set basic legal standards in the labour market. But the conventional, mainstream economics view does not support this role. Instead, government intervention in wage-setting is believed to impede the private activities and decisions in the labour market by individual (and collective) bodies. This viewpoint was deployed to great effect in the UK during the 1980s and early 1990s and resulted in the abolition of wages councils that set sector-specific minimum wages (Blackburn 1988; Machin and Manning 1994). It also accounts for the very low levels of minimum wages set in former Communist countries in Europe in the early 1990s (Standing and Vaughan-Whitehead 1995). The competing viewpoint—distilled from studies by heterodox economists, labour sociologists and industrial relations specialists (e.g. Card and Krueger 1995; Craig et al. 1982; Freeman 1996; Kaufman 2010; Power 1999; Reich 2010; Rubery and Edwards 2003)—is that minimum wage regulations form one of a battery of labour market institutions that help shape the rules of the game in the allocation, reward and movement of workers in the labour market. In this view, labour markets are complex entities embedded in a societal

Minimum Wages and Collective Bargaining 21 model of social, economic and political rules and norms. Moreover, all labour markets are bound to generate distorted outcomes, to varying degrees, because they are imperfect markets. As a result, the argument that minimum wages are responsible for distorting outcomes that would otherwise have been optimum does not hold. Indeed, the evidence suggests that less regulated labour markets are not more likely to generate outcomes consistent with perfectly competitive labour markets (such as the matching of pay with productivity levels, for example). Several studies show that the weaker the institutional architecture in governing labour markets, the further away are labour market outcomes from the textbook predictions (e.g. Schettkat 2002; Teulings and Hartog 19981). While a surprising result for mainstream economists, Schettkat argues that it is ‘consistent with the view that labour markets are fundamentally imperfect markets and that the transaction costs to achieve the market-clearing equilibrium wage are high in decentralised bargaining systems. From a theoretical perspective, centralised bargaining may collect information and substitute for the auctioneer’ (2002: 13). In the political science literature, O’Connor’s (1973) model of the contradictory roles of the capitalist state suggests minimum wage policy responds in different ways in particular periods and country-settings to the dual needs of the state to provide for the conditions of capital accumulation and to legitimise the consequences of capital accumulation.2 Similarly, minimum wage policy could be interpreted as the outcome of conflicting goals both to commodify and decommodify labour, that is, both to encourage individual dependence on the labour market and protect against social disintegration and political instability, respectively (Polanyi 1957; Gough 1979; EspingAndersen 1990). Drawing on these analytical themes and debates, we can identify areas of real-world tensions faced by governments in adapting minimum wage policy against a backdrop of diverse economic and social policy goals (Figure 2.1). First, minimum wage policy may conflict with a government’s approach towards economic development that encourages growth of low-wage sectors, either to sustain low value–added industries that are important for regional income, for example, or as a mechanism to get the unemployed into work. Introducing or raising a statutory minimum wage may be judged as too risky because of perceived associations with job losses and disincentives to employment creation. Attitudes towards such risks have changed, however, following studies done in the 1990s, known as the ‘new economics’ of the minimum wage (Bhaskar and To 1999; Card and Krueger 1995; Machin and Manning 1994), which refute the mainstream economics’ view that a minimum wage necessarily causes significant negative employment effects. Also, in new econometric analyses of employment effects, studies undertaken by researchers at UC Berkeley’s Institute for Research on Labor and Employment have sought to reduce problems in technical specifications and identify no employment effects from minimum wage increases (Allegretto et al. 2011; Dube et al. 2007, 2010; Reich et al. 2005).3

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Second, a government may be wary of minimum wage policy undermining a low inflation target where there is a rising minimum wage coupled with large ripple effects, or wage spillover effects, further up the wage structure. Again, perceptions are likely to vary. The size of the inflation risk depends on many factors, including the relative level of the minimum wage, the size and regularity of increase, the strength of ‘demonstration effect’ of the increase in minimum wage in establishing a pattern for wage rises, the share of workers paid at or marginally above the minimum wage, the varying responses of employers, the willingness of customers and client businesses to pay higher prices and the interaction with the country model of wage-setting—especially the influence of collective bargaining in low-wage sectors and the desire of workers outside of low-wage sectors to restore customary differentials (Craig et al. 1982; Grimshaw and Carroll 2006). This institutionalist framing of variables chimes with Freeman’s (1996: 645) argument that ‘it is difficult to see how a minimum wage could set off general wage inflation’ in countries with a minimum wage at a low-to-medium level, a steady trend of minimum wage rises and a pattern of weak collective bargaining. These issues are at the heart of the empirical analysis presented in the sector studies in Part Two of this book and systemised in Part Three. Alongside potential tensions, minimum wage policy may complement government economic policy in several important respects. It may be perceived as promoting macroeconomic stability and full employment. Kaufman (2010) argues that a minimum wage policy is integral to a country’s macroeconomic performance since it performs three objectives: ‘first, to boost employment by augmenting aggregate demand; second, to prevent ruinous deflation and “destructive competition” in labour markets; and third, to maintain a better balance between spending and production’. This positive perspective on the macroeconomic-boosting effect of a statutory minimum wage runs counter to policy-making during European austerity from 2010 to 2012 where, as we show below, many countries have allowed their minimum wage to slide below the rate of inflation rather than exploit its potential for ‘augmenting aggregate demand’. Moreover, austerity measures ignore the experience and advice of international policy bodies. In a 2011 policy guidance briefing on wage policy, the ILO sets out the complementarities with economic policy: ‘[Minimum wages] can protect the purchasing power of low-paid workers, strengthen aggregate demand, promote stability and avoid sections of society feeling left behind during periods of economic recovery and growth’ (ILO 2011: 13). As such, a minimum wage policy may be important to a government’s approach to distributing the gains of economic growth. It promotes a more equal society by raising the wage floor (Heymann and Earle 2010) and reduces (or prevents, depending on the level) the risk of workers living below subsistence income levels (see Chapter 4 for further details on distributive effects). A higher minimum wage can contribute to government policy efforts ‘to make work pay’ and reduce incentives to remain on unemployment benefits.

Minimum Wages and Collective Bargaining 23 The fewer the number of workers living below subsistence, the less pressure on government to top up household income through means-tested benefit payments, such as in-work tax credits (Freeman 1996: 644–645; ILO 2010: 76; Metcalf 2009: 300; Sachdev and Wilkinson 1998). Some institutional economists are ambivalent as to whether a statutory minimum wage or in-work benefits are the most appropriate form of intervention. Kaufman (2010) argues a statutory minimum wage is effective in part because it reduces the gap between the private and social cost of labour. Other institutions may in certain situations be more efficient than minimum wage policy at achieving the same result, he argues, and, therefore, ought to be considered by government; Kaufman cites the Earned Income Tax Credits found in the United States, universal health insurance and pensions found in many European countries, job subsidy programs and universal collective bargaining (op. cit.: 448). In practice, a view regarding the relative merits of these alternative policy instruments for improving the position of low-wage workers depends on detailed empirical analysis. For example, while near universal collective bargaining may have once provided a functionally equivalent form of protection compared with a statutory national minimum wage, the rulings by the European Court of Justice against trade union demands to extend nonlegally binding collectively agreed wages to posted workers (as in the 2008 Laval case of Sweden) suggest there is no longer an obvious institutional equivalence (see Chapter 3). Also, the argument that in-work tax credits represent a neutral policy substitute to a statutory minimum wage ignores on the one hand the potential for gender discrimination in welfare policy and, on the other, the crowding out effect on workers’ capacity to bargain up their pay. Where tax credits are designed to supplement the wage of the ‘main breadwinner’, subject to the household income falling below a defined poverty threshold, then the policy discriminates against secondary earners (mainly women, but also young people) employed in low-wage jobs (Lewis 2002: 343; McLaughlin et al. 2001; Rubery 2008). Designed in this way, tax credit policy produces a segment of workers who earn wages without subsidies and, in the absence of a sufficiently high minimum wage, are vulnerable to competition from workers who do receive subsidies. A better design would assign welfare payments on the same basis as wage income—that is, according to the position and character of the individual (as in France and Belgium since 2001—Bargain and Orsini 2006). However, even a gender-neutral tax credit policy is likely to contribute to in-work poverty traps by diminishing the incentive for workers to bargain for higher pay since additional pay is clawed back in reduced benefits and/or increased tax (Prasch 2002). As employers reduce low wages to the minimum level, there is a risk that workers in receipt of tax credits are trapped in minimum wage jobs (for the UK, see Gosling 1999; Sutherland 1999), although comparative analyses highlight the considerable variety of policy design and wage/benefit outcomes (see Brewer et al. 2009).

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Government policy • macroeconomic goals (inflation target, trade balance) • role of low-wage industry in economic development • job growth/unemployment • tax revenues & tax credits expenditures • welfare & social policy (poverty traps) • redistributive goals (wage equality, gender wage equity)

Unions Employers • freedom to set wages or enter voluntary collective agreements • cost constraints of competitive (domestic/ global) product markets • trade-offs with model of work organisation (skill-mix, worker turnover) • fit with ‘quality enhancing’ human resource management approach (eg. skill investment, worker commitment) • catalyst for high quality, niche product market approach

Minimum wage policy

• provides a protective wage floor if uprated with average earnings • protects living standards if uprated with inflation • demonstration effect, or platform, for collective bargaining (at sector, company levels) • crowds out collective bargaining, undermines trade union wage ‘mark-up’ and disincentive to union mobilisation • fit with egalitarian pay bargaining strategies (eg. gender pay equity, improving low pay) • absence/low level may be catalyst for alternative strategies eg. living wage, binding collectively agreed base rates, framework price agreements

Figure 2.1 The competing interests of government, employers and unions towards minimum wage policy

Overall, the interaction with government social policy and tax policy is often overlooked in assessments of the merits of minimum wage regulation, but as we show in Section 2.2, has proven fundamental in several countries at particular points of time. Examples include Spain with its pre-2004 government policy of using the minimum wage as an index for welfare payments and Hungary where the government doubled the minimum wage in 2000 to 2001 partly in an effort to boost tax revenues. Employers are typically assumed to be resistant to minimum wage legislation and opposed to policy interventions that raise the minimum relative to average or median earnings. Employers may be unwilling to accept any constraints on a voluntarist, or market-led, process of wage-setting, which in their view enables them to match pay with the returns to individual productivity. Employers may also worry that it introduces pressures outside their control, forcing them to pass on price rises to their base of customers. Many low-wage sectors are characterised by intense cost competition. Where this is characterised by international competition, or dependence on one or two powerful client businesses, or competition against firms operating illegally, several studies suggest employers may experience real difficulties passing on the costs associated with minimum wage policy changes (Edwards and Gilman 1999; Grimshaw and Carroll 2006; Ram et al. 2001).

Minimum Wages and Collective Bargaining 25 Nevertheless, the opposite may also be the case. For several reasons, the bulk of employers may welcome a properly enforced system of minimum standards. First, employers may anticipate a positive association between the level of pay and employee retention and ease of recruitment. A key reason for the absence of evidence of disemployment effects from raising the minimum wage is that higher wage floors can reduce employers’ recruitment and retention costs. In the United States, several studies chart the negative impact on job turnover following hikes in the minimum wage (Dube et al. 2007; Reich et al. 2005).4 Card and Krueger’s (1995) well-known application of a monopsony-type labour market model to minimum wage analysis argues that the ambiguity of employment effects is caused by employers’ heterogeneous responses to a minimum wage rise: ‘Some organisations might choose to offer a lower wage, and to operate with higher vacancies and higher turnover. Others might choose a higher wage, and to operate with lower vacancies and lower turnover’ (op. cit.: 12). An alternative reasoning for this kind of employer response is developed in the field of experimental labour markets. For example, Falk and Huffman (2007) argue that an employer may welcome a minimum wage rise because it contributes towards improved norms of fairness among workers, which in turn raise their commitment and contribution to firm performance.5 Second, a minimum wage may be a welcome catalyst for changes in approach towards employment organisation and product market approach. On the one hand, employers may perceive a minimum wage as a necessary component in their ‘quality enhancing’ approach to work organisation with investment in training and higher pay the ingredients for lower staff turnover and high productivity (McLaughlin 2009). On the other, some employers may respond to a newly introduced statutory minimum wage, or a significant rise in the minimum, by shifting into niche product markets where competition from cheap imported goods is less strong (Arrowsmith et al. 2003) or is led by quality, speed of service and creativity rather than cost (Bullock et al. 2001). Third, a statutory wage floor makes it more difficult for firms operating in low cost, grey economy product markets to compete on the basis of very low wages and/or informal payment methods and is thus in principle welcomed by competitor firms operating within the formal rules of labour and product markets. The principle of a statutory minimum wage can also be said to both complement and conflict with the interests of trade unions, most notably with regard to collective bargaining and pay equity strategies—the two dimensions that provide a focus for this book. By discouraging informal business operations and setting a basic legal standard in the labour market, unions in principle benefit from a wider pool of potential union members interested in improving their formal terms and conditions of employment. Also, a minimum wage set at a suitable level and supported by proper enforcement (especially by union representatives at the local level) can provide a valuable platform for the establishment and strengthening of collective bargaining.

26

Damian Grimshaw

This may be especially the case in identified low-wage sectors, such as cleaning, hairdressing and hospitality for example, where unions may welcome the opportunity to build on either a sectoral minimum wage or a national minimum wage and strengthen what may be a particularly weak union presence. However, it is important to recognise the positive benefits for unions operating across firms and sectors outside the usual low-wage sectors, too. Strengthened collective bargaining and union representation can build on a national statutory minimum wage to address exploitative pay in low-paying firms in high-wage sectors, as well as in low paid occupations within all types of firms and sectors (see Craig et al. 1982: 131–141). On the other hand, there are reasons why a minimum wage policy may also be perceived as undermining collective bargaining and inhibiting its spread among unorganised workers (Aghion et al. 2008). A statutory wage floor pitched too low might pull down higher minimum rates negotiated in collective agreements or be perceived as irrelevant to collective bargaining, whereas pitched too high it could act as a disincentive to those in low-wage jobs to join a union by reducing the value of the union mark-up (Brown 2009: 442). With respect to pay equity strategies, a statutory minimum wage potentially dovetails with union strategies to compress the wage structure among members (especially since rising wage inequality is both a cause and consequence of declining unionisation—Checchi et al. 2010: 102) and chimes with the Webbs’ notion of a common rule to wages (Metcalfe et al. 2001). For example, a minimum wage may set a valuable benchmark against which a trade union negotiates ‘bottom-loaded wage agreements’ to improve rates of low pay relative to pay earned by higher paid members (Heery 2000: 59). It can also provide a standard against which a union may seek to establish an hourly wage premium (say €1 or £1), or an enhanced annual pay settlement (e.g. minimum wage rise plus 1%), for its collectively bargained rates of pay. Such a strategy sends a very useful message to workers of the additional benefits gained from union membership. Moreover, given women’s overrepresentation among the lowest paid, minimum wage policy may in certain circumstances complement union efforts to improve gender pay equity through gender equality bargaining (Colling and Dickens 1998; Dickens 2000; Rubery et al. 2005). Nevertheless, much depends on the relative value of the minimum wage and the direction of change. Where it is so low as to be perceived as either irrelevant to the general dynamics of the wage structure or incapable of providing for subsistence living standards for working families, then alternative union pay equity strategies are likely to develop. The successes of the decentralised collection of living wage movements in the United States, Australia and the UK are illustrative (e.g. Figart 2004; Luce 2005; Pollin et al. 2008; Wills 2009). Local campaigns, spearheaded by community groups, unions and religious groups, have emerged as a major force pressing for wage protection in a context of a failed national or regional system of institutional wage protection: a combination of low minimum wage rates (below the income required for a basic standard of living), weak unions, recurrent

Minimum Wages and Collective Bargaining 27 low-cost contracting of low-skill services (including privatisation) and weak enforcement of labour standards. Living wage campaigns have successfully raised wages either by targeting business services firms contracting with public bodies or by organising a state- or city-wide effort to increase the wage floor above the statutory national (or state) minimum. To sum up, these varying and often competing views and interests among governments, employers and trade unions shape the trajectory of minimum wage policy and assist in an explanation of cross-national variation in the particular rules and processes implemented. The next section considers the details of these rules and processes in the nine countries selected for analysis.

2.2 MINIMUM WAGE SYSTEMS IN NINE COUNTRIES Across the European Union, 20 of the 27 member states have some form of statutory national minimum wage. Among the seven countries without national legislation (Austria, Cyprus, Denmark, Finland, Germany, Italy and Sweden), multiple minimum wage levels are instead agreed on by social partners in sector-based collective agreements (a national cross-sectoral agreement in the case of Austria6), albeit with varying coverage of the workforce. As with all labour market rules (Freeman 1994), there is both considerable cross-national variety in minimum wage policy and practice and, as Figure 2.2 illustrates, change in each country’s policy over time. This section reviews the differences in approach, as well as key moments of change, among a sample of nine European countries. Seven of the nine countries selected for investigation in Part One of this book have a statutory national minimum wage (Table 2.1). The two exceptions, Germany and Sweden, rely instead on different minimum rates negotiated in separate sectoral collective bargaining agreements. Germany also applies sector-wide minimum wages in 11 sectors (as of June 2012) through legally binding extensions, a policy development that is described in detail in Chapter 3. Among the group of seven countries, a statutory national minimum is a relatively recent intervention in five countries: it is only a little over a decade old in Croatia, Ireland and the UK, and two decades old in Estonia and Hungary. Differences in the age of this form of wage regulation, however, do not appear to be related to the variety of rules in place today. As well as a standard, or adult, national minimum wage, many countries set alternative minimum wage rates for categories of workers who may be perceived as meriting special consideration. In most cases, the categories are defined in objective terms. For example, some countries set a distinctive rate or rates for young workers. In their wide-ranging and detailed international review of minimum wage systems, Eyraud and Saget (2005: 48) demonstrate that the world is divided on the policy measure of youth minimum wages. They report that slightly less than half of the countries examined (45 out of 101) have a specific minimum wage for young workers set at a level lower than

28

Damian Grimshaw 2003 rules indexes MW to 35% of average earnings in previous year

Croatia

2008 MW Act makes substantial changes: uprates MW; new subminimum in key sectors

Estonia

2001 goal to raise MW to 41% average wage by 2008

France

Ongoing policy reforms of wage subsidies to employers of MW earners and low paid

Hungary

Limited use of coups de pouce post-2005

2008 social partners’ codetermination rights found unconstitutional

2003 MW earners exempted from income tax

2007 reform applies Posted Workers’ Act to other sectors 2011 MW cut by €1 (Feb) then restored (Jul)

Government policy to raise MW 2004-8

2004 construction union boycotts Latvian firm Laval

Sweden

New sector MWs agreed 2007-12, incl. cleaning, waste, care, temp agency sectors

2005 social partners fail to agree MW (set by gov.)

2004 Welfare payments delinked from MW

Spain

2009 change to 2-tier MW system: standard & skilled

2006 unions mobilise to demand statutory MW

2003 additional skilled MW in construction sector

Ireland

New government freezes MW 2012

2007 ECJ Laval case rules against construction workers’ trade union

2010 ‘Lex Laval’ limits industrial action rights

Low Pay Commission raises MW relative to average earnings 2003-7

UK

2010 adult MW extended to 21 year olds; New apprentice MW

2004 new youth MW for 16-17 year olds

2001

2002

2011 Unemp’t benefits minimum equal 50% MW

New MW Commission of experts set up

New 3-tier MW system 2006-8 varied by skill

Unprecedented rise in MW 2001, 2002

Germany

2009 Unemp’t benefits capped at MW level

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure 2.2 A timeline of minimum wage policy changes: nine countries, 2001–2011 Sources: National reports – Nesti and Raši-Bakari (2010), Neumann (2010), Banyuls et al. (2010), Bosch and Weinkopf (2010), Grimshaw et al. (2010), as well as country chapters in Vaughan-Whitehead (2010), Schulten et al. (2006) and 2011 European Employment Observatory Reviews of countries (www.eu-employment-observatory.net/resources/reviews).

the adult rate. Among our sample of seven countries with a national statutory minimum wage, France, Ireland and the UK specify youth rates although in different forms: in France, two youth rates (16- and 17-year olds fixed at 80% and 90% of the adult rate, respectively) only apply for the first six months of employment; in Ireland a single youth rate applies to 16 and 17 year olds; and in the UK one youth rate applies for 16- and 17-year olds and a second to 18- and 20-year olds. The position of the UK is very unusual in its definition of an adult worker as a person aged 21-years old and over, rather than the conventional definition of 18-years old7 (further details in Grimshaw 2012). In some cases, the exceptional categories are more susceptible to changing definitions. For example, separate rates for jobs requiring skills and experience prevail in Hungary. From 2006 to 2008, three tiers distinguished between a standard worker, a beginner-level skilled worker and a skilled worker with at least two years of experience. Then, in response to employer criticisms, this was simplified in 2009 to just two rates. Because the skilled minimum wage in Hungary is 22% higher than the standard rate,8 there is a potential risk, which we explore in Part Two of this book, that employers redesign jobs to reduce minimum wage payments. The rules in Croatia are also of interest since they set a separate ‘subminimum wage’ in four industries that were singled out for special attention due to their difficult

Number of rates

1991

2000

1963

Hungary

Ireland

Spain

One

Four: adult; Youth ( 47.2 (17-country average), Low value = or < 47.2. Source: OECD minimum wage database for Kaitz values. Collective bargaining 2006 data (2005 for Greece, Hungary) from ICTWSS (Visser 2011) except Ireland from (see figure 3.7 for website source). Structure of Earning Survey (2006) for low-wage incidence.

the other two groups of countries. This simple test supports the argument that the pay equity impact of a high-value minimum wage is contingent upon the strength of collective bargaining coverage. However, several countries do not fit the general pattern. Denmark, Sweden and Austria achieve a low incidence of low-wage employment despite having no national statutory minimum wage.14 The reason is largely because strong collective bargaining coverage provides a functional equivalent to statutory minimum wage protection (Schulten 2006: 12). However, the same does not hold for Germany where the absence of a statutory national minimum wage and a high incidence of low-wage employment is a cause of policy concern. Part of the problem is Germany’s falling collective bargaining coverage coupled with a refusal by employers to apply extension mechanisms. While Sweden has enjoyed a stable level of collective bargaining coverage since the 1980s and Denmark a rising coverage, in Germany it has fallen from around 75% in the late 1980s to less than two-thirds coverage (Visser 2011) ). In Germany, organisations have increasingly outsourced activities to organisations not covered by collective agreements. Moreover, like other countries that use collective bargaining as the basis for low-wage protection, Germany has faced serious challenges from the liberalisation of the European services industry and increased labour migration (Woolfson et al. 2010). The European Court of Justice rulings on the Laval, Viking and Rffert cases15 mean that a minimum rate established through co llective bargaining that is not extended nationally is not considered a minimum rate of pay. In a context of increasing numbers of posted workers, these rulings have posed a serious

The Distributive Functions of a Minimum Wage 105 dilemma for labour relations and wage bargaining in Germany, and as we explained in Chapter 3, prompted the development of new legally binding national agreements in several sectors.

4.4 CONCLUSION Overall, the evidence considered here points to a need to interrogate the qualitative interactions between collective bargaining and systems of minimum wage regulation to understand the factors shaping pay equity at the bottom end of the wage distribution. Moreover, the agency of social actors is likely to be an important factor. Governments may actively intervene to increase the statutory minimum in an effort to improve conditions among low-wage workers, particularly where weak collective bargaining is perceived to have failed. Chapter 3 showed that active policy interventions to improve on the relative level of the minimum wage reversed a decade of decline in the 1990s but for the most part stalled in the wake of the recession. Observed improvements in the Kaitz index since 2008 are mostly the indirect result of falling wages at the median and average levels. The policy challenge of pitching the minimum wage at an appropriate level nevertheless remains, and the challenge for trade unions is to build on the experience of the pre-recession years when many countries pursued an approach that was guided, to varying extents, by a concern for fairness and equity in improving the position of low-wage workers. We argue in this chapter that these concerns are rooted in political economy analyses of exploitative wages, powerful employers, undervalued and segregated women’s work and wage-intensive cost competition. There is empirical evidence to support the claim that a statutory national minimum wage can have positive pay equity effects, as illustrated by our review of the effects on the incidence of low pay, wage inequality and gender pay equity. It is also clear there is strong potential for complementary effects arising from the combined forces of minimum wages and collective bargaining coverage—the two predominant institutions shaping wage determination across Europe. However, our knowledge about how these institutional effects combine, cohere or conflict is limited. Unions may seek to build on a rising minimum wage to restore pay differentials by pressing for wage ripples up through the wage distribution, but may also wish to focus efforts on improving the relative position of the lowest paid at the expense of eroded pay differentials for higher paid workers. A key question for the sector studies presented in the following four chapters is, therefore, to understand the interaction between minimum wages and collective bargaining through the lens of specific pay bargaining strategies and in specific sector contexts that describe industrial relations, firm organisation, and product market and labour market conditions. Each chapter identifies types of pay bargaining strategies used in collective agreements and seeks to draw the links with pay equity in a context of developments in minimum wage policy.

106 Damian Grimshaw and Jill Rubery NOTES 1. Few studies utilise compliance data. A valuable example is Hwang and Lee’s (2010) investigation of the importance of noncompliance (using industrylevel data), as opposed to the Kaitz index, in explaining patterns of low pay in Korea. 2. Estimate from the ILO (2010). 3. ILO Minimum Wage Fixing Convention C131 (www.ilo.org/). 4. Detailed accounts of the role of the social cost of labour in labour market theory can be found in Figart et al. (2002, especially Chapter 3), Kaufman (2009) and Prasch (1996, 2005), as well as Webb (1912). 5. It is notable that despite strong pressures on public sector expenditures, the UK government in its evidence to the Low Pay Commission has not pressed for an increase in the minimum wage to reduce the cost of tax credits. 6. In their words, ‘Power may be exercised by economic actors who are on the short side of a non-clearing market, namely, the side of the market on which the number of desired transactions is less, that is, employers in a labour market with unemployment, lenders in a loan market with borrowers facing credit constraints, and so on. Because those holding power in these cases are those on the short side of the market, we term this “short-side power”’ (Bowles and Gintis 2007: 5). 7. At one end of the range lies the Netherlands where union density in the hotel sector is 16% and the national average is 26% and at the other end lies the UK with union densities of 4% and 29%, respectively (Vanselow et al. 2010: Table 7.3). Extended collective agreements provide a degree of compensation in some countries but a strongly organised employer body in the hotel sector means the content of collective agreements can be weak—described as ‘collective begging’ by one ex-union official from Germany (op. cit.: 295–297). 8. In their study of five Central and Eastern European countries, Spain and the UK, Lasaosa et al. (2001) find that the targeting of benefits is ‘unambiguously worse’ for women than men. The gender difference is highest in the UK where unemployed men were almost twice as likely to receive benefits as unemployed women (op. cit.: Table 1). Azmat et al.’s (2004) study of thirteen EU countries finds the gap between the share of unemployed women in receipt of benefits and unemployed men ranges from 7% in Belgium to 54% in Spain. The one exception to the pattern is Germany, where unemployed women are slightly more likely to receive unemployment benefits than men (shares of 69.4% and 68.7%, respectively). 9. Webb’s (1912) early contribution is illuminating: I have myself had the experience of being conducted over a huge steel works in Scotland by the late Sir Charles Tennant . . . and being shown one improvement after another, which had been devised and adopted expressly because the workmen engaged at the old processes had, through their powerful trade unions, enforced a definite minimum standard wage. . . . Hence the mere existence of a legal minimum wage, by debarring the hardpressed employer from the most obvious form of relief–one which is of no advantage to the community–positively drives him to other means of lowering the costs of production, which almost inevitably take the form of increasing productivity. (1912: 983) 10. See Grimshaw (2012) for a detailed review of country studies on youth minimum wages. 11. Some studies nevertheless point to more ambiguous results. For example, in their test of the consequences for low pay in ten OECD countries, Salverda and Mayhew argue that, ‘The ten [country] cases show no obvious relationship

The Distributive Functions of a Minimum Wage 107

12.

13. 14. 15.

between the level of the minimum wage and the aggregate incidence of low pay’ (2009: 147). Moreover, in a detailed, two-country comparison of the impact of a similar trend decline of minimum wages in the US and the Netherlands, while low-wage employment did rise in the Netherlands, it was found to have remained constant in the US (op. cit.: Figure 9). Finland, too, is illustrative. Like Germany, it has no national statutory minimum wage and has a hierarchy of collective agreements. Laine’s (2008) research shows that sex segregation across sectors, combined with differential rates in collective agreements, are an increasing cause of the gender pay gap. Since the minimum wage in France is approximately 60% of the median wage of full-time workers (2009 OECD minimum wage database), a wage double the minimum necessarily lies in the upper half of the wage distribution. As described in Chapter 2, Austria implemented a new minimum wage in 2009 as part of a national, cross-sectoral agreement negotiated by social partners, but it is not a statutory requirement. In 2007, the European Court of Justice ruled that a Latvian construction firm could not be forced to enter into collective negotiations with a Swedish union on pay for its posted workers. The decision affirmed the criteria of the Posted Workers Directive, which only requires firms from other member states to comply with legally enforced minimum wages.

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110 Damian Grimshaw and Jill Rubery Lewis, J. (1992) ‘Gender and the development of welfare regimes’ Journal of European Social Policy, 2: 159–173. Lucifora, C. and Salverda, W. (2009) ‘Low pay’, in W. Salverda, B. Nolan and T. M. Smeeding (eds.) The Oxford Handbook of Economic Inequality, Oxford: Oxford University Press. Lucifora, C., McKnight, A. and Salverda, W. (2005) ‘Low-wage employment in Europe: A review of the evidence’, Socio-Economic Review, 3(2): 259–292. Machin, S. and Manning, A. (1994) ‘Minimum wages, wage dispersion and employment: Evidence from the UK Wages Councils’, Industrial and Labor Relations Review, 47: 319–329. Macias-Fernandez, E. and Hurley, J. (eds.) (2012) Transformations of the Employment Structure in the EU and US, 1995–2007, London: Routledge. Manning, A. (2005) Monopsony in Motion: Imperfect Competition in Labour Markets, Princeton, NJ: Princeton University Press. Mason, G. and Salverda, W. (2010) ‘Low pay, working conditions and living standards’, in J. Gautié and J. Schmitt (eds.) (2010). McLaughlin, C. (2009) ‘The productivity-enhancing impacts of the minimum wage: lessons from Denmark and New Zealand’, British Journal of Industrial Relations, 47 (2): 327–348. OECD (1997) ‘OECD submission to the UK Low Pay Commission’, Labour Market and Social Policy Occasional Papers, No. 29, Paris: OECD. OECD (1998) ‘Making the most of the minimum: statutory minimum wages, employment and poverty’, Chapter 2 in Employment Outlook, Paris: OECD. Olsen, W. and S. Walby (2004) Modelling Gender Pay Gaps. EOC Working Paper Series No. 17. Manchester: Equal Opportunities Commission. O’Reilly, J. and Fagan, C. (eds.) (1998) Part-time Prospects, London: Routledge. Perrett, R., Martínez Lucio, M., McBride, J. and Craig, S. (2012) ‘Trade union learning strategies and immigrant workers: policies and practice in a neo-liberal environment’, Urban Studies, 4 (3): 526–544. Polanyi, K. (1957) The Great Transformation: The Political and Economic Origins of Our Time, New York: The Free Press (1944 original). Pollin, R., Brenner, M., Wicks-Lim, J. and Luce, S. (eds.) (2008) A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States, Ithaca, NY: Cornell University Press. Pontusson, J., Rueda, D. and Way, C. R. (2002) ‘Comparative political economy of wage distribution: the role of partisanship and labour market institutions’, British Journal of Political Science, 32: 281–308. Prasch, R. (1996) ‘In defense of the minimum wage’, Journal of Economic Issues, 30 (2): 391–397. Prasch, R. (2005) ‘The social cost of labour’, Journal of Economic Issues, 39: 1–7. Richards, A. and Garcia de Polavieja, J. (1997) ‘Trade unions, unemployment and working-class fragmentation in Spain’, Working paper, No.112, Madrid, Juan Marc Institute. Robinson, H. (2002) ‘Wrong side of the track? The impact of the minimum wage on gender pay gaps in Britain’, Oxford Bulletin of Economics and Statistics, 64: 417–448. Robson, P., Dex, S., Wilkinson, F. and Cortes, O. S. (1999) ‘Low pay, labour market institutions, gender and part-time work: cross-national comparisons’, European Journal of Industrial Relations, 5 (2): 187–207. Rubery, J. (2003) Pay Equity, Minimum Wage and Equality at Work, ILO Working Paper, DECLARATION/WP/19/2003, Geneva: ILO. Rubery, J. and Grimshaw, D. (2011) ‘Gender and the minimum wage’, in S. Lee and D. McCann (eds.) Regulating for Decent Work: New Directions in Labour Market Regulation, Basingstoke: Palgrave.

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Part II

Sector Case Studies

5

Business Cleaning How Important and Effective are Minimum Wage Standards in a Sector with Strong Cost-Led Competition? Claudia Weinkopf, Josep Banyuls and Damian Grimshaw

INTRODUCTION Business cleaning is one of the sectors with the highest incidence of low pay in all five countries investigated. Like other business services (such as security, for example), firms in the cleaning sector operate in a context of strong price-led bidding for contracts for services provision. Drawing on empirical evidence from three countries—Germany, Spain and the UK—this chapter explores the very distinctive attempts and approaches of the social actors to improve pay and working conditions in the sector. It asks the following questions: • What is the form of interaction between collective bargaining and the system of minimum wage regulation? • What role do client organisations play in setting the boundaries on the quantity and quality of services provision? • How and to what extent does product market regulation or the presence of a sectoral wage agreement dampen downwards pressures from client businesses on unit prices and the encouragement of informal business practices? Given that cleaning can also be internally organised by potential client organisations, the question arises as to whether and how internal-external differentials in pay levels influence the decision to subcontract cleaning activities or not. The chapter also investigates several sector-specific issues related to the book’s overall concerns with analysing pay equity and social dialogue in this sector, including the low valuation of female-dominated occupations, the extent of compliance with collectively agreed standards and the role of government in industry social dialogue.

5.1 SECTOR CHARACTERISTICS The growth of the business cleaning sector since the 1970s has been driven by an increased outsourcing of outdoor and indoor cleaning activities to specialised providers as organisations across all sectors of the economy seek to

116 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw reduce costs and focus on core activities. The expansion of the sector has not been associated with improved conditions of employment. On the contrary, it appears that working conditions have deteriorated or stagnated, with several empirical accounts identifying problems of exploitation of vulnerable workforce groups, such as first-generation migrant workers and women with few educational qualifications seeking part-time or full-time employment. Trade unions have a very limited presence in the sector so levers for increasing pay are weak. Moreover, the work is physically demanding and jobs are typically managed according to strict (and typically increasing) performance targets (Aguiar 2001). We begin by setting out the general features of the business cleaning sector in Germany, Spain and the UK (Table 5.1). There is a clear difference in the number of enterprises in business cleaning. The number in the UK is relatively small, just one third that in Germany and half that in Spain. This seems at odds with the respective country sizes of the private sector economy. The UK has seen a rapid growth in the number of firms in the sector, up from around 9,000 in 2003 to 12,000 in 2011. In Germany, however, the number of firms tripled between 2004 and 2010— mainly due to the abolition in 2003 of the requirement that only individuals with a master craftsman’s certificate could operate such firms and the subsequent large increase in the number of sole trader operations. And in Spain, despite a small reduction in the number of firms during the recession, there was also a clear increase in numbers in subsequent years.

Employment

Revenue

140

140 Germany

130

Spain

Germany

130

UK

UK

120

120

110

110

100

100

90

Spain

90 2005 2006 2007 2008 2009 2010 2011

2005 2006 2007 2008 2009 2010 2011

Figure 5.1 Trends in employment and revenue in business cleaning, indexed to

2005 Notes and sources: Germany – Data for 2005 are based on the industry code WZ 74.7 and not directly comparable with 2008–2010 (WZ 81.2). However, comparison of employment in 2008 with the old and new classifications show that the differences tend to be small. Source: BIV for revenue data and Bundesagentur für Arbeit for employment data; Spain – Due to methodological changes data are not strictly comparable. Employment data for 2005–2007 refer to Nace (2003) code 747 and 2008–2009 data refer to Nace (2007) code 812. Source: own calculations from National Statistics Institute; UK – Break in the data at 2009–2010 due to change of industry classification from SIC (2003) code 747 ‘Industrial cleaning’ to SIC (2007) code 812 ‘Cleaning activities’. Source: ONS Business population estimates.

70% n.a.

€10,525 (2007) (54% of median, 132% of MW)

915,000 24.3 80% 79% 78%2 (2008) €7.672 (2008) (56% of median)

Number of employees

Average number of employees per firm

Female share of workforce

Part-time rate

Incidence of low pay

Median hourly pay (Spain, annual pay)

ii

78%

21.3

£6.52 (€7.60) (59% of median, 110% of MW)

65%c

68%a

79%b

35.4

442,700a (1.4% of total employment)

£8.03 billiona (€9.36 billion) (0.28% of all private sector turnover)

12,310a

UK

Sources: IAQ-calculations with GSOEP 2008; Spain: i. All data (except median hourly pay) refer to 2009, nace2007 code 812 ‘Cleaning activities’, sourced from National Statistics Institute (Annual Report of Services); ii. Source: FeS-UGT own calculations; UK: a. 2010 data, industry code 812 ‘Cleaning activities’, sourced from Office for National Statistics (Annual Employment Statistics, Business Register Employment Survey). b. Occupation code 9233 ‘Cleaners and domestics’ sourced from ONS online data; c. ASHE data for gross hourly earnings excluding overtime.

Notes: Germany: 1 2010 data unless otherwise stated. 2 Cleaners in other sectors included.

€9.0 billion

€11.2 billion (2009)

Annual turnover

507,984

23,818

37,636

Spaini

No. of firms

Germany1

Table 5.1 Key features of the business cleaning sector in Germany, Spain and the UK, 2009–2010

118 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw Spain

Germany 100%

100%

90%

90%

80%

80%

70%

70%

60%

€17,500–100,000

Less than 2

60%

from 2 to 4

€100,000–250,000 50%

€250,000–1million €1–2million

40%

50%

5 to 19 20 to 99

40%

More than 99

≥€2million 30%

30%

20%

20%

10%

10%

0%

0% firms

employees

firms

employees

UK 100% 90% 80% 70% 60%

1–9 10–49

50%

50–249 40%

250+

30% 20% 10% 0% firms

employees

Figure 5.2 Composition of the business cleaning sector by firm size and employment Source: Germany – Bosch et al. (2011: 80); Spain –2009; UK – ONS Business population estimates 2010.

The number of employees also varies, with the smallest workforce in the UK (443,000 or 1.4% of total employment) and the largest in Germany, at close to 1 million (915,000) (Table 5.1). Employment levels in the sector in the UK dipped at the start of the 2008–2009 recession but recovered subsequently, rising from 409,000 to 436,000 over just two years, 2009 to 2011. The German cleaning sector managed to overcome a 4.6% decrease in revenues in 2009 without reducing the number of employees (most probably by changing working hours).1 Figure 5.1 presents employment and revenue trends indexed to 100 in 2005. The sector is segmented by firm size. In all three countries, small firms make up the vast bulk of enterprises but account for a far smaller share of

Business Cleaning 119 employment and revenue (Figure 5.2). Among the small and microsized firms, there are documented problems of informal (and sometimes illegal) business practices in each country. Among the large firms, multinationals that provide a bundle of facility management services (including cleaning, catering and building maintenance) have a growing presence in Spain and the UK (less so in Germany2). Examples of the global firms include Sodexo, ISS, Compass Group, ACS, FCC (large Spanish construction groups that also operate in services), Eulen, ISS (Danish capital) and Klüh Service Management.3 However, the trend in market shares by small/large firms varies by country. In Spain, the share of the market taken by large firms has increased in recent years and in fact their share in the sector is higher than for the service sector overall. In the UK, large firms’ (250+ employees) share of the business cleaning market fell from close to two thirds of total revenue in 2005 to half by 2010 (64% to 50%), although their share of total employment in the sector remained steady at around two thirds.4 In Germany, the trend is twofold. On the one hand, the number of firms and turnover (market entries and exits) increased sharply between 2003 and 2010 (entrants up from 773 to 10,775; exits up from 551 to 7,608). On the other hand, large firms with an annual turnover of at least €1 million account for 72% of total revenue and almost 80% of all employees in the business cleaning industry (Bosch et al. 2011: 80). In Germany, Spain and the UK, the business cleaning sector is an employer predominantly of women workers. Although the data sources are not perfectly comparable, it is notable that Table 5.1 shows a feminisation rate close to 80% in all three countries. Moreover, the share of part-time employment is high, ranging from 68% to 79%. Evidence from qualitative research on the sector suggests that these dual features are underpinned by widespread, often prejudicial, assumptions about the nature of cleaning work, including that it does not require a workforce with special qualifications or skills; it can be undertaken by anyone with very minimal on-the-job training; women tend to be particularly suited given their ‘natural’ experience of cleaning their private homes; and staff turnover is preferred to the development of career ladders and pay progression. A UK study of the associated occupational group of hotel room attendants found a surprisingly high level of job tenure, despite low pay and the demanding work required. One of the managers interviewed provided the following explanation: It’s women who are bringing up young families–they need part-time work because they need the money, and it then becomes habitual and they get themselves into the stage where all of a sudden they are fifty. . . . They don’t think they can move. They don’t think they can do something else. (cited in Dutton et al. 2008: 110) The data for the three countries confirm that employment conditions in the sector are generally poor. We explore the pay structure in detail below but note here the very low level of median hourly earnings in the sector: just 61% of

120 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw the overall median for the economy in Western Germany, 54% of the median in Spain (with reference to annual earnings) and 59% in the UK (Table 5.1). The low level of pay is certainly not compensated for by better than average working conditions. Short part-time working hours are often scheduled during the early mornings, evenings and nights so as not to interrupt client premises during working hours; the work is organised as much as possible so as to be ‘invisible work’.5 Moreover, cleaners very often work alone or in small groups, sometimes travelling from one place of work to another. Cleaning is physically demanding and requires the use of chemical detergents in dirty and sometimes hazardous physical environments (UNI global union/ European Federation of Cleaning Industries 2010; Recio and Godino 2011). Also, there is a longstanding trend in the sector towards work intensification. Since the 1970s, the average number of square metres that have to be cleaned per hour has increased (Martinez 2010), although this increased effort has been supported only partially (if at all) by improved equipment. The social partners at the European level regard the clients’ constant drive for lower costs as the major barrier to reasonable performance standards (UNI global union/European Federation of Cleaning Industries 2010: 3). Across Europe, workload is a formal subject for negotiation only in Austria and to some extent in Finland. According to Kirov (2011: 77), the figures discussed at the European level vary between the Austrian standard of 200 sqm/hour and the European employer demands of 700 sqm/hour. Cleaners’ average weekly working time has declined in recent years—in the UK from 25 hours (2000) to 23.4 hours (2011) and in Germany from 22.5 hours (2000) to 20.6 hours (2008) (data for Spain not available). The lower level in Germany may be related to the fact that around half of the workforce is in marginal part-time jobs not liable for social security contributions, with monthly earnings up to €400. Together with the current minimum wage rates, this restricts the weekly working time of these so-called ‘mini-jobbers’ to ten hours in Western and around twelve hours in Eastern Germany. German cleaning firm representatives emphasized in interviews that they would actually prefer longer part-time contracts, but employees tend to be reluctant in that regard. If monthly earnings exceed the €400 threshold, pay becomes subject to income tax and social insurance contributions (Bosch et al. 2011: 223f). An important characteristic of the sector is the way bidding for service contracts shapes pay and employment practices. Similar to the security services sector (Chapter 6), firms in the cleaning sector operate in a context of strong, price-led bidding for contracts for service provision. However, this tends not to function as a competitive market of equal exchange. In some situations, large client organisations, such as banks, supermarkets and public sector hospitals, exploit their bargaining power to squeeze the unit costs of cleaning firms, which has an adverse impact on their ability to pay decent wages. In other circumstances, however, it is possible for the cleaning firm to exercise control over the market rate and thereby gain the ability—although not necessarily the willingness—to pay better wages.

Business Cleaning 121 Whether it is the client business or the cleaning firm that calls the shots depends on the nature of the market and the respective bargaining strength of the client and cleaning firm. Evidence from other studies suggests that four factors shape the balance of bargaining power: the number of cleaning services providers able and willing to bid for the contract; their respective expertise in the services to be provided; the expertise in negotiating and managing the contract for services; and the sensitivity of each organisation’s reputation to the quality of the services provided (Colling 2000; Dore 1996; Grimshaw et al. 2002; Holman et al. 2012). Many small cleaning firms bidding to provide newly outsourced cleaning services may be subject to the client’s strong monopsonistic power, but where two or three multinational companies have long cornered a market for cleaning services they may have greater freedom to set the price and the contract conditions. For example, in her account of taking a job in the UK as a contract cleaner, Toynbee offers the following account of one contractual arrangement: Most of these hospital services have been contracted out for years now. I imagine the contractors would tell the hospital managers how many hours each job was worth and charge accordingly. The cleaner might only get the minimum wage, but the contractor would charge double, so every extra hour was more profit to them. (2003: 165) In other situations, it may be the client business that sets the parameters on the quantity and quality of service provision and, in the absence of certain forms of product market regulation or sectoral wage agreements, is often in a strong position to exert downward pressure on unit prices and, in some situations, indirectly encourage informal business practices either by the prime contractor or by second- or third-tier subcontractors. The drift of cleaning jobs out of multioccupational organisations (where cleaners might share the same employer as bank clerks, supermarket cashiers or hospital assistant nurses, for example) and into firms that specialise in providing services with low-skill workers raises several questions about their employment relationship that have been explored in the literature. First, are cleaners employed in-house in multi-occupational organisations more likely to enjoy varied job and pay prospects or do contractor cleaning firms invest more in designing appropriate career ladders that better recognise, reward and build on their skills? Second, does recurrent subcontracting for cleaning work inject a higher degree of instability and insecurity into the employment relationship because of the risk of losing client business or having to accept reduced margins in a renegotiated contract? Third, do cleaners employed in-house earn a higher wage than their counterparts in specialist cleaning firms and is this associated with a higher propensity of coverage by a collective bargaining agreement and a pay deal that raises their pay in line with other, more highly paid workers? There are few studies that test for the pay differences between cleaners employed in-house and those in contractor firms. The most comprehensive

122 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw investigation is possibly the US study by Berlinski (2008). Controlling for education, age, marital status and part-time status, Berlinski finds a wage penalty of 16% in contractor firms (op. cit.: Table 3).6 Moreover, Berlinski finds that this is not offset by more generous health insurance and pensions in contractor firms. Again, with controls in the regression analysis, cleaners in contractor firms are 14% less likely to have health insurance and 19% less likely to have a pension provided by their employers (op. cit.: 69).

5.2 INDUSTRIAL RELATIONS AND COLLECTIVE BARGAINING The structure of industrial relations and patterns of collective bargaining in the business cleaning sector reflect both the particular features of the sector and the diverse arrangements in the various national models presented in Chapter 2. In common with other low-wage and relatively low-skill sectors, trade unions have a relatively weak presence in the business cleaning sector in all three countries. Unions face difficulties in mobilising a workforce that is mostly employed on short part-time contracts and organised in small teams across diverse worksites. Moreover, the cleaning sector employers often have no tradition of union presence, unlike those organisations that employ cleaners in-house as part of a broader, multioccupational grouping of workers with diverse skills and pay conditions. Table 5.2 summarises the main features of social dialogue and collective bargaining. In Germany, cleaners tend to be organised by the construction workers’ union, IG BAU, largely due to historical reasons. The roots of the German business cleaning sector lay in window-cleaning, typically carried out by skilled men. The sector became a recognized craft with formalized, three-year vocational training courses in 1934. Since the 1960s, the sector has continuously expanded by taking over the indoor cleaning activities of commercial clients from other sectors. Moreover, three of the top five German-owned business cleaning companies are linked to well-known construction companies (Bilfinger Berger, Strabag, Hochtief) (Deutscher Sparkassenverlag 2009). The main trade association is the Federal Guild of the Commercial Cleaning Industry (Bundesinnungsverband des Gebäudereiniger-Handwerks—BIV), the umbrella organization for a large number of regional guilds. BIV also acts as the employers’ association for collective bargaining in the sector and is an active member of the European Federation of the Cleaning Industry (EFCI). In Spain, there is a polarisation of representation between large and small firms. One of the two main employers’ associations, ASPEL, represents the large firms, including many multinationals and multiservice suppliers. The other, AFELIN, is a federation of local employers’ associations and represents the smaller firms, mainly in order to have ‘voice’ at the national level. The relationships between them are fluid; their interests do not always coincide because they represent different types of firms and usually focus on different markets (e.g. large public-sector clients and small business clients,

National sector agreement ( wages are not included) and multiple provincial agreements

65–75%

Federal Guild of the Commercial Cleaning Craft (Bundesinnungsverband des Gebäudereiniger-Handwerks— BIV)

National sector agreement with different wage rates for east and west and framework agreements (working conditions, etc.)

45%1

Weak

Trade associations and other sector bodies

Collective bargaining

CB coverage

Union density

Note: 1. Rate for company-related services, not specifically for the cleaning sector (Ellguth and Kohaut 2010).

Weak

—

Professional Association of Cleaning Companies (Asociacion Profesional des Empresas de Limpieza, ASPEL)I Federated Association of Cleaning Companies (Asociacion Federada de Empresas de Limpieza, AFELIN)ii

Federal Guild of the Commercial Cleaning Industry (Bundesinnungsverband des Gebäudereiniger-Handwerks— BIV)

Employer associations

CCOOUGT

Construction workers’ union (Industriegewerkschaft BauenAgrar-Umwelt—IG BAU)

Spain

Trade unions

Germany

Table 5.2 Features of social dialogue and collective bargaining in business cleaning

Very weak

Very low

Few examples of company agreements; de facto extension of public sector agreement to private contractors but uncertain

Cleaning and Support Services Association (CSSA) British Institute of Cleaning Science (professional and educational body)

—

Major unions include GMB, Unison and Unite

UK

124 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw respectively). On the other side, there are two main unions (UGT and CCOO) with representation across the country and a full role in negotiating practically all the agreements (Baylos and Trillo 2005); the higher than average share of large firms in Spain’s cleaning sector may explain the unions’ strength. In the UK, cleaners are represented by several trade unions, including the public services union, Unison, and those predominantly in the private sector such as GMB and Unite. Unison attracts many cleaners through its presence among contractors to the public sector, a presence that has been acquired largely by following cleaners who have been transferred from unionised public-sector workplaces to the private sector as part of outsourcing contracts. Despite the universal weak trade union presence, protection of cleaners’ employment conditions through collective bargaining varies substantially from weak coverage in the UK to higher levels in Germany (45%) and Spain (65% to 75%). Moreover, the form of collective bargaining varies, with nation-wide sector agreements in Germany and Spain (although not for pay) and only a small number of company agreements in the UK. In Germany, the sector wage agreement has included different pay rates for Eastern and Western Germany since April 2004; prior to 2004, there were a larger number of regionally differentiated collective agreements. In contrast to many other sectors in Germany, the collectively agreed pay rates (for nine categories of occupations) have typically been extended to all firms in the industry since the end of the 1970s. Both unions and employers in the cleaning sector agree on the urgent need of minimum standards for the sector and in 2006 applied (under the Posting of Workers Act) for sectorspecific minimum wages to be introduced. The application was successful and minimum wages were introduced in July 2007. In contrast to the earlier situation, when the collectively agreed wage rates were extended to all firms, the minimum wages are now binding even on providers from abroad, and enforcement and monitoring are regarded as much more effective. However, now only two wage scales (scale 1 for basic indoor cleaning and scale 6 for outdoor cleaning) are binding while the former extensions had applied to almost all wage scales. Several framework agreements (on working time, for example) have also traditionally been extended until recently. In Spain, a variety of regional and multiemployer agreements can be found in the cleaning sector. This is typical of all sectors in Spain, where there are dozens of multiemployer agreements, each one covering a particular territorial area and in some cases a particular segment of the sectoral activity. In the case of cleaning, there are two levels of agreements. One is at the national level, where there is a framework agreement covering various aspects of the sector—including the description of key job categories, the subrogation procedure,7 working time, codes for addressing sexual harassment and health and safety at work—but not the wage structure. The second agreement is at provincial level. At this level of bargaining, the provisions of the national agreement are applied directly in the provincial agreements; in addition, wages are set and negotiations held on other aspects as agreed by

Business Cleaning 125 the social actors at this provincial level. The firm constitutes a third area of bargaining. Some large firms have their own collective agreement, but they are not very significant in quantitative terms in the sector. The multiple levels of bargaining help to explain why there are significant differences at the territorial level in Spain in pay and in other employment conditions. For instance, examination of the basic rates of pay agreed in provincial collective agreements reveals differences of around 60% (Recio and Godino 2011: 13). Despite the general absence of formal coordination between territories, there is nevertheless some evidence that processes and outcomes in one agreement are used informally to influence those in another. One of the union officials interviewed suggested this was an effective strategy for achieving better outcomes for cleaners: We need to use those workplaces where we exercise some power [referring to health care] to achieve broader targets. By making a comparison [with other workplaces] we try to extend these conditions, using it as a reference. In the UK, there is only a very limited number of private sector company agreements in cleaning. Moreover, the share of cleaners protected by collective bargaining has diminished as more and more cleaners (and other lowskill workers) have been outsourced from the public sector to the private sector where collective bargaining is weak or does not take place at all. The situation is summed up well by Wills (2008): Privatisation and subcontracting mean that cleaners who used to be employed by large private or public sector organisations that adhered to collective agreements negotiated by trade unions have been thrown to the lions of the market. Moreover, even if they manage to retain union organisation after privatisation or subcontracting, as is possible under British TUPE regulations, cleaners no longer bargain with the ‘real employer’. (2008: 9–10) However, one interesting development has occurred in the private cleaning sector as the result of quasi-extensions of public sector collective agreements to private firms that win contracts with the public sector for outsourced cleaning services (see below). Nevertheless, the procedures for translating public sector conditions to a company-level agreement are weak: private companies typically do not seek to establish a single company agreement for the provision of public cleaning services, preferring instead a raft of different agreements for each public sector client (the individual hospital, municipality, etc.). The evidence of pay bargaining strategies examined below illustrates the complexity of collective bargaining in a context of weak unions and a reluctant business lobby. This issue of fragmented worker representation and the obstacles to the spread of collective bargaining caused by outsourcing and contracting for

126 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw services are common to all three countries. Nevertheless, our findings suggest that employers’ responses are both distinctive and subject to change. In Germany, and for a time in the UK, the intensification of cost-led competition for contracted services in the cleaning sector appears to have encouraged employers to back the extension of sector agreements. The rationale from the employers’ perspective is that this can provide a basis for price coordination in order both to shift the focus of competition to non-price factors and, by raising the bar, to discourage informal and/or illegal company activities. In Germany, for example, employers in the cleaning sector argue that a minimum floor for the basic hourly rate is indispensable if pure price competition is to be held in check. In company case studies, several employers stated that the lowest hourly wages would be substantially lower (by around €1) if there were no binding pay standards (Bosch et al. 2011: 224f). And in the UK, employers in the private cleaning sector initially supported the ‘Two-Tier Code’ that provided a basis for unions to negotiate the quasi-extension of public sector terms and conditions to private sector contractors. However, it is also important to recognise the limitations of the practice of extending a sector agreement in a context where the unbundling and outsourcing of firms’ activities often blurs the boundaries between sectors. For many jobs, there is a mix of in-house and specialist contractor provision that produces competition across sectors. For example, a cleaning job may be organised in-house by a manufacturing firm or outsourced to a specialist cleaning company. In this case, a binding collective agreement for the cleaning sector only sets a minimum common floor for cleaning companies and does not prevent cleaning services being provided in-house at a cost that undercuts sector standards. Such is the case in Germany, where several public-sector organisations have brought previously outsourced cleaning services back inhouse because it is cheaper (which is also related to the fact that VAT is payable only on services provided by outside contractors). This kind of example helps to explain why the employers’ organisation for the cleaning sector, BIV, is demanding a national statutory minimum wage as a complement to sectoral minimum rates. Moreover, the setting of a national minimum wage would ease some of the frustrations about the uncertain process of extending the sector agreement. A senior representative of BIV explained the reasoning: Every year we have to negotiate sector agreements. And then we wait for the political decision. Politicians tell us if the amount is suitable for a minimum wage [for the cleaning sector] or not. At the end of each round of bargaining we can never know how the government will react. . . . It is currently €8.40. If the government refuses it will be a catastrophe. Without this I could pay whatever I want. It will impact on the lives of employees. (September 2010) In the UK, cleaning services managed by public sector organisations were regulated by sector agreements (e.g. in local government, public sector hospitals,

Business Cleaning 127 etc.), but because no such agreement existed among cleaning companies, they enjoyed an unfair cost advantage in bidding for outsourced cleaning services. After several years of trade union campaigns, this problem was temporarily addressed by a government policy (lasting from 2005 to 2010), which provided the basis for extending the pay and employment conditions set out in public sector agreements to private and voluntary sector contractors in an effort to establish a more level playing field (known as the ‘Two-Tier Code’). We assess the short life of this policy in the next section. 5.3 RELEVANCE OF THE MINIMUM WAGE The relevance of the minimum wage for pay in the cleaning sector varies substantially across the three countries. Four factors determine the impact of the minimum wage: its relative level; the relative level of the basic rates laid down in collective bargaining agreements; the strength of collective bargaining coverage; and the actual wages paid to cleaning workers in the sector. Figure 5.3 depicts the various interactions between minimum wages and collective bargaining in each country. In Spain, as we argue in Chapter 3, the minimum wage in the cleaning sector coexists ‘at a distance’ with collective bargaining, while in the UK the minimum wage is the dominant influence on wages in the sector given the very limited coverage by collective bargaining. In Germany, by contrast, the base wage rate laid down in the sector collective agreement is extended to establish a binding sector minimum.

CB

CB Level of pay

CB

Sector median

Legally binding sector MW

MW MW

Spain

UK

Germany

(varying CB base rates)

(only partial CB coverage)

(CB base rate is sector MW)

Figure 5.3 The interactions between the minimum wage, median pay and collectively bargained pay in the cleaning sector Notes: CB refers to collective bargaining; the width of each CB rectangle represents approximately the proportion of the cleaning workforce covered by collective bargaining. Source: compiled from data presented in Tables 5.1 and 5.2.

128 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw 1400

1200

1000

800

600 National minimum wage

a

a M

al

lo

rc

uñ

a La

C

ál

or

ag

én M

Ja

0) 01 n

C

as

te

lló

nc

te (2

ic Al

le Va

el rc Ba

an

ia

a on

rid

a ci

ad M

ur M

er ác C

G

ip

úz

co

a

es

400

Figure 5.4 The gap between the minimum wage and collective agreements for the cleaning sector in selected provinces in Spain, 2009 Source: own compilation from provincial collective agreements.

In Spain, the available average earnings data for the cleaning sector suggest that the statutory minimum wage has only a weak impact on pay levels, although the period of minimum wage rises, 2004 to 2008, did narrow the wage gap. Data show that from 2000 to 2004, average pay in the sector increased from a premium of 36% above the minimum wage to 41% above. Then, it shrank considerably to 32% by 2008.8 This general picture concerning average pay across the nationwide cleaning sector in Spain obscures two interesting features of the sector. First, for some workers in the sector, such as apprentices, the minimum wage is in fact a very relevant influence on pay, since their wage is usually negotiated with direct reference to the statutory minimum wage. Secondly, because there is a great deal of variability in the basic rates laid down in provincial agreements for the cleaning sector, the national minimum wage is in fact quite close to the base rates in several provincial agreements. In these provinces, the social actors do have the statutory minimum wage very much in mind when they are negotiating a new pay settlement. Figure 5.4 shows clearly that the gap between the collectively bargained minimum rates of pay for cleaners and the statutory national minimum wage varies by province. Across a sample of provincial agreements, the difference in 2009 varied from +17% in Caceres to +38% in Mallorca, and, in one exceptional case, 80% in Guipúzcoa.

Business Cleaning 129 The fact that the collectively agreed base wages in the cleaning sector are significantly higher than the statutory minimum wage is a reflection of the low value of Spain’s statutory minimum wage rather than the high level of collectively agreed base rates. However, it is notable that base rates in many of the provincial agreements did not keep up with the improvements in the minimum wage between 2004 and 2008. For instance, in the case of the Valencia province agreement, the average annual increase in the base rate was 4.4% for a cleaning worker, compared with an average increase of 5.6% in the statutory minimum wage. Trade unions in this province have acknowledged their inability to restore the wider gap with the minimum wage floor and this has been accentuated by the crisis post-2008, with unions now less able to make credible threats of strike action. As one of the union officers interviewed in Spain during early 2010 pointed out: We can’t put pressure on employers to improve the economic and social aspects of employment in the collective agreement. It is difficult to increase wages or [to make] improvements in health and working conditions. In the UK, pay levels in the cleaning sector are very low and the minimum wage plays a powerful role as the ‘external key rate’ (Dunlop 1957) in influencing £25.00

ALL EMPLOYEES

£20.00

Cleaning sector

£15.00

Low-pay threshold £10.00

£5.00 Minimum wage (Oct 2010) £0.00 10

20

25

30

40 50 60 Wage percentile

70

75

80

90

Figure 5.5 Pay distribution in the UK cleaning sector compared to the minimum wage and the low-pay threshold, 2010 Source: ASHE (Annual Survey of Hours and Earnings) earnings data 2010, own compilation, gross hourly earnings for all employees in the sector ‘Cleaning activities’ SIC 812.

130 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw wages set by employers who are generally not covered by collective bargaining. Earnings data for 2010 reveal that pay for all cleaners (full-time and part-time combined) were at, or only 1% above, the statutory minimum wage right up to the 30th percentile. Moreover, at the median level, wages were just 10% above the minimum wage (Figure 5.5). Among female part-time employees, who constitute the largest workforce group in the sector, the wage profile is even flatter, rising to just 4% above the minimum wage at the median level of earnings.9 This portrait fits with further evidence reported by the UK Low Pay Commission that the cleaning business is the sector with the highest share of workers paid the minimum wage, estimated at around 22% in 2008 (LPC 2009). In the UK, the case-study collective agreement sets base rates for cleaners significantly higher than the statutory minimum wage and as such is very untypical of the sector. The case study reveals the significant impact of the 2005 ‘Two-Tier Code’ in raising the base rate paid by the private company in its contract for outsourced services with public sector hospitals. The temporary TwoTier Code was an unusual example of institutional intervention for the UK and represented a weak, non-statutory type of social clause in public procurement. It was implemented in 2005 after several years of trade union campaigns, with strong involvement by the public services union, Unison, as well as the peak organisation, the Trades Union Congress (TUC).10 The focus of campaigns was on improving low pay in private sector contractor companies. Unions collected and disseminated evidence of a ‘two-tier workforce’, collected data on numbers earning less than £5 per hour and balloted for strikes (Grimshaw 2004). Moreover, the TUC made the introduction of a new Fair Wage Resolution a key objective. On the employer side, there were mixed views. The employer body for business services firms adopted a pragmatic approach and recognised the need to break out of the price-led competition for contracts. However, the peak employer body, the Confederation of British Industry (CBI), opposed any new regulation (op. cit.). Ultimately, the union view won. In the words of one of the Unison representatives we interviewed: We went to the government and said not only is it unfair but also severely destabilising that you have the employed staff of the National Health Service on [collectively agreed pay rates] and outsourced workers who are doing essential work but are on minimum wage and in fact a few cases are being paid below the National Minimum Wage. The wording of the new Two-Tier Code brought the UK position close to the ILO Labour Clauses (Public Contracts) Convention No. 94. The code did not have the legal force or coverage of the UK’s Fair Wage Resolution, abolished in 1983, which for 90 years required companies contracting with public authorities to meet the terms and conditions set in national collective agreements and thereby promoted collective bargaining. Nevertheless, through encouraging the practice that private contractors ought to provide new recruits with terms and conditions of employment that are ‘no less favourable’ than those of workers employed in the public sector, it

Business Cleaning 131 established a platform upon which employers and unions could collectively agree the extension of public sector agreements in health and local government where cleaning (and other ancillary services) were outsourced with staff transfer (and protected under TUPE regulations). Because the code was not legally binding, a consensus of views built through social dialogue was vital.11 In the health sector, the NHS employer, the unions and the contractors negotiated a special ‘Joint Statement’12, in which contractors who had previously tended to pay the national minimum wage to cleaners (see Toynbee 2003; Unison 2002; Wills 2001) instead mostly agreed to pay the minimum rate set in the public sector hospitals collective agreement. In 2010, this consisted of a wage premium of 18% above the national minimum wage to those cleaning public hospitals—a significant improvement (see below). In Germany, because there is no statutory national minimum wage, it is the sector agreement that sets the legally binding minimum wages for cleaning companies (see Chapters 2 and 3). As explained above, the minimum wages are also binding for cleaning firms (and their posted workers) from abroad. In addition, the enforcement of the minimum wages is regarded as relatively effective by the social partners although they stated in interviews that there are always ‘some black sheep’. Moreover, they emphasized that the effective control of working hours is a very crucial issue in that regard (see Bosch et al. 2011: 208). There is, therefore, no ‘gap’ of the sort described for Spain and the UK. In the cleaning sector collective agreement, as in other sector agreements in Germany, the minimum wage provides a base point in the wage grid. In contrast to most of the other sectors with minimum wages, two minimum wage scales are applicable in the cleaning sector: for standard indoor cleaning, the 2012 rates are €8.82 in Western and €7.32 in Eastern Germany and for outdoor cleaning €11.68 (Western) and €9.32 (Eastern). However, most workers—an estimated two thirds or even more (Bosch et al 2011: 286)—earn only the lower sector minimum wage for indoor cleaning. In Western Germany, the lower sector minimum, at 61% of median earnings, falls below the threshold for low-wage work (defined as two thirds of median hourly earnings for all employees), whereas in Eastern Germany the lower minimum wage reaches 69% (see Table 5.3). However, it is notable that both rates are above the minimum wages for temporary agency workers that came into force in January 2012 (at a level of 54% of median earnings in Western Germany and 60% of the median in Eastern Germany). The minimum wages in the cleaning sector are also far higher than the average level of statutory national minimum wages found in Europe, which was 47% of median earnings in 2009 (see Chapter 2). Moreover, comparison of the extended sector minimum for cleaning in Germany with the quasi-extended public sector agreement that covers some private sector cleaning contractor firms in the UK shows that the German minimum is higher relative to average earnings for the economy. Cleaning is quite clearly a low-wage business services sector. A key obstacle to improving pay in these conditions is the absence of a framework of rules that establishes a common approach for organisations seeking to pass higher labour costs on to clients. Client organisations do not always attach

132 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw Table 5.3 Minimum wages in Germany’s business cleaning sector, 2012 Western Germany

Eastern Germany

Hourly MW

% of median

Hourly MW

% of median

Lower minimum wage (wage scale 1)

€8.82

61%

€7.37

69%

Higher minimum wage (wage scale 6)

€11.68

80%

€9.32

88%

Note: absolute and relative values compared to the eastern and western German median 2010 Source: BIV (wages) and IAQ-calculation.

value to non-core activities such as cleaning, and while they may operate in high value-added markets of the economy, they may nevertheless be willing to select a specialist contractor on the basis of the most competitive price per unit of service. Unlike other pay bargaining strategies, this issue very often unites employers and unions, albeit in opposition to representatives from the client side. We consider these and other issues in the following section.

5.4 PAY BARGAINING PROCEDURES AND STRATEGIES Pay bargaining procedures vary in the three countries and are shaped by the various national models of collective bargaining (Chapter 2) and the specific sectoral circumstances. In Spain, the unions have been relatively successful in resisting fragmented agreements, because each province has a single agreement for the cleaning sector. At the same time, the number of company agreements is very low, and large firms, where there is more scope for union activity, have a significant presence. A typical union strategy in the cleaning sector is to focus on negotiating improvements in areas that employ a lot of people (e.g. hospitals) and that can be used as a benchmark. These improved conditions can then be transferred to the rest of the sector. In this way, it has been possible to obtain significant improvements in employment and working conditions. One example is the collective agreement in Valencia, in which workers were granted the right to take up to seven days off when necessary (up to fifteen days for workers in hospitals) as well as some sickness benefits (for instance, workers were paid their full wages for up to fifteen days of illness). However, the economic crisis has changed everything—wages are not increasing, the entitlement to take time off has been rescinded and seniority pay has been abolished. The fact that two employers’ associations and two unions are involved in negotiating all the collective agreements in Spain has helped forge longterm relationships and common positions in some respects. For instance, in the province of Valencia, the social actors agreed on a common policy in response to the crisis to stop clients exerting downwards pressure on prices.

Business Cleaning 133 Most clients want the same service (in terms of time or space cleaned) to be provided with fewer workers, in order to reduce costs. Unions and employers have formed an alliance in order to explain to client businesses that this is not possible without a reduction in service quality. The two sides are also trying to agree on a checklist for assessing service quality in order to prevent firms accepting reduced prices by cutting wages or using illegal labour. The situation in Spain with regard to wages has changed in recent years. During the boom years, wage increases were high. Despite considerable diversity across the country as a whole, the predominant strategy in wage negotiations was to fix the increases by reference to the evolution of the Consumer Price Index (CPI). In the province of Valencia, it was common practice to determine wage increases on the basis of the most recent change in the CPI and then to add a percentage increase on top. This partly explains the low incidence of workers paid the minimum wage in the sector. Nevertheless, it should be remembered that this is a low-wage sector and to some extent a trade-off between stability (with the subrogation) and low wages exist. Low pay is the ‘price’ of stability (Recio and Godino 2011: 13). The Spanish statutory minimum wage ‘coexists at a distance’ with the base rates of pay fixed in collective agreements. Nevertheless, the trade unions’ pay bargaining strategy has clearly been focused on the bottom end of the pay scale. One objective was to unify the lowest job categories. In 2001, unions in the province of Valencia (a similar process took place elsewhere in the country) negotiated an agreement that combined the two lowest job categories (which represented 90% of all workers covered by the agreement) on a unified rate of pay, despite differences in job tasks and responsibilities. This was accepted by the employers’ associations, and the rate of pay for the very lowest paid job increased. Another strategy, which ultimately was not successful, was to promote a mechanism whereby rates of pay at all levels would be increased by a fixed nominal amount (such as €20 per month, for example) rather than by a uniform percentage. The goal was to achieve an equal pay rise for all workers that would also compress the pay scale in relative terms. A third bargaining strategy was to campaign for a system of wage fixing in which training would be recognized as a criterion for increasing wages in the lower job categories. In the UK business-cleaning sector, the most interesting example of pay bargaining strategies is in the application of public-sector wage agreements to many private sector contractors. Unions recognized early on that employers would agree to pay better wages; providing the client (the public sector organization) increased the value of the service contracts. For NHS cleaning services, Unison successfully negotiated a single pay agreement applicable in principle to all outsourcing contracts, replacing the contract-specific, individual company terms and conditions previously in place. Most contractors signed up to this single agreement (an estimated 80%), including the two case-study cleaning companies: Some of the better ones like [CleanCo] and [ServiceCo] are committed to it [a national agreement] and would rather have a level playing field

134 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw where people are paid these better wages with better conditions. And it helps them. It is self-interest as it reduces staff turnover and allows them to recruit more qualified staff which will give them a better service. . . . They don’t want [other named companies] coming in and undercutting them. They would rather they all came in with the same labour costs so that it’s fair bidding and what we are fighting for is efficiency. (Unison2) In fact, unions reported more problems in obliging the public sector organization, which was the NHS hospital, to sign up to the pay deal. In some cases, because strike action has to be directed against the employer, Unison reported to us that it connived with the private sector contractor to make a strike threat ‘as they thought that would be what was needed to unblock the problems with the [NHS hospital]’ (Unison2). Despite the difficulties in reaching agreement to extend the public sector terms and conditions, when in place it represented a massive improvement for cleaners. Moreover, the pay rates in the public sector hospitals collective agreement itself were significantly enhanced during the 2004–2010 period. First, a new pay agreement, ‘Agenda for Change’, was signed in 2004, which established a huge leap in the pay level for the lowest paid cleaner from a 2003 hourly rate of £4.61 to £5.71 in 2004, a rise of 24%. Relative to the national minimum wage this represented a widening of the premium from 2% to 18% (see Table 5.4). This resulted from an explicit trade union focus on low pay: This was a very intensely negotiated agreement–arguably well thought out in terms of structure and it was robust in terms of tackling the issues and minimising the issues surrounding equal pay disparities . . . I think one of the biggest issues for us was the large jump for some of the lowest paid members. (Union1) Second, union officials were acutely aware of the rising minimum wage and from 2004 onwards won a series of bottom-weighted pay deals designed to improve the position of the lowest paid workers, such as cleaners. A 2007 deal saw a 2.5% pay rise for all staff above the 18th pay point on the 54-point scale, a more generous rise of £400 for the lowest paid (points 1 to 7) and 2.5% plus £38 for workers on pay points 8 to 18; for a newly hired cleaner on pay point 1, this translated as an effective 3.4% pay rise. Then, a three-year consolidated pay deal for 2008 to 2010 abolished the lowest pay point 1 (in 2009)—an effective pay rise of 5.7% for affected workers, more than twice the standard pay rise—and in 2010 paid a fixed payment of £420 to workers on the lowest pay points 1 to 12, an effective pay rise of 3.2% compared to the standard 2.25%.13 While this collective agreement only covers a small proportion of cleaners in the business cleaning sector (those directly employed by public sector hospitals and those in private sector contractors signed up to the agreement), it

Business Cleaning 135 Table 5.4 Evolution of the gap between lowest pay for hospital ancillary workers and the minimum wage, 1999–2010, UK National minimum wage

1999

NHS ancillary services pay1

Adult rate

% annual change

Minimum rate

% annual change

£3.60

n.a.

£3.86

n.a.

7.2%

% Gap

2000

£3.70

2.8%

£4.01

3.9%

8.4%

2001

£4.10

10.8%

£4.20

4.7%

2.4%

2002

£4.20

2.4%

£4.47

6.4%

6.4%

2003

£4.50

7.1%

£4.61

3.1%

2.4%

2004

£4.85

7.8%

£5.71

23.9%

17.7%

2005

£5.05

4.1%

£5.89

3.2%

16.6%

2006

£5.35

5.9%

£6.04

2.5%

12.9%

2007

£5.52

3.2%

£6.13

1.5%

11.1%

2008

£5.73

3.8%

£6.42

4.7%

12.0%

2009

£5.80

1.2%

£6.79

5.8%

17.1%

2010

£5.93

2.2%

£7.00

3.1%

18.0%

Note: Pay data for NHS ancillary services refer to the Whitley Council agreement for ancillary services workers up to 2003 and the harmonised ‘Agenda for Change’ pay agreement from 2004.

nevertheless represents a valuable example of union success in boosting the wage position of cleaners in a sector that is weakly unionised and relies for the most part on paying the minimum wage as the going rate. In Germany, the social partners in the cleaning sector are convinced that binding minimum wages are crucial in order to eliminate unfair competition. Nevertheless, the negotiation of collective pay agreements is not always free of conflicts. In the summer of 2009, for instance, the trade union (IG BAU) organised a surprisingly effective strike action in response to a highly controversial pay bargaining round. The union viewed the employers’ pay offer as too low and organised a successful strike—referred to as a ‘rebellion of the invisibles’—that was significant in winning popular support from the German media. Thus, despite union density of less than 10% in the sector, the union won the strike and laid the foundations for the successful negotiation of a new sector agreement later that year. It is also notable that the employers’ body (BIV) did not denounce the strike but instead argued it ought to be viewed as an ‘effective public demonstration’, as emphasized in an interview. In the collective bargaining round of summer 2011, the social partners also agreed an agenda to close the gap between the wage rates in Eastern and Western Germany by 2019. As a result, the agreed-on increases for 2012 and 2013 differ by region and wage scale. Wage scale 1 in Eastern Germany

136 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw increased by 4.7% in January 2012 and will go up by a further 3.1% in January 2013, while for Western Germany the increases are lower (3.2% and 2%, respectively). As the regional gap is even wider for outdoor cleaning, the increases in wage scale 6 Eastern Germany are even higher, at 5% in January 2012 and 5% in 2013 (compared to 3.1% and 2.4% for Western Germany). It is notable that only the collectively agreed-on increases for indoor cleaning (wage scale 1) have been implemented as lower minimum wages while the higher minimum wages for outdoor cleaning have been frozen at the lower level of 2011 (€11.33 in Western and €8.88 in Eastern Germany). Accordingly, the increases in wage scale 6 are only applicable for outdoor cleaners in firms bound to the collective agreement. This decision might have been a compromise against the background that the need for the second minimum wage has been called into question in recent years. In particular, the federal umbrella organisation of employer associations in various industries argues that this is a topic for sector-level collective bargaining only, rather than statutory regulation. However, most of the company and union representatives we interviewed pointed to the important role that the second minimum wage plays in protecting the whole pay system. They were fearful that abolition of the higher binding pay standard would exert substantial pressure on wages for skilled employees. The result might be that almost all employees would be paid at the lower minimum wage level, thereby compressing the wage structure around the lower minimum wage. At the same time, however, trade unions also face the challenge of addressing the gender pay disparities in the cleaning sector, since women predominate in the lower paid indoor cleaning sector and men in the higher paid outdoor cleaning sector (cf. Mayer-Ahuja 2003; Gather et al. 2005).

5.5 DISCUSSION AND CONCLUSIONS Business cleaning, like some other business service sectors, has grown in part from the increased outsourcing of labour-intensive activities to specialised providers as organisations across all sectors of the economy seek to reduce costs and focus on core activities. Under such circumstances, firms typically operate in a context of strong price-led bidding for contracts for service provision, which also tends to exert downwards pressure on pay levels. Accordingly, in all three countries under study here, the social partners are seeking to harmonise pay structures in the cleaning sector and/or to limit pay differentials compared to the client sectors. However, against the background of diverse national pay and collective bargaining systems and traditions, the approaches and their scope vary across the three countries. While Germany remains one of the few European countries without a statutory national minimum wage, the business cleaning sector has a long tradition of sector-specific minimum standards for pay and several other aspects of working conditions since the 1970s. Since mid-2007, the two

Business Cleaning 137 minimum wages for indoor and outdoor cleaning have been binding even on providers from other countries. The minimum wages in cleaning are substantially higher than those in several other sectors with sector-specific minima, such as care, temp agencies, laundries and security services. This may be related to the fact that the cleaning sector evolved from the skilled, maledominated window-cleaning trade as part of construction-related services. In such sectors, social dialogue is more highly developed and intensive than in many other female-dominated sectors, such as elderly care, for instance. In the UK, there is no sector collective agreement, nor are there many company agreements in the business cleaning sector. Evidence from earnings data suggests that most cleaners are paid at, or only slightly above, the national minimum wage. Nevertheless, a growing pocket of cleaners in the private sector benefited from a significant trade union victory in the early 2000s, which saw government introduce a code that provided the basis for new joint agreements between private sector contractors, public sector organisations (in local government and the National Health Service) and unions. As a consequence, hospital cleaners enjoyed a substantial boost to their pay, reinforced by a proactive union strategy to improve low pay rates in the national public hospitals sector agreement. However, a newly elected Conservative-led government abolished the code in 2010 to suit the CBI, as well as its own neoliberal political agenda,14 despite an apparent absence of lobbying from the business services trade body, the BSA (Financial Times 28/07/10). Because the code was translated into collective agreements, all outsourcing contracts for hospital services with an accompanying collective agreement signed prior to abolition of the code are obliged to adhere to the Joint Statement.15 However, while conditions are protected for now under the terms of collective agreements, it is likely that, as a result of the public spending cuts made since 2010, public hospitals will exploit new outsourcing contracts to reduce costs and private sector contractors will respond by opting out of the agreement and lowering pay and other terms and conditions. In Spain, where the statutory minimum wage tends to be quite low compared to other countries, there is no direct extension of collectively agreed pay standards in the cleaning sector. As in several other sectors, however, high coverage ensures that hourly wages are higher than the national minimum wage. Unions have also been quite successful in reducing pay differentials across subsectors within the cleaning sector. The actors have been able to bargain on topics other than wages, mainly those related to health or training. However, the economic crisis has changed matters and impacted adversely on the positive trends in job quality and pay equity. The pressures on client organisations to pay less, the high number of part-time workers and a lack of regulation in the cleaning sector may ultimately reverse the modest progress made in recent years. While our investigation has focused on pay, as the social partners at the European level constantly emphasize, the quality of work in the cleaning sector is related not only to pay levels but also to other working conditions. There is

138 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw a need for more ‘good jobs’ in the cleaning sector that can provide social and family-friendly working times, with no split shifts and reasonable early morning starting times (promoted in some countries as ‘daylight cleaning’). As Kirov (2011: 79) pointed out in a recent comparative report, the social partners also emphasize the importance of an appropriate programme of induction training that enables employees to perform their tasks more efficiently and safely. Finally, at the European level of social dialogue in the business cleaning sector, there is a common understanding among both unions and employers that unfair competition in the sector should be restricted, or eliminated altogether, by establishing fair prices and good contracts with client companies. To this end, implementation of the ‘best value’ principle would ensure that the criteria for awarding contracts should include decent service and job quality as well as price. NOTES 1. This could not be verified at the time of writing since data on the number of working hours for 2009 were not yet available. 2. According to a report on the German cleaning sector, all top ten firms are based in Germany (with some activities in other countries). ISS dropped from rank 7 (2004) down to rank 14 in 2008. The top ten firms are Bilfinger Berger, Strabag Property and Facility Services, Dussmann, Wisag, Hochtief FM, Compass Group, Voith Industrial Service, Zehnacker, SKE, Klüh Service Management (Deutscher Sparkassenverlag 2009). 3. For example, Klüh Service Management is ranked number 10 in Germany with annual turnover of €441 million (2008) and a 28.5% revenue base in other countries, including Spain, Greece, Turkey and Emirates, as well as a joint venture in London (SMI) with MITIE group (UK) and Sin & Stes (France). 4. Data sourced from http://www.bis.gov.uk/analysis/statistics/business-population-estimates (accessed 10/11/12). 5. According to the European Federation of Cleaning Industries (EFCI), in Norway and Sweden, daytime cleaning, which is regarded as a desirable improvement in working conditions by the social partners, has become the rule and represents 80% and 70%, respectively, of total cleaning time. In Poland, Denmark and Belgium, approximately half of the cleaning is done during the daytime. In other countries (including Germany, Spain and UK), daytime cleaning remains extremely limited, due mainly to clients’ reluctance to have cleaners around during office times (Kirov 2011: 66). 6. For Germany, we found a similar differential for average hourly pay but could not control for workers’ characteristics (Bosch et al. 2011). 7. The subrogation procedure applies in different forms in all three countries and provides for continuity of employment in the situation where the business contract changes from one cleaning company to another. As Kirov (2011: 71) puts it, ‘The right to subrogation or assignation of staff guarantees that, if the contracted company changes, the workers of the cleaning services will remain in their jobs. This principle is compulsory and minimises the impact of changes in contract on the stability of jobs’. 8. Earnings data sourced from the National Statistics Institute Annual Services Survey. Figures refer to all employees in the sector classification NACE2003, code 747 (Industrial cleaning activity).

Business Cleaning 139 9. All earnings data sourced from ASHE data publicly available on the ONS website. The minimum wage referenced was set in October 2010. 10. It was agreed as part of the 2003 Warwick agreement and initially applied to local government contracting and then in 2005 to the NHS. 11. We are grateful to Trevor Colling (Professor at Warwick University) for this observation. 12. Signatories to the Joint Statement are the Department of Health, four unions—Unison, GMB, Amicus and TGWU, the NHS Employers body and two private sector employer bodies—the CBI and BSA. 13. Data sourced from NHS Employers ‘Pay Circular (AforC)’, various years, available from www.nhsemployers.org/Aboutus/Publications/PayCirculars (accessed 22.10.12). 14. In December 2010, Francis Maude, Minister for the UK government’s Cabinet Office, stated, ‘The code did little to protect staff, while deterring responsible employers from delivering public service contracts . . . .’ The statement conflicts with empirical evidence that demonstrates the code did significantly protect workers’ terms and conditions, especially their pensions. 15. Official advice to NHS staff and workers in contractor firms states that the NHS organisation and the NHS contractor will, as part of their contractual commitments, ‘continue to be covered by the obligation to conform with the standards and principles within the Joint Statement and the Two-Tier code’ (www.socialpartnershipforum.org/StaffPassport, accessed 06.10.11).

REFERENCES Aguiar, L.L.M. (2001) ‘Doing cleaning work ‘scientifically’: the reorganization of work in the contract building cleaning industry,’ Economic and Industrial Democracy, 22 (2): 239–269. Baylos, A. and Trillo, F. (2005) La Negociación Colectiva en el Cector de Limpieza de Edificios y Locales, Madrid: Ministerio de Trabajo y Asuntos Sociales. Berlinski, S. (2008) ‘Wages and contracting out: does the law of one price hold?’, British Journal of Industrial Relations, 46 (1): 59–75. Bosch, G., Kalina, T., Kern, C., Neuffer, S., Schwarzkopf, M. and Weinkopf, C. (2011) ‘Evaluation bestehender gesetzlicher Mindestlohnregelungen—Branche: Gebäudereinigung. Abschlussbericht’, Duisburg: Institut Arbeit und Qualifikation. Colling, T. (2000). ‘Personnel management in the extended organization’, in K. Sisson (ed.) Personnel Management: A Comprehensive Guide to Theory and Practice, Oxford: Blackwell. Deutscher Sparkassenverlag (2009) Reinigungsbetriebe. WZ-Code 74.7. BranchenReport. Stuttgart. Dore, R. (1996). ‘Goodwill and the spirit of market capitalism’, in P. Buckley and J. Michie (eds.) Firms, Organizations and Contracts: A Reader in Industrial Organization, Oxford: Oxford University Press. Dunlop, J. T. (1957) ‘Wage contours’, in G. W. Taylor and F. C. Pierson (eds.) New Concepts of Wage Determination, New York: McGraw-Hill. Dutton, E., Warhurst, C., Lloyd, C., James, S., Commander, J. and Nickson, D. (2008) ‘ “Just like the elves in Harry Potter”: Room attendants in UK hotels’, in C. Lloyd, G. Mason and K. Mayhew (eds.) Low-Wage Work in the United Kingdom, New York: Russell Sage Foundation. Ellguth, P. and Kohaut, S. (2010) ‘Tarifbindung und betriebliche Interessenvertretung in Ost und West. Aktuelle Ergebnisse aus dem IAB-Betriebspanel’, WSIMitteilungen, 63 (4): 204–209.

140 Claudia Weinkopf, Josep Banyuls and Damian Grimshaw Gather, C., Gerhard, U., Schroth, H. and Schürmann, L. (2005) Vergeben und vergessen? Gebäudereinigung im Spannungsfeld zwischen kommunalen Diensten und Privatisierung. Hamburg: VSA. Grimshaw, D. (2004) ‘British living wage and low wage campaigns’, in D. Figart (ed.) Living Wage Movements: Global Perspectives, New York: Routledge. Grimshaw, D., Vincent, S. and Willmott, H. (2002) ‘Going privately: partnership and outsourcing of public sector services’, Public Administration, 80 (3): 475–502. Herod, A. and Aguiar, L. M. (2006) ‘Introduction: cleaners and the dirty work of neo-liberalism’, Antipode, 38 (3): 425–434. Holman, D., Marchington, M., Holdsworth, L., Lamare, R. and Grimshaw, D. (2012) ‘The diffusion of ‘good’ HR practices across the supply chain’, Report to ACAS, Ref 10/12, available at http://www.acas.org.uk/index.aspx?articleid=2056. Kirov, V. (2011) ‘How many does it take to tango? Stakeholders’ strategies to improve quality of work in Europe’, Workpackage 5 of the WALQING Project, SSH-CT-2009–244597. Low Pay Commission (LPC) (2009) National Minimum Wage: Low Pay Commission Report 2009, available at http://www.lowpay.gov.uk/lowpay/rep_a_p_index. shtml. Martinez, E. (2010) Les salariés à l’épreuve de la flexibilité, Brussels: Editions de l’Université de Bruxelles. Mayer-Ahuja, V. (2003) Wieder dienen lernen? Vom westdeutschen „Normalarbeitsverhältnis“ zu prekärer Beschäftigung, Berlin: edition sigma. Recio, A. and Godino, A. (2011) ‘Invisible workers: Quality of employment in the cleaning sector in Spain’, WALQING social partnership series 2011.17, www. walqing.eu/fileadmin/download/external_website/publications/WALQING_ socialpartnershipseries_2011.17_Cleaning_SP.pdf. Toynbee, P. (2003) Hard Work: Life in Low-Pay Britain, London: Bloomsbury Publishing. UNI global union and European Federation of Cleaning Industries. (2010) ‘Improving the European Social Dialogue in the Cleaning Industry Sector: Examination and Renewal’, Brussels. Unison (2002) Justice, not Charity: Why Workers Need a Living Wage, Submission to the Low Pay Commission by Unison and the Low Pay Unit, London: Unison. Wills, J. (2001) ‘Mapping low pay in East London’, a report for TELCO’s Living Wage Campaign. (September) London: TELCO. Wills, J. (2008) ‘Making class politics possible: organizing contract cleaners in London’, International Journal of Urban and Regional Research, 32 (2): 305–323.

6

Pay Bargaining and Cost Minimisation in the Private Security Services Sector A Hungary–UK Comparison László Neumann and Damian Grimshaw

INTRODUCTION The traditional security sector—defined as the supply of general security services such as security guards, physical access control and CCTV/video surveillance1—is an expanding, multibillion euro market in Europe but is still generally characterised by low pay, poor training, dubious employment practices at times and segmentation between legal and ‘cowboy’ firms operating on the boundaries of legal regulations. The market for the provision of security services is very competitive (EC 2009) and is driven by business clients seeking to purchase effective services at minimum cost—typically perceiving it as a ‘grudge purchase’ (Fernie 2011). Firms range from global suppliers, such as G4S with operations in more than 100 countries, a turnover in 2010 of more than £7billion and a workforce of 625,000,2 to the raft of small firms and self-employed individuals who provide services direct to clients or via a supply chain of contracts coordinated by larger security firms. Like the business cleaning sector, trade unions have a relatively weak presence in the security sector and have to devote time and energy to enhancing the reputation of the sector (typically with limited state support), including campaigning for compliance with the minimum wage, proper licensing and improved skill development, as well as the traditional campaigns focused on worker mobilisation and pay. Our investigation of the sector draws on data from two countries: Hungary and the UK. This two-country comparison is useful given their somewhat similar industrial relations systems. Both countries have a weak, patchy and relatively decentralised system of collective bargaining and share a similarly low rate of coverage (around one third of the workforce, see Chapter 2). In the UK, union density is low among all low-paid groups, including men, women, full-timers and part-timers, and in Hungary, union membership has been shrinking dramatically (down to a union density of 12% in 2009) and is extremely low in sectors dominated by small and medium-sized firms. A key problem in the UK is the virtually complete absence of sector agreements in the private sector, let alone the use of extension mechanisms. Hungary, on the other hand, does have several sector collective agreements (one of which is the security services sector), but their coverage and regulatory force is weak and extensions have to date been limited to just four sectors.

142 László Neumann and Damian Grimshaw Given the apparent similarities in the conventional indicators of industrial relations systems, this chapter investigates differences in union pay bargaining strategies and successes in the security sector. It explores five interrelated features in the context of wider country-specific developments in the statutory national minimum wage and similarity of product market conditions: • union strategies on combating low pay; • trends in the pay gap between the lowest jointly regulated pay rate and the statutory minimum wage; • union efforts to widen their presence and strengthen the membership base; • examples of constructive social dialogue on pay equity (and related employment practices) with employers and other actors, such as trade bodies and client firms; and • opportunities for pay advancement on the basis of experience and skill and the implications for pay differentials. Despite similar product markets and industrial relations systems, unions in Hungary and the UK have adopted significantly different pay bargaining strategies. It is argued in this chapter that effective union mobilisation can foster success in widening the gap between sector pay rates and the statutory minimum wage but that such efforts can be easily undermined by downward cost pressures exerted by client organisations and are hindered by employers’ reluctance to improve coordination across the industry. The result is a sector that typically pays the minimum wage as the going rate and, with a few exceptions, is either unwilling or unable to pass on to client businesses the additional wage costs justified by improved skills and technology use. The diverse practices and outcomes point to a need for closer scrutiny of social partners’ actions and the role of subcontracting chains in generating additional pressures that result in an increasing fragmentation of pay and employment practices in the security sector. The chapter is organised as follows: Section 6.2 describes the sector’s general characteristics and Section 6.3 its industrial relations, in particular the organisation of employers and unions and the nature of collective agreements. Section 6.4 compares trends in pay in each country in relation to the development of minimum wage policy. A detailed investigation of pay bargaining strategies is presented in Section 6.5, and Section 6.6 discusses the findings and raises questions for further research.

6.1 CHARACTERISTICS OF THE SECURITY SECTOR The security sector shares certain characteristics with other business services sectors (such as cleaning, IT services, temporary agencies, etc.) but is also distinctive in some aspects. With respect to its industry structure, the security business in both Hungary and the UK is dominated by the self-employed and small

Private Security Services 143 firms but with an increasing presence of large, global corporations. In 2010 and 2011, 13,000 security businesses were registered in Hungary and approximately 16,000 in the UK (including self-employed in both countries). In both countries, around nine out of ten of these businesses (92% in Hungary and 88% in the UK) were either single-person businesses (that is, self-employed) or microsized firms with fewer than five employees. There are relatively few large firms in both countries, particularly in Hungary, where only eight firms employ more than 250 employees, compared with 65 firms in the UK (representing around 0.1% of all firms with employees in Hungary and 1.6% in the UK). Of course, despite their small numbers, large firms account for a disproportionate share of revenue and employment in the sector. In fact in the UK, the market is very concentrated: the 65 large security firms (250 or more employees) account for close to half (48%) of total revenues and almost two thirds of employment (63%); data are, unfortunately, not available for Hungary (Table 6.1).3 In both countries, business formation is relatively closely connected with the police and military. In Hungary, where the private security sector emerged only after 1990, most new businesses are set up by former police officers, military personnel and paramilitary guard officers embarking on a second career after early retirement from their previous service.4 Such previous experience shapes the informal web of connections, especially among the small companies, their representation structure and also the informality of many of the recruitment and employment practices in the sector (see also Cardon and Stevens 2004). Employment in the security sector expanded considerably in the decade preceding the recession in both countries. Since 2008 trends have fluctuated. The total number of employees in the sector in Hungary was estimated at Table 6.1 Structure of the security sector by firm size1 Distribution by firm size (number of employees) Total

0

1–4

Hungary

13,000

2,1222

9,831

UK

15,830

11,695

2,195

5–19

20–49

50–249

250+

820

146

73

8

1,245

360

270

65

Number of enterprises

Employment Hungary UK

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

189,000

13,000

5,000

12,000

11,000

28,000

120,000

Notes: 1 Security sector defined as industry code SIC 80 ‘Security and investigation activities’ and data referenced for 2010 for Hungary and 2011 for the UK; 2 Also includes firms with unknown number of employees. Source: For Hungary, Hungarian Central Statistical Office; and for the UK ‘Business Population Estimates’ from the Department for Business, Innovation and Skills available at www. bis.gov.uk/analysis/statistics/business-population-estimates.

144 László Neumann and Damian Grimshaw 89,000 in 2008. Subsequently, despite the recession, it increased until mid2010 and then decreased slightly. The number of self-employed (7,200 in 2008) also decreased slightly from the end of 2010 onwards (Figure 6.1a).5 In the UK, the number of employees expanded from 135,000 in 2000 to 186,000 by late 2008 and then displayed significant volatility between 2009 and 2011; by late 2011, a total of 182,000 employees was recorded (Figure 6.1b). As a share of total employment, the security sector has expanded in both countries. It is surprising, however, to note the considerably more significant role of the security sector in the Hungarian economy than in the UK—3.0% compared to 0.7%,6 respectively. While this may in part be explained by lower productivity and/or the use of backward technology, other factors are also at play. One issue is that a significant portion of Hungarian license holders work only part-time or casually; in other words, they are registered with the chamber but do not necessarily work many hours in the year. In fact, many of the registered security guards in Hungary are pensioners (typically early retirees from the armed services) seeking opportunities to top up their pension income. As we argue in our data analysis, this characteristic impacts on notions of what is an acceptable reservation wage in the security sector and undermines the collective ability of many full-time workers to bargain up their rate of pay. In both countries, the sector is strongly male-dominated, especially in Hungary, where an estimated 97% of workers are men compared to 82% of employee jobs in the UK. During a period when men’s share of all jobs in the UK economy remained very stable—at a little over 50%—it is surprising to find a significant increase in men’s share of jobs in the security sector, from 73% to 82% over the period shown in Figure 6.1b. One possible underlying cause of this trend is the continuing loss of men’s jobs in manufacturing, especially among older workers, and the need (in a context of stringent welfare-to-work rules) to seek employment in peripheral sectors of the economy, despite worse pay and conditions. It is worth noting that informal organisational structures and employment practices complicate estimations of the sector’s size, by revenue or by employment, especially in Hungary. The chamber for the security sector in Hungary7 had approximately 115,000 active individual members in mid-2010, including around 6.5% (7,500) self-employed individuals who, along with enterprises, are obliged to register. The share of self-employment in the UK appears similar—7% of the total security workforce, lower than the share in the total economy, which was 16% in 2011.8 It is curious, however, that of the 115,000 registered individuals in the Hungarian chamber for security only around 17% (20,000) are said to be employed in firms with at least five employees. It is unlikely that the remaining share (close to 80%) is employed in microsized firms, despite the fact that they account for a high share of registered businesses.9 By comparison, in the UK eight in ten workers are employed in firms with at least five employees, leaving just 3% employed in microsized firms. A possible reason for this difference is that undeclared (black and grey) employment is widespread in Hungary. Indeed, the employers’ organisation in the sector estimates the actual number of employees to be significantly higher, at 180,000.

Private Security Services 145 a. Employees and self-employed in Hungary’s security sector, 2007–2011 9,000

110,000 Employees (right axis)

90,000

4

3

Q 11

2

Q 11

20

20

1

Q 11

20

4 20

11

Q

3

Q 10

20

2

Q 10

1

Q 10

20

20

4

Q 10

3

Q 09

20

20

2

Q 09

20

1

Q 09

4

Q 09

20

20

3

Q 08

Q 08

20

Q 20

20

08

Q 08

20

Q

07

07

20

20

2

70,000 1

5,000 4

80,000

3

6,000

Q

Self-employed

Self-employed (left axis)

7,000

Employees

100,000

8,000

b. Employment trend (and male share) in the UK security sector, 2000–2011 90%

210

85%

200

80% 190 75% 180

70%

170

65% 60%

160

55% 150

Total ('000s) % male full-time share

140

% male share

20

00 20 Q1 00 20 Q3 01 20 Q1 01 20 Q3 02 20 Q1 02 20 Q3 03 20 Q1 03 20 Q3 04 20 Q1 04 20 Q3 05 20 Q1 05 20 Q3 06 20 Q1 06 20 Q3 07 20 Q1 07 20 Q3 08 20 Q1 08 20 Q3 09 20 Q1 09 20 Q3 10 20 Q1 10 20 Q3 11 20 Q1 11 Q 3

130

Figure 6.1 Employment trends in the security sector Source: Hungary – Active members’ statistics of the Chamber of Bodyguards, Property Protection and Private Detectives (Szemely-, Vagyonvédelmi és Magánnyomozói Szakmai Kamara, SZVMSZK); UK – ONS ‘Employee jobs by industry’; Own compilation.

50% 45% 40%

146 László Neumann and Damian Grimshaw Regulations to address problems of informality and criminality, as well as to raise the status of the sector from a low-skill, low-pay operation to one based on new technologies, innovation and best practices, have been introduced in both Hungary and the UK. In particular, both countries have introduced new regulatory bodies to oversee the licensing of firms and individuals. These issues are discussed in detail in the next section. Changing technologies impact significantly on work organisation and skill-mix, but during the recession new technologies have generally been applied in response to pressures from client businesses to reduce costs. Security firms are now offering alternative packages of security services, including the installation of closed circuit television (CCTV) and mobile patrols, distance surveillance and swipe card security systems, instead of the usual continuous presence of static guards. The option to use mobile guards can be presented as cheaper, since there is greater flexibility in the number of hours for which guards are provided. By contrast, static guards are a quasi-fixed cost with a set period of hours that have to be covered on-site. For the security firms in our study, the shared aim was to reduce the share of labour costs and improve margins through greater utilization of surveillance technologies. The sector is characterised by intensive price-led competition for contracts and multiple tiers of contracting. In both countries, firms perpetuate price competition in the market, driven as they are by the fear that, as in other business services sectors, the loss of one or two important contracts from major client organizations can have a significant adverse impact on the company’s prospects, whatever its size. In the UK case-study company, for example, contracts for manned guard services are characterised by low profit margins and short contract duration, typically 12 months for contracts valued under £1million and 12 to 24 months for higher value contracts. During the period of recession when our data were collected, clients purchasing security services were reacting in various ways to the global economic crisis. In Hungary, clients from the hotel industry or office buildings, for instance, dramatically cut the number of security personnel, while in other areas, the security workforce was expanded, largely in response to fear of increased crime. Similarly in the UK, while the immediate impact of the recession was a drop in business, from £1.54 billion to £1.48 billion for the sector as a whole,10 largely caused by a fall in contracts with construction firms, the sector recovered swiftly and registered a 20% rise in total revenues in the nine months from the third quarter of 2009 to the second quarter of 2010. In the UK, a representative of the trade association, BSIA, confirmed that profits were squeezed across the sector from 2008 to 2009 and the trade union representative highlighted the adverse implications for pay. Like other business services sectors, security firms target the public sector as an important source of contracts, since the trend in both countries has been for government to outsource a wide range of activities to the private sector (Grimshaw and Roper 2007). However, against a background of impending austerity in both countries, conditions for public sector clients were expected

Private Security Services 147 to deteriorate because of planned cuts in public sector spending. At the same time, views were divided over the implications for the security sector. The common view among UK interviewees was that austerity would speed up the expansion of the lucrative public sector outsourcing market, as public sector managers sought to make cost savings. Moreover, the benefits of contracting with a reliable public sector client—as one manager put it, ‘You can always get your money from governments’ (SecurityCo, HR manager 3)— outweighed the expected increased emphasis on costs.11 In Hungary, public procurements accounted for as much as 40% to 50% of all commissions at the time of data collection. Like other client sectors, the main selection criterion in both countries remains the price level quoted in the bid. As such, public sector contracts were said to contribute as much as private sector client business to price competition and a ratcheting downwards of unit costs. Independently of the crisis, the sector is characterized by an irrationally low level of service fees, and this has led to the spread of multiple tiers of subcontracting. Large security companies typically pass on the risks of small-margin commissions to smaller security companies. During the 2000s, outsourcing chains lengthened and as a consequence lines of managerial responsibilities and authority in the sector became more opaque, as did employment and wage practices. Different hiring and employment practices mean that salaries and payment practices differ as well. At the end of the supply chain, employment is often illegal, with very low wages and long working hours. For instance, one of the case-study firms in Hungary (SecurityCo2, one of the largest Hungarian-owned private companies) specializes in providing security guards but directly employs only 121 workers while managing the supply of a workforce of approximately 5,000 who are employed by subcontractor firms within an extensive supply-chain network. So, as well as using technologies to reduce unit costs, company strategies for tackling the intensive competitive pressures also include the use of casual employment, the payment of supplementary undeclared ‘envelope wages’ and illegal labour practices such as paying a minimum wage for sixty hours instead of for the mandatory forty to avoid proper payment of ‘on-call’ work. The development of a relatively extensive subcontracting system in Hungary can be attributed to a variety of other factors, too, and in particular to the fact that the prime contractors have not developed and/ or retained a substantial administrative staff such that HRM responsibilities (recruitment, supervision and disciplining of employees) rest with the subcontractor. It is not difficult to understand why such a system suits subcontractors as well: they are not realistically in a position to submit bids on their own because of a lack of references and the required special permissions and knowledge, which leaves only large companies capable of competing for the more prestigious and valuable contracts. For smaller companies, it is an opportunity to obtain relatively steady employment and income, and possibly also the prestige of taking on subcontracting jobs from high-profile, well-connected companies.

148 László Neumann and Damian Grimshaw 6.2 COLLECTIVE ORGANISATION AND THE NATURE OF COLLECTIVE BARGAINING The character of the collective organisation of firms, employers and workers in the security sector is critical to our analysis of pay bargaining and country differences in practices and outcomes. Table 6.2 provides a summary of the key features of regulatory bodies, employers’ associations, trade unions and collective bargaining in the security sector in Hungary and the UK. In both countries, there is a regulatory body that oversees licensing and the monitoring of professional standards for the security sector. In both countries, moreover, new regulations were introduced in part as a result of lobbying from employers’ associations. In Hungary, the Chamber of Bodyguards, Property Protection and Private Detectives was set up by the largest security firms in part Table 6.2 Regulatory bodies and industrial relations in the security sector Hungary

UK

Chambers of commerce/ regulatory bodies

Chamber of Bodyguards, Property Protection and Private Detectives Responsible for organising training and professional support, representation of the sector and regulation through code of conduct. (Mandatory membership and registration function—tied to police licensing—until end of 2011.)

Security Industry Authority; established 2001. Responsible for compulsory licensing (subject to skill qualification) and voluntary quality accreditation

Employers’ association

Weak. Employer Association off Weak. British Security Hungarian Security Companies Industry Association (BSIA) (Magyar Biztonsági Vállalkozások Munkaadói Szövetsége, MBVMSZ); established 1995

Trade unions Weak. Estimated 20% union density Weak. Members concentrated at companies employing more than in general unions, the GMB 4 people. Sector union, Alliance of and Unite Property Security Trade Unions (Vagyonvédelmi Szakszervezetek Szövetségét, VSZSZ), founded in 2004 by three company-level unions Collective agreements

Weak and patchy. 11% coverage. Sector agreement but incomplete coverage. Very few company agreements (eight in 2011).

Weak and patchy. Limited to a small number of company agreements.

Private Security Services 149 to lobby government over the development of new regulations governing security services. In the UK, the employers’ association, the British Security Industry Association, claims to have lobbied for over fifteen years prior to the introduction of the 2001 Private Security Industry Act that established the Security Industry Authority (SIA). In both countries, the regulatory body requires a form of compulsory membership, or licensing—in Hungary it extends to all individuals (employees and employers) engaged in personal security12 and in the UK to all individuals except those employed in-house.13 The chamber is also engaged in organising training and examinations; security guards are regarded as skilled workers who are required to undertake 320 hours of training, although the quality of training is often criticised. The stated purpose of the UK’s SIA is to manage the compulsory licensing of all individuals in the sector and to award ‘approved contractor’ status to those firms that meet specific quality standards. Both functions of the SIA include attention to employment standards: licensing requires an SIA-endorsed qualification (typically at NVQ Level 2) and clients purchasing services from an ‘approved contractor’ are assured by the SIA that, ‘You can be confident that the employment practices of the supplier have been extensively assessed in respect of quality and best practice’.14 In Hungary, both the employers’ association (with voluntary membership) and the trade union are relatively new. An employers’ association was established in 1995 by the ten largest security firms. Subsequently, it became a member of the Alliance of European Security Organisations, which advised that the membership be expanded. Currently, the Employer Association of Hungarian Security Companies (Magyar Biztonsági Vállalkozások Munkaadói Szövetsége [MBVMSZ]) has seventy-five members. Most employer members are the larger companies, which generate 65% to 70% of the sector’s total income and, including their subcontractor chains, employ close to 30,000 people. Employer membership of the UK association is more widespread. Members accounted for approximately 75,500 security guards in 2006, which represents around 40% of the total workforce cited in Table 6.1 for the sector,15 which is surprisingly high given the low collective employer organisation in most sectors in the UK (see Chapter 2). In Hungary, the issue of mandatory membership of the Chamber sparked a serious conflict between the chamber and the employers’ association (MBMVSZ). Leaders of the latter body proposed that a separate and independent regulatory body be set up (with the idea in fact of imitating the UK’s SIA) to issue operating licenses, to set and enforce penalties and to coordinate training programmes. The chamber, in turn, questions, at least informally, the legitimacy of organisations participating in the Sectoral Social Dialogue Committee (see below). Larger firms, however, take a pragmatic approach to the conflict between the two organisations, maintaining membership of both. Trade union presence in the security industry is weak in both countries, even weaker than the already relatively limited role trade unions play in each country in general (see Chapter 2). The first trade union in the private security sector in Hungary was established in 2004, when three company

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level trade unions founded the Alliance of Property Security Trade Unions (Vagyonvédelmi Szakszervezetek Szövetségét [VSZSZ]) with the aim of establishing the Sectoral Social Dialogue Committee. Across the industry, trade union density is very low, with an estimated 3,800 to 4,200 trade union members representing around 20% of the 19,400 workers in companies employing more than four people; but of course this is a very small share of the estimated total of 130,000 workers, including microsized firms and the self-employed. Only 42 private security companies in Hungary have employees represented by trade unions, since smaller companies tend to resist trade union involvement. At the local level, where trade unions are present they are weak and said to be excessively loyal to management’s wage policy. Along with the leadership of the employers’ body, MBVMSZ, the sector union, VSZSZ, campaigns for more effective labour inspections, undertaken in cooperation with the tax authorities, to guarantee that wages are actually paid and working conditions are improved. VSZSZ also has a conflict with the professional chamber, which in their view lacks the competence to formulate an opinion on economic, employment or social issues. In the UK, most union members in the security industry are represented by either the GMB or Unite, both large, general unions with membership dispersed across a broad range of sectors. Other smaller representative bodies include a dedicated union for the security industry (the National Security Workers’ Union) and a staff association for the largest company, G4S (both registered as trade unions with the government’s Certification Officer).16 In both countries, collective bargaining is characterised as weak and patchy but with different features. In particular, there is a sector agreement in Hungary (one of seventeen concluded across the economy, see Chapter 2) but not in the UK. However, the sector agreement has only patchy coverage. It covers just sixty-four employers (less than one in ten of the 1,047 enterprises with a workforce of five people or more) and approximately 16,000 employees.17 Moreover, in Hungary’s private security sector, there are few examples of company-level agreements to supplement the sector agreement: in 2011, there were only eight company-level collective agreements, covering just 1,555 employees.18 The bargaining coverage seems to be very high (more than 80%) if we limit the calculation to the estimated 20,000 workers employed in enterprises with at least five workers. As we noted above, however, the available data suggest that such companies constitute only one sixth of the entire sector, which is doubtful. A more realistic estimation of collective bargaining coverage that accounts for the number of registered members (excluding self-employed) of the chamber generates a far lower figure of a little over 10%, which is in line with the average cited figure for private services in general.19 As such, the direct impact of collective agreements on pay and working conditions in the sector as a whole is weak. The UK picture is arguably worse, given the absence of a sector agreement. Evidence provided by the GMB union reveals just seven company recognition agreements, including the largest companies, G4S, Securitas and Vision

Private Security Services 151 Security Group (now owned by Compass Group), plus five local agreements with companies, including for Serco court services and Serco security and immigration, as well as Emcor security in aviation, for example. We examine the obstacles to company pay agreements in detail below. 6.3 PAY TRENDS AND THE RELEVANCE OF MINIMUM WAGE POLICY In both countries, the security sector is ranked among the low-wage sectors of economic activity and consequently pay trends are strongly influenced by minimum wage policy developments. In Hungary, the average basic monthly wage for security guards in 2010 was €312 (HUF 95,517), just 56% of average monthly pay for the economy as a whole.20 In the UK, average hourly pay in the sector (SIC code 80) was €11.91 (£9.93), 67% of the average for all sectors in 2011, although this drops to 61% if we consider male full-timers only.21 The low level of pay means the statutory minimum wage has a significant ‘bite’ in both countries (Figure 6.2). In Hungary, the example of the security sector is of significant interest because, since its introduction in 2006, the minimum wage for skilled workers rather than the standard minimum wage has been applied. This is because all security guards have to complete a formal Pay relative to the statutory minimum wage

1.7

1.6

P10

P20

Median

Average

1.5 1.4 1.3 1.2 1.1

1 Hungary

UK

Figure 6.2 The minimum wage ‘bite’ on pay of male full-time employees in the security sector Notes: Gross hourly pay data for male full-time employees; Hungary – 2008 data with reference to the skilled minimum wage; UK – 2010 data. Industry code (NACE Rev. 2) is 80 for both Hungary and the UK. Source: Hungary Individual Wage Survey data (Public Employment Service); UK ONS ASHE 2010; Own compilation.

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320-hour training course and pass an examination (see above). At the bottom decile, pay for male full-time workers in the security sector was just 3% above the skilled minimum wage in Hungary and 8% above the statutory minimum in the UK. Rates of pay among the lowest paid are somewhat less compressed among UK security workers; median earnings are 30% higher than the bottom decile in the UK compared to a differential of 25% in Hungary. Disaggregated by occupational group rather than industry, the bite on average pay is substantial in Hungary. For ‘property guards’, the most typical occupation in the sector, average pay is just 8% higher than the skilled minimum wage, suggesting that property guards are concentrated among the bottom two deciles of the wage distribution for the sector.22 For the UK, the wage distribution for the occupational group ‘security guards and related occupations’ (SOC 9241) is very similar to that for the industry.23 Examining the hourly wage distribution for Hungary in more detail reveals the significance of the second statutory national minimum wage for skilled workers (Figure 6.3a). The peak of the 2008 wage distribution equates precisely with the value of the skilled minimum wage. Given that 70% of employees are manual workers, and 80% of the manual workforce work full-time, one issue for our investigation of collective agreements is the degree to which the skilled minimum operates as a ‘going rate’ for manual workers. Interviewees estimated that around two-thirds of security workers are paid the statutory skilled minimum wage. For the UK, similarly, Figure 6.3b shows a noticeable peak, year on year, at the statutory minimum wage but more dispersion of earnings above this level. It is also notable that in the UK, the share of employees paid at or below the adult minimum wage is less significant than in Hungary, at just 5% among those aged 22 and over in 2010 (LPC 2011: Table 2.4), a point that is relevant for our discussion of informal wage payments in Hungary (see below). A further key difference in the two wage distributions is that, unlike the wage structure for Hungary, pay differentials in the UK security sector have been squeezed since 2000. Table 6.3 shows that levels of pay at the 30th, 40th and median positions have dropped relative to the minimum wage. This suggests that, while a relatively stable gap with the minimum wage was maintained at the bottom of the distribution, this was achieved at the expense of higher paid security workers; as a percentage of median pay, the bottom decile increased from 68% to 75%. It is also notable that during the period of relatively generous upratings of the UK minimum wage (2004 to 2007), the bottom decile actually increased its relative level, but fell during the recessionary period after 2008 despite small rises in the minimum wage. In both countries, therefore, trends in the statutory minimum wage appear to play a strong role in influencing both the movement and changing shape of the wage distributions among security sector workers, contributing in part to the overall boosting of median earnings in the sector compared to median pay for all sectors in Hungary and the UK. There are other possible explanatory factors. First, the security sector benefits from the fact that workplaces tend to

Private Security Services 153

.006

a) Hungary (2000–2008, adjusted for inflation, national currency HUF)

0

.002

Density

.004

2000 2002 2005 2008

0

200

400

600

800

1000

1200

1400

Gross Hourly Earnings

5

NMW 2006

6

NMW 2005

7 NMW 2004

Percentage of employee jobs held by those aged 18 and over

b) UK (2004–2006, national currency£, nominal earnings)

2004

2005

2006

4 3 2 1

> MW – Apprentice pay indexed to MW —

—

Source: Compiled from Chapters 2 to 8.

Note: CB = collective bargaining coverage, UD = union density; for Hungary, UD and CB data refer to companies with more than four people.

National sector agreement (job types not pay)/ multiple provincial agreements/ 65–75% CB – Base rates >> MW – Variation by province

Spain

244 Damian Grimshaw, Gerhard Bosch and Jill Rubery

IB. Bottom-Weighted Pay Settlements In four cases a direct response to national minimum wage changes involved the negotiation of bottom-weighted pay settlements, namely where the lower paid receive a higher wage increase than higher paid workers. In the UK cleaning case, the public services union (Unison) negotiated the elimination of bottom grades for hospital cleaners (in 2009) and higher pay settlements for the lowest paid (2007 and 2010). In the retail company agreements investigated in Hungary and the UK, unions argued for a series of bottom-weighted pay deals in response to minimum wage rises and, in the case of Hungary, to new tax rules that reduced net earnings for low-wage workers (Chapter 8). In Hungary, these deals spanned a six-year period (2005–2010) culminating in a 2010 pay settlement, which awarded a lump sum to the lowest paid and a pay freeze for the higher paid. Union strategy reflected the wider policy of the Commercial Employees’ Trade Union (KASZ) to improve pay equity, preferably through a cap on pay rises for senior managers and redistribution to the low paid. In the UK, the retail union, Usdaw, negotiated the abolition of the bottom pay grade in 2001 and again in 2005, thereby winning effective pay rises for the lowest paid of 8% and 5%, respectively. In Croatia, too, the retail case illustrates use of bottom-weighted pay deals—in direct response not to union pay equity concerns but to the legal imperative to bring base rates up to the level of the statutory minimum. From 2005 to 2009, the lowest basic rate of pay for a retail worker fell from 23% to 43% below the minimum wage. Additional pay received by employees (seniority and other enhancements) counts towards the minimum wage. Nevertheless, social partners had to agree on special lump-sum allowances to ensure workers’ total wage met minimum wage rules. Company-level pay bargaining provides higher base rates for some, but there are few agreements—just eleven in retail in 2009. Data from one case-study company agreement show that even with bottom-weighted pay deals, the minimum wage premium for a sales assistant with five years of experience and entitled to standard bonuses and allowances fell from 31% in 2005 to 8% in 2010 (Chapter 8).

II. Pay Bargaining in Response to a Weak or Absent National Minimum Wage IIA. Establishing Legally Binding Sector Minimum Wages The case-study data on pay bargaining, at sector and company levels, reveal alternative pay bargaining strategies that are a response to either the absence of a statutory wage floor or its relative weakness in terms of its positive uplifting impact on wage structure. The two cases in Germany represent the establishing of legally binding sector minimum wages in direct response to the problems caused by the absence of a statutory national minimum wage (Chapter 3). The construction sector was the first to establish a binding

Minimum Wages and Egalitarian Pay Bargaining 245 sector minimum (in 1997) on the basis of the Posted Workers Act and the commercial cleaning sector was one of a further ten sectors to win approval subsequently. One obvious problem with this pay equity strategy is coverage, since many low-wage workers in Germany are employed either in sectors with no binding standard or in workplaces/sectors where weak or absent union presence makes enforcement difficult. The UK case study of cleaning may be said to illustrate a weaker type of quasi-binding standard of relevance since it illustrates a government response to a union campaign to prevent use of the national minimum wage as the going rate because of its perceived low level. Introduced in 2005, the non-statutory government code that underpinned many of the new collective agreements between private subcontractors, public sector organisations and unions had a short lifespan of just five years until its abolition in 2010. Many collective agreements that have incorporated the principles of the code are likely to be sustained for several more years; although with each renewal of contracts for outsourced services, public hospitals will face pressures under very difficult budget conditions to relinquish the linking of pay rates (and other terms and conditions) with those set in the public hospitals sector agreement and indeed will face pressure from the private sector subcontractor to do so (Chapter 5).

IIB. Framework Agreements While one pay bargaining response to a low/absent minimum wage is to establish an alternative binding wage standard, another countervailing response is to establish ‘framework agreements’ (Wright 2011) that set a minimum price for services sold to client businesses with the expectation that this affords an indirect defence of wages. The two examples of security services for Hungary and the UK are illustrative of efforts to institutionalise framework agreements that pass higher wage costs to client firms (see also, Erickson et al. 2002). In Hungary, the employer body and the professional chamber agreed a minimum level of security service fees that should be charged to client organisations; a minimum hourly fee of HUF900 (€3.04) is said to have enabled payment of the skilled minimum wage (HUF515 or €1.74) plus tax and social security contributions.6 However, there was limited compliance and the employer and trade bodies lacked the power to impose sanctions. Similarly, in the UK, where there are few pockets of effective social dialogue among social partners, the union (GMB) established a strong partnership approach with the case-study global security firm in an effort to encourage clients to accept higher prices for contracted services as the minimum wage increased, but the strategy was only partially effective. Some clients paid low fees, others high fees, leading to significant pay differentials among security guards doing similar jobs. Guards earn the minimum wage on some contracts and a premium on others where clients pressure for programmes of skill

246 Damian Grimshaw, Gerhard Bosch and Jill Rubery development and uprating of pay. The result is an extreme fragmentation of pay rates for the same job within the same company.

IIC. Isolated Pay Bargaining Finally, in the two cases investigated in Spain, the evidence suggests pay bargaining occurred in a traditional form but is unique among our case studies in its relatively large distance, or indeed isolation, from the statutory national minimum wage. The interview data suggest bargaining actions and strategies remained relatively unchanged despite the rising value of the national minimum wage from 2004 to 2008. In the provincial agreements investigated, unions bargained an effective minimum base rate that is significantly higher than the national minimum wage. In the Valencian province, the premium over the national minimum in 2009 was 35% in the building cleaning sector agreement and 26% in the general retail agreement. Nevertheless, this premium is smaller than it was due to minimum wage rises outpacing collectively agreed pay increases: the minimum wage increased on average by 5.6% from 2004 to 2008 compared to 3.4% in the base rate for an experienced grocery assistant in the Valencia province and 4.4% for a cleaning labourer. Trade unions in Spain recognise their weakened ability to restore differentials above the minimum wage, especially during the crisis when unions have been less able to make credible strike threats. In summary, the pay bargaining data reveal a distinctive variety of responses in varying minimum wage contexts, shaped by industrial relations and sector conditions. Direct responses to minimum wage developments include linking to collectively negotiated wage grids, as well as uprating base rates using bottom-weighted pay settlements. Both responses would appear to have direct repercussions for the types of ripple effects that may be realised, varying from long-reaching, extended ripples to shorter ripples observable only at the base rate. A second form of pay bargaining responded to a weak or absent national minimum wage and involved the negotiation of binding sector minima, framework agreements and a patchwork of agreements isolated from minimum wage developments. These responses raise questions about their effectiveness in raising the wage floor as a substitute or complement to a national statutory minimum wage. We address these issues of pay equity in the next section.

9.4 INTERROGATING PAY EQUITY EFFECTS Before drawing together the evidence of pay equity effects, it is useful to set out how our findings fit with closely related research. First, because we anticipated that the bulk of pay equity effects associated with minimum wages occur at the bottom end of the wage structure, the research for this book was

Minimum Wages and Egalitarian Pay Bargaining 247 designed to focus on collective agreements for jobs that loosely fit within a ‘minimum wage contour’. Following Dunlop (1957), a wage contour defines a range of wages typically in similar industries, or among workers applying a similar set of skills and technologies. Each contour is shaped by both internal and external forces, such that an ‘external key rate’ can be as influential as internal factors in determining the wage structure of a firm or an industry. In a ‘minimum wage contour’, therefore, the statutory minimum wage acts as the external key rate not only on the pay of workers paid at the minimum wage but for a range of workers paid close to it. Studies in the United States show that the statutory minimum wage acts as an external key rate in several sectors. They demonstrate that change in the wage structure in these sectors is more closely tied to minimum wage increases than to other factors such as changing skill demand (Levin-Waldman 2002; Rodgers et al. 2004). A second point of interest is that these wage contour results dovetail with research that examines the ripple effects of minimum wage changes, referred to in Chapter 4 as ‘second-order pay equity effects’. Ripple effects in the US retail sector, for example, affect wages paid up to 25% higher than the minimum wage (Wicks-Lim 2008), while in France ripple effects are longer reaching (Gautié 2010). Our research complements and extends these findings by highlighting how in a European context, collective bargaining plays a significant and varying role both in shaping responses to minimum wages and, in some contexts, in the setting of minimum wages. In particular, it contributes by identifying varying forms of pay bargaining, in differential contexts of union strength and collective bargaining coverage, which support, constrain and shape the upward spread of wage rises caused by minimum wage changes. This section sets out five specific pay equity outcomes linked to specific patterns of minimum wage policy, industrial relations and forms of pay bargaining, some of which have an egalitarian motive. Figure 9.1 provides a summary. In Chapter 4 we reviewed the effects on standard pay equity indicators—low-pay incidence, interdecile wage dispersion and gender pay equity. Here, we interrogate what happens to the shape of the wage distribution centred around the minimum wage contour through exploring the effects on the relative position of the wage floor, the form and size of ripple effects and prevalence of spikes and wage compression. The first pay equity effect is a high wage floor. It is associated directly with the relative value of the statutory national minimum wage and/or the relative value of binding minimum standards set through sector collective bargaining. A high wage floor is most likely to materialise where unions enjoy a relatively strong labour market presence and are able to make a positive input into the minimum wage-fixing process. It is also possible in countries, or for particular periods of time, where a government has a strong and stable commitment to the setting of a high wage floor, as in France, for example, where unions are relatively weak. Across Europe, the minimum wage value is positively

248 Damian Grimshaw, Gerhard Bosch and Jill Rubery associated with strength of collective bargaining; moreover, countries with strong collective bargaining and high-value minimum wages are most likely to enjoy a low incidence of low-wage employment (Chapters 3 and 4). However, our focus on five countries highlights the country specificities. In particular, in Germany, high-value minimum wages derive from collectively agreed and extended binding standards at the sector level. Evidence of the relative value of these sector minimum wages suggests that unions have to date been effective in establishing high standards. In 2010, the commercial cleaning minimum wages were €8.40 and €6.83 in Western and Eastern Germany, respectively, representing 56% and 46% of average German earnings—approximately on a par with the French minimum wage level at 48% of average earnings (Chapter 2). In Hungary, the state acted unilaterally in 2001 and 2002 to establish a high-value minimum wage in a context of low collective bargaining coverage and weak unions, while in Spain very high collective bargaining is isolated from, and out of step with, a persistent lowvalue national minimum wage. A second pay equity outcome is a rising minimum wage floor. This raises different issues since it can lead to overlaps and inconsistencies with wages set in collective agreements depending on the timing. Chapter 4 reviews an eclectic political economy literature that supports the economic logic for raising the wage floor to a decent level, including a shift in the balance of evidence in the mainstream economics literature. Moreover, there is evidence to suggest that raising the minimum wage can underpin policies to reduce low-pay incidence. The reduction in low pay still constitutes a key policy objective in countries where governments espouse a responsible commitment to improving standards of living and sharing the gains of economic wealth. These two factors seem to have justified, or motivated, evidence of proactive policy actions during the 2000s to uprate statutory minimum wages. Minimum wage upratings tend not to have been associated with the presence of strong and stable industrial relations systems, except in France; Hungary and the UK join several other European countries in witnessing above-average rises in the minimum wage value during the 2000s despite having relatively low levels of collective bargaining coverage—evidence (at least for the pre-recession period) that statutory interventions to protect the lowest paid were more likely in liberal market economies (Chapter 3). Nevertheless, while a rising wage floor has the direct effect of lifting the relative position of lowest paid workers, the risk, of course, is that minimum wage rises may in practice displace or erode the influence of collective agreements in setting minimum rates in certain sectors. This is especially the case in situations where the minimum wage overtakes base rates in collective agreements (Croatia and France) or where policy is disconnected from processes of social dialogue and, therefore, from wider processes and conditions of wage-setting in the labour market. Erosion of collective bargaining and/or trade union influence could be highly problematic since it exposes minimum wage earners to a subsequent halting or even reversal of policy on minimum wage uprating. The

Minimum Wages and Egalitarian Pay Bargaining 249

• Strong social dialogue input in MW policy • Strong CB/ strong union presence complements high value MW • Legally binding standards

• Proactive policy focus to address low-wage employment and weakness of other forms of wage protection • Risk of poor coordination with CB versus improved platform for raising CB rates of pay

• Linking of collectively negotiated wage grids with MW increases • Supported by strong union presence, high sector CB coverage, extended agreements • Undermined by noncompliance with CB wage rates

• Union/employer strategy to secure a base rate premium over the statutory MW • Supported by union pay equity strategy to improve wage floor • Bottom-weighted pay deals or supplementary statutory minimum wage

• Large spike at minimum wage/erosion of wage differentials • Weak unions and poor/absent CB coverage • Large baseline ripple effects with no longreaching effects

High wage floor

Rising wage floor

Longreaching ripple effect Baseline ripple effect

Wage compression

• CB pay falls behind MW rises/lagged catch-up

Figure 9.1 Five pay equity outcomes of minimum wage and collective bargaining intersections

risk of erosion of collective bargaining is perhaps most relevant to the case of the UK where a temporary period of uprating the national minimum wage may have contributed, because of an absence of effective collective bargaining coverage in the private sector, to consolidating a class of largely nonunionised

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minimum wage workers and reinforcing the dominance of minimum wages over collective bargaining in setting pay in low-wage sectors. France could also be considered to fall into this category as increases in the minimum wage linked to a specific formula have to an extent compensated for the weak presence of trade unions in many low-wage sectors (Schmid and Schulten 2006; Gautié 2010). However, it is more likely that the rising minimum wage in France, alongside extended collective agreements, creates incentives for collective negotiations, as well as continued employer membership of collective associations since employers do not have a viable exit option. A distinctive type of ripple effect, which we refer to as a long-reaching ripple effect, constitutes a third pay equity outcome. This occurs where unions, through collective bargaining, peg the whole wage grid to increases in the minimum wage, and as a consequence the spillover effect of rising minimum wages on low (and medium) paying sectors is in principle very significant. The evidence in Part Two of the book demonstrates that long-reaching ripple effects are characterised by union (and possibly employer) actions to defend a wage grid of coefficients indexed to the base wage rate that institutionalises a fixed range of pay differentials between job grades (defined by skill, qualification, experience, etc.). If the base rate is linked to the statutory minimum wage, then all percentage changes are in principle translated into an automatic ripple effect that preserves pay differentials. The pay bargaining data suggest union strength is critical to achieving this type of ripple effect, and this varies by sector, with stronger unions and collective bargaining coverage in construction than in retail, for example. In the Hungarian and Croatian construction sectors, the legally extended collective agreements were relatively effective at sustaining long-reaching ripple effects through restoration of pay differentials. Wage data for the Hungarian construction sector agreements for 2006 to 2010 suggest a near 100% ripple effect for unskilled workers relative to the wage rate for unskilled workers pegged to the statutory standard minimum; the pay differential fluctuated between 9% and 12% over the period. However, employer refusal to renegotiate sector rates since 2008 caused a narrowing of the differential between skilled pay rates (including skilled rates for those with Master qualifications) and the statutory skilled minimum wage. While employer power is one issue, another is that where the base rate is tied to the statutory national minimum wage, it risks wage stagnation during periods of minimum wage freeze. Nevertheless, as Chapter 7 argued, the absence of a statutory minimum wage would present an even greater risk and would certainly destabilise collective bargaining in both countries. The achievement of long-reaching ripple effects requires that union strength and government support through legal extensions are accompanied by enforcement of pay agreements. Evidence for both Germany and Hungary suggest collectively agreed wages can be circumvented by employers. Noncompliance with collectively bargained wages (see above) diminishes the ripple effect that is institutionalised in the collective agreement.

Minimum Wages and Egalitarian Pay Bargaining 251 A fourth pay equity outcome is an alternative type of ripple effect, which we characterise as a baseline ripple effect. This is characterised by union goals to secure a wage premium, or gap, between the collectively agreed base wage and the statutory minimum wage, but with no guarantee (or union/ employer strategy) of extended ripple effects further up the wage distribution. From the employer perspective, the rationale may be to avoid a reputation as a minimum-wage employer, thereby improving its capacity to attract good job applicants (McLaughlin 2009). For unions, it may reflect a pay equity strategy designed to lift the position of the lowest paid and compress pay differentials among the sector or company workforce (Checchi et al. 2010; Heery 2000: 59; Metcalfe et al. 2001; Pontusson et al. 2002). It may also reflect weak union pay bargaining strength such that bargaining for a premium over the minimum wage at the expense of compression of wage differentials is perceived as a pragmatic position. The data suggest bottom-weighted pay settlements can be effective, although again contingent upon both the relative strength of unions and employers and the degree of compliance. The UK public sector agreement (affecting cleaners) and the retail company pay agreements in the UK and Hungary illustrated use of bottom-weighted pay deals as part of union pay equity campaigns to raise the base rate premium over the minimum wage. The baseline ripple effects were variable. The best example of a clear-sighted union pay equity strategy coupled with a strong capacity for worker mobilisation is the UK public hospitals sector agreement, negotiated largely by Unison, the public services union. The result of successive bottom-weighted pay deals was a considerable base-line ripple effect—an improvement in the premium over the national minimum wage over the eleven-year period analysed from 7% to 18% (Chapter 5). In the UK retail company, a falling premium over the national minimum wage (from 23% to 15% over an eleven-year period) was the result of weak union bargaining power relative to the retail company and a poorly formulated pay equity strategy. And in Hungary, the collectively agreed base pay rate diminished relative to the standard minimum wage from 2005 to 2007 (14% to 10%) and then increased from 2007 to 2010 (10% to 17%). An alternative strategy is the institutionalisation of a second statutory minimum wage, such as the skilled minimum wage introduced in Hungary or binding sector minimum rates of pay that supplement a national minimum wage (such as we found for the construction sector in Croatia and Hungary, for example). While the skilled minimum wage would appear in principle to guarantee a strong baseline ripple effect, much depends on the procedures for classifying jobs by level of skill, as well as patterns of pay bargaining at sector and company levels. Retail employers in Hungary lobbied against the application of the skilled minimum to retail cashiers, leading to the government cancelling the qualification requirement for many retail jobs; Chapter 8 shows that the base rate for cashiers immediately fell below the level of the skilled minimum wage.

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Finally, wage compression characterises a fifth pay equity outcome. This may be the direct result of (otherwise positive) baseline ripple effects and a rising minimum wage floor, and is described by an overly large spike at the minimum wage; wage compression was among the lowest paid. In countries and sectors with weak trade unions and low collective bargaining coverage, our evidence suggests that a pay bargaining practice of pegging wages at or slightly above the statutory minimum is associated with a compression of wage differentials (that reduce rewards for skills, qualifications and experience) during a period of minimum wage rises. In the Hungarian and UK retail cases, bottom-weighted pay bargaining is likely to have caused a compression of pay differentials, accompanied by a diminishing premium over the statutory minimum wage in the UK case and a fluctuating trend in the Hungarian case. In Croatia, too, the retail case study shows a tendency towards wage compression but this time as a result of bottom-weighted pay bargaining, which has done little more than ensure that total earnings for the lowest paid are at least compliant with the statutory minimum wage (in a context of an unstable minimum wage policy environment where collective bargaining wage increases have constantly fallen behind minimum wage increases) (Chapter 8). The UK retail case is hardly representative but does fit with the wider UK finding that despite a significant increase in the minimum wage value from 2001 to 2007 (Chapter 3), the incidence of low pay has remained at a consistent high level (Salverda and Mayhew 2009). With only a limited proportion of workers benefiting from pay bargaining that can restore pay differentials, there are insufficient ripple effects (baseline or long-reaching) to lift pay above the low-wage threshold, which at two thirds of median earnings remains substantially above the national minimum wage. The minimum wage is the dominant influence on wage-setting in UK low-wage sectors: shares of minimum wage earners in the sectors of hairdressing, hospitality, cleaning and retail range from 15% to 27% (LPC 2007: Figure 2.12); and in the case studies reported in the edited collection of Lloyd et al. (2008) six of eight hotels paid room attendants at or only slightly above the national minimum wage, four of the eight retail companies set entry pay a few pence above the minimum and all six food-processing firms paid agency workers the minimum wage.7

9.6 CONCLUSION This chapter has drawn together the argument of this book, which is that the distributive function of a statutory minimum wage depends to a great extent upon the qualitative intersections at national, sector and company levels between collective bargaining and minimum wage policy. On the one hand, our focus on a small number of countries shows that the societal specific institutional configurations may confer the greatest influence on the pay equity effects of minimum wages, as we have seen particularly in

Minimum Wages and Egalitarian Pay Bargaining 253 the case of Spain’s ‘distant coexistence’ model or Germany’s unique and ongoing development of legally binding sector minima. On the other hand, the weaker and/or more unstable industrial relations models of Croatia, Hungary and the UK appear to generate greater possibilities for variation in the forms of pay bargaining at sector and company levels. In all five countries, unions (and employers) act at multiple levels. The chapters provide instances of actions to influence national minimum wage policy and to engage in social dialogue and wage negotiations at sector and company levels. These actions are mediated by the business and employment character of a particular sector and respond to the prevailing conditions of industrial relations and minimum wage policy. Collecting the threads of evidence from Part Two, this chapter has identified pay bargaining responses and pay equity effects in distinctive minimum wage policy and industrial relations environments. One form of pay bargaining represented strong and direct linkages between pay bargaining and minimum wage policy, and these can be traced through to identify particular types of ripple effects—long-reaching ripple effects, where unions and employers have linked a collectively bargained wage grid to the minimum wage, and base-line ripple effects, where base rates in collective agreements have been adjusted through bottom-weighted pay deals. In practice, the sector case studies show that various problems of compliance and unstable processes for social dialogue disrupt the anticipated ripple effects. A second form of pay bargaining is represented in this chapter as a response to a weak or absent statutory national minimum wage. The main examples are country specific. The policy in Germany of introducing new binding sector minima rather than a national minimum wage fits with the near status quo among government and employers (and some unions), which seeks to preserve autonomous collective bargaining as far as possible while also responding to the social and economic problems caused by downward wage spirals in cost-competitive sectors. And in Spain, pay bargaining at the time of our research proceeded with very limited interaction with minimum wage policy, although this is likely to change as the already observed erosion of wage premiums over the minimum wage is set to continue during the austerity crisis. Overall, the compromises and conflicts that shape a country’s choice about what is a suitable level of the statutory minimum wage have an important impact in mitigating some of the worst problems associated with low-wage employment. The wide variation in minimum wage values across Europe— from 36% to 60% of median earnings—suggests there is significant scope for raising the lowest levels of minimum wages. However, the wider implications for pay equity need to be considered. The evidence in this book suggests that important measures of a society’s potential to distribute wage gains are the stability and strength of its collective bargaining apparatus, embedded processes of social dialogue, union commitments to pay equity actions, the resources devoted to rooting out noncompliance and employers’ collective interests in taking wages out of competition. These conditions

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can support the diffusion of minimum wage rises via ripples up the wage distribution and thereby alleviate the problem of low-wage employment. Such conditions may be more likely to prevail in contexts where there are other elements in the business model that support quality-led as opposed to price-led competition, but the findings in this book suggest that the institution of the minimum wage can have significant positive effects on pay equity even where the prevailing model is a deregulated and price competitive business system. More significantly, however, the evidence demonstrates that it is the intersections of the institutional arrangements for wage-setting that are most significant, thereby challenging the notion of a standard or regular minimum wage effect that can be identified across countries or sectors independently of the institutional arrangements and the reactions and responses of social actors. Formal econometric analyses using country-level panel data sets have improved our knowledge of international patterns of minimum wage levels and industrial relations characteristics. But the notion that institutional effects can somehow be captured by holding all other factors constant, or that ‘interaction’ terms can encapsulate the complexity of institutional dynamics and interactions is questioned by evidence of countryspecific trajectories (see, also, Schmitt and Mitukiewicz 2012: 277). More of this type of institution and actor focused research at both national and sector levels is, therefore, needed as an antidote to the predominant quantitative and universalist methodologies used to explore the impact of minimum wage setting. From this perspective, it is the variations in the social, political and economic roles played by minimum wages that take on importance and interest, rather than any presumed standard roles or effects. Furthermore, the results in this book are challenging not only for standard competitive analysis of labour markets but also for the more static analyses of institutional regimes or country-oriented classifications of varieties of capitalism. The range of intersections between minimum wages and other wage setting institutions—at national and sector levels—underscore the need for a more dynamic and nondeterministic institutional analysis in which social actors may respond not only in ways that reproduce current institutional arrangements, but that may also significantly modify, reform or erode those arrangements. Such evidence fits with Streeck and Thelen’s (2005) analysis of institutional change through ‘gradual transformation’ and the need for more research into country-specific trajectories that are sensitive to the path-dependent character of liberalisation, the role of the state and codetermination through industrial relations institutions. Finally, recent experiences, particularly in Germany, highlight the lack of attention paid to non-manufacturing sectors and to low-paid sectors in general in the classification and analysis of varieties of capitalism. By focusing on social actors and institutions in comparative context, this book has sought not only to contribute to specific understandings of pay equity outcomes and trends, but also to extend the scope of dynamic institutional analysis to include those sectors most likely to fall within a minimum wage contour.

Minimum Wages and Egalitarian Pay Bargaining 255 NOTES 1. Running from 1996 to 2008, the Low-Wage Employment Research (LoWER) network included researchers from more than ten European countries. Publications from this group of scholars cover issues of low pay, low skill, minimum wages, wage inequality, earnings mobility, gender inequality and part-time work (see www.uva-aias.net/22 for a listing of research outputs). 2. For the twenty countries covered, the simple one-variable regressions show that an increase of 1% of union density is associated with a 1.5% reduction in low-wage incidence, and an increase in the centralisation ranking of the country by one place reduces the low wage incidence by 6.9% (Lucifora et al. 2005). 3. Simón argues, ‘Furthermore, the result that segregation of females into workplaces with a high presence of female employees is a factor with a particularly detrimental effect on their relative wages suggests that particular attention should be given to the low level of wages in labour structures which tend to be dominated by females. Policy initiatives aimed at improving the remuneration of female-dominated jobs might comprise, inter alia, the development and application of gender-neutral systems of job evaluation’ (2012). 4. Examples include Berman et al.’s (1994) study of US manufacturing and Krueger (1993). 5. Similar conclusions from studies point to the role of trade and international offshoring of low-skill activities as the prime motivator of the relative demand shift for skilled workers (e.g. Borjas and Ramey 1994), as well as the OECD’s (1994) influential critique of European labour market performance. It is worth remembering that such studies usually couch their results in the short run. In the long run, it is expected that the supply side of the economy (that is, the supply of skilled/educated individuals) should adjust in response to the growing wage premium of skilled labour so that wage differentials return to their prior level. Johnson (1997) makes the following assertion: ‘If this [skill-bias] story were correct, the rise in inequality would be a relatively temporary event—that is lasting perhaps another decade or two—that might not require policy intervention’ (op. cit.: 52). 6. Currency conversions applied on 15/06/2012. 7. Moreover, the increasing share of minimum wage workers in the retail case studies was associated with revised contracts that reduced pay enhancements for weekend working and public holidays as well as opportunities for bonuses (Mason and Osborne 2008).

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Contributors

Damian Grimshaw is professor of employment studies at the Manchester Business School, University of Manchester and director of the European Work and Employment Research Centre (EWERC). Josep Banyuls is lecturer in economics at the Department of Applied Economics, University of València, Spain. Gerhard Bosch is professor of sociology and executive director of the Institute for Work, Skills and Training (IAQ) at the University of Duisburg-Essen. Danijel Nesti̘ is research fellow at the Institute of Economics, Zagreb, Croatia. László Neumann is senior research fellow at the Institute for Political Science of the Hungarian Academy of Sciences, Budapest, Hungary. Jill Rubery is professor of comparative employment systems at Manchester Business School, University of Manchester. Claudia Weinkopff is deputy executive director of the Institute for Work, Skills and Training (IAQ) at the University of Duisburg-Essen.

Index

Note: Page numbers in italics represent tables and figures separate from their textual reference.

A Agenda for Change (UK) 134–5 Allegretto, S. 92 alternative minimum wage rates 27 Appelbaum, E. 228 Asplund, R. 228 austerity crisis 13, 22, 69, 253 Australia (AU): D5/D1 pay differential 98–9; exploitative wage, protection from 84; living wage movements in 26–7; low-wage employment in 95–7; minimum wage/minimum wage value in 33 Austria (AT): collective bargaining 53; domestic worker protections 83; gender pay equity 100; low-wage employment in 105 automatic indexation 35–6

B Banyuls, J. 8, 12, 13 baseline ripple effect 249, 251, 253 Belgium (BE): collective bargaining 53; D5/D1 pay differential 98–9; gender pay equity 100–2; lowwage employment in 94–6, 105; minimum wage/minimum wage value in 33, 54, 70, 77; trade unions in 54 Berlinski, S. 122 Blau, F. D. 228 Bosch, G. 8, 11–3, 237 Bowles, S. 88 Boyer, R. 229 Brown, W. 76 Bulgaria (BG): collective bargaining 53; gender pay equity 100

business cleaning sector: characteristics of 115–22; collective bargaining 122–7; contracts, bidding for 120–1; cost-led competition in 126; employment trends 116; intersections, of wage setting institutions 236; minimum wage/ minimum wage value in 127–32; multi-occupational organisations in 121; outsourcing in 115, 124, 125–6, 133, 137; pay bargaining 132–6, 242–3; sector features/ composition 118, 136–8; social dialogue in 123; women workers 119; working conditions 116, 120

C Canada (CA): D5/D1 pay differential 98–9; low-wage employment in 95–7; minimum wage/minimum wage value in 33, 77 capitalist state, contradictory roles of 21 Card, D. 25 care-work 89 cleaning see business cleaning sector collective bargaining: in Croatia 175–7; extension to nonorganised firms 42–3; in France 179–80; in Germany 177–9; government intervention in 39–40; in Hungary 180–2; interest organisations and 36–9; in the Netherlands 182–3; pay equity outcomes in 249; statutory minimum wage and 52–5;

264 Index structure of 40–3; in the UK 183–4; see also dual wagesetting institutions company-level agreements 43 competitive labour markets 1, 4, 13, 21, 90 compliance problems 56, 57–8, 61, 63–5 Confederation of German Employers Federation 68 construction labor markets, regulation of: in Croatia 175–7; in France 179–80; in Germany 177–9; in Hungary 180–2; in the Netherlands 182–3; in the UK 183–4 construction sector: collective agreement/minimum wage link 185–9; E101 certificates 172, 174; industry structure 171–5; intersections, of wage setting institutions 187–9, 236; key indicators of 173; minimum wage/minimum wage value in 186; overview of 168–70, 189–91; pay bargaining 242–3 coups de pouce 36, 60, 75–6 Croatia (CR): automatic indexation 35; best-fit portrait of 60; collective bargaining 7, 41, 53; companylevel agreements 43; direct intersection characteristics 60–1, 63; intersections, of wage setting institutions 236; interviews undertaken 9; minimum wage/ minimum wage value in 29, 33, 72–3, 74–7, 186; monthly minimum income 32; pay bargaining 243; peak employer/ union organizations 38; policy change timeline 28; sectors in case-studies 9; ‘subminimum wage’ in 28, 32; trade unions in 37; wage fixing process 29 Croatia, construction sector: E101 certificates 174; key industry indicators 173; labor market regulation 175–7 Croatia, retail sector: collective bargaining 206–7; employers’ associations 198; employment trends 195; industrial relations in 201–2; industry characteristics 196; intersections, of wage

setting institutions 204; pay bargaining 217–9; pay trends 212; trade unions in 198–9 cross-border subcontractors 172, 174 Cyprus (CY): collective bargaining 53; gender pay equity 100 Czech Republic (CZ): collective bargaining 53; D5/D1 pay differential 98–9; gender pay equity 100–2; low-wage employment in 95–7, 105; minimum wage/minimum wage value in 32–3, 70; trade unions in 54

D Darbishire, O. 5, 237 Deakin, S. 91 ‘demonstration effect’ 22, 24 Denmark (DK): collective bargaining 53; gender pay equity 100; lowwage employment in 105 destructive wage competition 86, 90–1 DiNardo, J. 97 distributive functions of minimum wage: country patterns 104–6; destructive wage competition and 86, 90–1; employer power moderation 86, 88; exploitative wage elimination 83–8; gender pay equity 99–102; lowwage workers and 93–7; pay equity indicators/effects 82–3, 92–3; ripple effects of wage setting 103–4; wage inequality and 97–9; women’s work, undervaluation of 86, 88–90 ‘double payroll’ see ‘envelope pay’ dual wage-setting institutions: complementary patterns in 52–5; compliance issues 56, 57–8, 61, 63–4; in Croatia 61; in Estonia 66–7; in France 59–60; in Germany 67–8; government policy goals and 74–8; in Hungary 61–2; interrelationship between 51–2; intersections between 55–9; in Ireland 62–4; minimum wage value 68–74; social dialogue and 56, 59, 61–8, 74, 76–8; in Spain 65; in Sweden 67; in UK 65–6; see also wagesetting institutions Dunlop, J. T. 247

Index E E101 certificates 172, 174 Earned Income Tax Credits 23 economic depression 13 economic development, minimum wage policy and 21 economic growth, distribution of 22 Elvira, A. M. 229 employers: competing interests of 24; minimum wage outlook 2; noncompliance of 57–8; power moderation of 86, 88 employers’ organizations, density of 37 ‘employing workers index’ (World Bank) 39 Employment and Training Act (1982) 169 ‘envelope pay’ 57–8, 62, 63, 66, 176, 233 Estonia (EE): best-fit portrait of 60; collective bargaining 7, 41, 53; envelope pay in 58; gender pay equity 100–2; isolated minimum characteristics 64, 66–7; lowwage employment in 95, 105; minimum wage/minimum wage value in 29, 32–3, 53, 54, 70–5, 77; monthly minimum income 32; peak employer/union organizations 38; policy change timeline 28; trade unions in 37, 54; wage fixing process 29 European Commission 6 European Court of Justice 23 European Parliament 85 ‘European social model’ 40 European Union: minimum wage/ minimum wage value in 33; retail sector employment trends 195 exploitative wages 1, 57, 83–8, 93, 106, 233 exploited workers 1, 85 Eyraud, F. 20, 27–8

F Fair Wage Resolution (UK) 130 Falk, A. 25 female-dominated jobs see gender pay equity Fernie, S. 154 Finland (FI) 53 Forth, J. 90 Fortin, N. 100

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France (FR): automatic indexation 35–6; collective bargaining 7, 41, 53; D5/D1 pay differential 98–9; direct intersection characteristics 59–60, 63; domestic worker protections 83; low-wage employment in 94–6, 105; minimum wage/minimum wage value in 2, 29, 32–3, 53, 54, 70–3, 75–7, 186; monthly minimum income 32; peak employer/union organizations 38; policy change timeline 28; ripple effects in 103; trade unions in 37, 54; wage fixing process 29; youth minimum wages 28 France, construction sector in: E101 certificates 174; key industry indicators 173; labor market regulation 179–80 Freeman, Richard 1, 22 full employment, minimum wage policy and 22

G Gannon, B, 229 Gautié, J. 75 gender-neutral tax credit policy 23 gender pay equity 6, 99–102 German Trade Union Confederation (DGB) 68 Germany (DE): basic wage standard in 19; best-fit portrait of 60; collective bargaining 7, 41, 53; company-level agreements 43; gender pay equity 100–1; incomplete substitutes for minimum wage 64, 67–8; intersections, of wage setting institutions 236; interviews undertaken 9; low-wage employment in 105; minimum wage/minimum wage value in 30, 186; pay bargaining 243; peak employer/union organizations 38; policy change timeline 28; sectoral collective bargaining agreements 27; sector-based minimum wages 34, 35; sector-differences in 2; sector-level bargaining 42; sectors in case-studies 9; statutory minimum wage

266 Index protection 52; trade unions in 37, 44; wage fixing process 30 Germany, business cleaning in: collective bargaining 122–3; employment trends 116; labor market regulation 177–9; minimum wage/minimum wage value in 127, 131–2; sector features/composition 117–8, 136–7; sector wage agreements 124–6; women workers 119; working conditions 120 Germany, construction sector in: E101 certificates 174; key industry indicators 173 Gintis, H. 88 governments: competing interests of 24; industrial relations role of 74–8; labour market regulation 20–2; legal intervention by 39–40; minimum wage policies of 3 Greece (GR): collective bargaining 53; D5/D1 pay differential 98; gender pay equity 100–2; lowwage employment in 95–7, 105; minimum wage/minimum wage value in 33, 54, 70, 77; trade unions in 54 Grimshaw, D. 8, 11–3, 229

H Hall, P. A. 39 Hartz welfare reforms 67 Hassel, A. 39 health insurance 23 Hibbs, D. A. 231 high wage floor 247–8, 249 Howell, D. 239–40 Huebler, F. 239–40 Huffman, D. 25 Hungary (HU): best-fit portrait of 60; collective bargaining 7, 41, 53; company-level agreements 43; D5/D1 pay differential 98–9; direct intersection characteristics 61–2, 63; gender pay equity 100–2; intersections, of wage setting institutions 236; interviews undertaken 10; lowwage employment in 95–6, 105; minimum wage/minimum wage value in 29, 32–3, 53, 54, 70–4, 77, 186; monthly minimum income 32; pay

bargaining 243; peak employer/ union organizations 38; policy change timeline 28; sector-level bargaining 42; sectors in casestudies 9; skilled minimum wage 32; tax revenues 24; trade unions in 37, 54; wage fixing process 29 Hungary, construction sector in: E101 certificates 174; key industry indicators 173; labor market regulation 180–2 Hungary, retail sector: collective bargaining 205–6; employers’ associations 198; employment trends 195; industrial relations in 200–1; industry characteristics 196; intersections, of wage setting institutions 203; pay bargaining 215–7; pay trends 211; trade unions in 198–9 Hungary, security sector in: characteristics of 141–7, 164–5; client fee framework agreements 157–8; company bargaining 156–7; compliance problems 158; employment trends 145; hourly pay distribution 153; minimum wage/minimum wage value in 151–5; regulatory bodies in 148; sector-level collective agreement 155–8; structure of 143

I ILO (International Labour Organization) 22 indexation 35–6 industrial relations, government policy role in 74–8 Industrial Relations in Europe 93 inflation targets 22 intersections, institutional: direct interaction 55–6, 59–64, 66, 187, 190, 235–6; distant coexistence 56, 59–60, 65, 187, 190, 204, 232, 235, 237, 252; isolated minimum wage 56, 59, 63–5, 235; in retail sector 203–4; substitutes for minimum wage 56; types of 55 in-work tax credits 23 Ireland (IE): automatic indexation 35; best-fit portrait of 60; collective bargaining 7, 41, 53; D5/D1

Index pay differential 98–9; direct intersection characteristics 62–4; gender pay equity 99–102; lowwage employment in 94–6, 105; minimum wage/minimum wage value in 29, 32–3, 53, 54, 70, 72–3, 75–7; monthly minimum income 32; peak employer/ union organizations 38; policy change timeline 28; sector-level bargaining 42; trade unions in 37, 54; wage fixing process 29; youth minimum wages 28 Italy (IT): collective bargaining 53; gender pay equity 100

J Japan (JA): D5/D1 pay differential 98–9; low-wage employment in 95–6; minimum wage/minimum wage value in 33, 70

K Kahn, L. M 228 Kaitz index 32–3, 35–6, 69–71, 93–7 Katz, H. 5, 237 Kaufman, B. 23, 83, 85 Kirov, V. 120, 138 Korea (KO): D5/D1 pay differential 98–9; low-wage employment in 95–6 Koubi, M. 103 Krueger, A. 25

L labour, social cost of 23, 83, 84, 86 labour markets, competitive 1, 4, 13, 20–2, 90; see also construction labor markets, regulation of Laine, P. 229 Latvia (LV): collective bargaining 53; gender pay equity 99–102; lowwage employment in 95, 105; minimum wage/minimum wage value in 33, 54, 70, 71, 77; trade unions in 54 Laval, Viking and Rüffert cases 67, 105 Lemieux, T. 100 L’Hommeau, B. 103 Lithuania (LT): collective bargaining 53; gender pay equity 100–2; low-wage employment in 95, 105; minimum wage/minimum wage value in 33, 54, 70, 71, 77; trade unions in 54

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living wage movements 26–7 long-reaching ripple effects 249, 250, 253 low pay, minimum wage effect on 93–7 Low Pay Commission 65, 75–6, 79, 184, 205, 209, 233 low-wage workers 93–7 Lucifora, C. 93, 229 Luxembourg (LU): collective bargaining 53; gender pay equity 100–2; low-wage employment in 95, 105; minimum wage/minimum wage value in 33, 54, 70, 77; trade unions in 54

M Machin, S. 97 macroeconomic stability, objectives of 22 Mannings, A. 97 Marginson, P. 5, 230 minimum wage, distributive functions of: country patterns 104–6; destructive wage competition and 86, 90–1; employer power moderation 86, 88; exploitative wage elimination 83–8; gender pay equity and 99–102; lowwage workers and 93–7; pay equity effects/indicators 82–3, 92–3; ripple effects of wage setting 103–4; wage inequality and 97–9; women’s work, undervaluation of 86, 88–90 Minimum Wage Act (2008) 7, 61, 191 minimum wage policy: changes, timeline of 28; competing interests in 24; country characteristics 29; in recession 72; targets 86–7; see also dual wage-setting institutions; statutory minimum wage minimum wage value: collective bargaining 52–5; country differences/trends in 68–74; see also Kaitz index monthly minimum income 32 Morocco (MA) 53

N National Collective Bargaining Commission 59–60 National Health Service (NHS) 131, 133–5 Nesti, D. 8, 12–3

268 Index Netherlands (NL): collective bargaining 53; D5/D1 pay differential 98; gender pay equity 100–2; lowwage employment in 94–5; minimum wage/minimum wage value in 33, 54, 70, 71, 77, 186; trade unions in 54 Netherlands, construction sector in: E101 certificates 174; key industry indicators 173; labor market regulation 182–3 Neumann, L. 8, 12–3 New Zealand (NZ): D5/D1 pay differential 98–9; exploitative wage, protection from 84; lowwage employment in 95–7 niche product markets 25 Noland, Brian 62 Norway (NO) 83

O O’Connor, J. 21 O’Connor framework 45 Okun, A. 239 O’Mahoney, M. 90 outsourcing, of business cleaning 115, 124–6, 133, 136–7

P ‘parasitic’ industries 1, 2, 83–5 pay bargaining: bottom-weighted pay settlements 244; framework agreements 245–6; industrial relations in 242–3; isolated minimum characteristics 246; legally binding sector minimum wages 244–5; for low-wage work 6; national minimum wage changes 241 pay equity effects: country patterns 104–6; gender pay equity and 99–102; high wage floor 247–8, 249; low-wage workers and 93–7; ripple effects 103–4, 247, 249–51, 253; rising minimum wage floor 248–50; studies on 92–3; wage compression 249, 251–2; wage inequality and 97–9 pay equity indicators 82–3 pay gap (‘legitimate differential’) 6 peak employer/union organizations 38 Philips, P 12 Poland (PO; PL): collective bargaining 53; D5/D1 pay differential 98;

gender pay equity 100–2; lowwage employment in 95–7, 105; minimum wage/minimum wage value in 33, 54, 70, 77; trade unions in 54 Polanyi, K. 85 policy targets, of minimum wage 86–7 Pontusson, J. 93 Portugal (PT): collective bargaining 53; D5/D1 pay differential 98–9; gender pay equity 100–2; lowwage employment in 94–6, 105; minimum wage/minimum wage value in 33, 54, 70, 71, 77; trade unions in 54 Posted Workers Act/Directive 13, 43, 68, 245 poverty traps 23 private security sector see security sector product markets 25 Purchasing Power Parity 32

R Raši-Bakari, I. 8 recession, minimum wage policy during 72 recruitment/retention 25 redistributive wage policy: country patterns 104–6; destructive wage competition and 86, 90–1; employer power moderation 86, 88; exploitative wage elimination 83–8; gender pay equity 99–102; low-wage workers and 93–7; pay equity indicators/effects 82–3, 92–3; ripple effects of wage setting 103–4; wage inequality and 97–9; women’s work, undervaluation of 86, 88–90 research programme (of book): institutionalist analysis/approach 4; interviews undertaken 9; models of capitalism, analysis of 4–5; research design 6–11; research questions 5–6; sectors included 9 retail sector: collective bargaining 202–8; employers’ associations 198; employment share/growth 195; industrial relations in 197–202; industry characteristics 195–7; intersections, of wage setting institutions 203–4, 236;

Index pay bargaining 213–20, 242–3; pay trends 208–13; trade unions in 198–9 ripple effects: of minimum wage increases 2; of wage setting 103–4 rising wage floor 248–50 Robinson, H. 100 Romania (RO): collective bargaining 53; envelope pay in 58; lowwage employment in 95; minimum wage/minimum wage value in 33, 70; trade unions in 54 Rowthorn, R. E. 228 Rubery, J. 11, 12, 229 Russell Sage Foundation 228

S Saget, C. 20, 27–8 sales assistants see retail sector Saporta, I. 229 Schettkat, R. 21 sector case studies see business cleaning sector; construction sector; retail sector; security sector sector-level bargaining 42–3 security sector: bottom-weighted pay deals 163–4; characteristics of 141–7, 164–5; client fee framework agreements 157–8; client-led wage setting 161–3; collective bargaining 148–51; company bargaining 156–7; compliance problems 158; employment trends 145; hourly pay distribution 153; intersections, of wage setting institutions 236; minimum wage/minimum wage value in 151–5; pay bargaining 158–9, 242–3; pay differentials 154; regulatory bodies in 148; sectorlevel collective agreement 155–6; structure of 143 Siltanen, J. 88 Simón. H. 229 Sisson, K. 5, 230 skill downgrading 58 skilled minimum wage 28, 32 Slovak Republic (SK): collective bargaining 53; gender pay equity 100–2; low-wage employment in 95; minimum wage/minimum

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wage value in 33, 54, 70, 77; trade unions in 54 Slovenia (SI): collective bargaining 53; gender pay equity 100–2; lowwage employment in 95, 105; minimum wage/minimum wage value in 33, 54, 70, 71, 77; trade unions in 54 Sniekers, E. 97 social dialogue 56, 59, 61–8, 74, 76–8 ‘Social Dialogue, Industrial Relations’ (European Commission) 6 social security benefits 84 social security contributions 57–8, 60, 90, 120, 157–8, 172, 180, 245 societal progress, labour market functioning and 1 Soskice, D. 39 Spain (ES): best-fit portrait of 60; collective bargaining 7, 41, 53; company-level agreements 43; D5/D1 pay differential 98; distant coexistence characteristics 63, 65; gender pay equity 100–2; intersections, of wage setting institutions 236; interviews undertaken 10; lowwage employment in 95–7, 105; minimum wage/minimum wage value in 30, 32–3, 53, 54, 70–4, 77; monthly minimum income 32; pay bargaining 244; peak employer/union organizations 38; policy change timeline 28; sector-level bargaining 42; sectors in case-studies 9; trade unions in 37, 44, 54; wage fixing process 30; welfare payments 24 Spain, business cleaning in: collective bargaining 122–5; employment trends 116; minimum wage/ minimum wage value in 127–9; pay bargaining 132–3; sectorfeatures/composition 117–8, 137; women workers 119 Spain, retail sector: collective bargaining 207–8; employers’ associations 198; employment trends 195; industrial relations in 202; industry characteristics 196; intersections, of wage setting institutions 204; pay bargaining 219–20; trade unions in 198–9

270

Index

statutory minimum wage: approaches toward 19; collective bargaining 52–5; effects of 1–2 statutory national wage floor 19 Streeck, W. 5, 254 subcontracting, cross-border 172, 174 Sweden (SE): best-fit portrait of 60; collective bargaining 7, 41, 53; gender pay equity 100; minimum wage/minimum wage value in 31; peak employer/union organizations 38; policy change timeline 28; sectoral collective bargaining agreements 27; sector-based minimum wages 34, 35; sector-level bargaining 42; substitutes for minimum wage 64, 67; trade unions in 37; wage fixing process 31

T tax credit policy 23 tax policy, social policy and 24 tax revenues 44 Thelen, K. 5, 254 Toynbee, Polly 89, 121 trade unions: density of 37; legacy effects 44; outlook/interests of 24, 25–7; pay equity strategies 2, 26 ‘Two-Tier Code’ 126–7, 130

U UC Berkeley’s Institute for Research on Labor and Employment 21 UK: best-fit portrait of 60; collective bargaining 7, 41, 53; D5/D1 pay differential 98–9; gender pay equity 100–2; intersections, of wage setting institutions 236; interviews undertaken 10–1; isolated minimum characteristics 63–4, 65–6; living wage movements in 26–7; low-wage employment in 95–6; minimum wage/minimum wage value in 30, 32–3, 44, 53, 54, 70–7, 186; monthly minimum income 32; pay bargaining 244; peak employer/union organizations 38; policy change timeline 28; sector-level bargaining 42; sectors in case-studies 9; statutory wage floor in 19; trade unions in 37, 54; wage fixing

process 30; in-work benefits/ poverty traps 85, 88; youth minimum wages 28 UK, business cleaning in: collective bargaining 123–4; contractual arrangements 121; cost-led competition 126; minimum wage/minimum wage value in 127, 129–30; pay bargaining 125, 133; sector features/ composition 116–9, 137; women workers 119 UK, construction sector in: E101 certificates 174; key industry indicators 173; labor market regulation 183–4 UK, retail sector: collective bargaining 203–5; employers’ associations 198; employment trends 195; industrial relations in 197–200; industry characteristics 196; intersections, of wage setting institutions 203; pay bargaining 213–5; pay trends 210; trade unions in 198–9 UK, security sector in: bottomweighted pay deals 163–4; characteristics of 141–7, 164–5; client-led wage setting 161–3; collective bargaining 148–51; employment trends 145; hourly pay distribution 153; minimum wage/minimum wage value in 151–5; pay bargaining 158–64; pay differentials 154; regulatory bodies in 148; structure of 143 UK Trades Boards Acts 84 unemployment benefits, incentives and 22 unions: density of 54; outlook/interests of 24, 25–7; pay equity strategies 2 United States (US): D5/D1 pay differential 98–9; domestic worker protections 83; job turnover in 25; living wage movements in 26–7; low-wage employment in 96; minimum wage/minimum wage value in 33, 70; ripple effects in 104 universal health insurance 23

V value of statutory minimum wage 32–4 Vanselow, A. 88

Index W wage administration 57 wage compression 249, 251–2 wage distribution 1–2 wage fixing process 29 wage inequality 97–9 wage-led inflation 1, 65 wage-setting institutions: country differences in 2; employment effects 238–40; government intervention in 20; noncompliance and 233–5; pay bargaining 240–6; pay equity effects in 246–52; sector/ national intersections 235–8; social actors’ role in 230–2; social dialogue and 232–3; variable effects of 228–30; see also dual wage-setting institutions

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Webb, Sidney 84 Weinkopf, C. 8, 12, 237 welfare payments/benefits 23–4, 44, 57, 63, 65 Whitehouse, G. 228 Whitley, R. 40 Wilkinson, F. 91 Wills, J. 125 ‘women’s work,’ undervaluation of 86, 88–90; see also gender pay equity women workers, in business cleaning sector 119 worker exploitation 1, 85 working tax credit 58 World Bank 39

Y youth employment 92, 240 youth minimum wages 27–8