University of Manchester



Chapter 1Introduction and plan of the bookDamian GrimshawThe imperfect functioning of labour markets requires governments, unions and employers’ associations to intervene in a variety of ways in attempts to correct perceived distortions. 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 20th 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 the 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 paid at or only slightly above the minimum wage. But in other countries, the circumstances and the distributive outcomes are different. 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, the minimum wage increase has far-reaching ripple effects up through the wage distribution (Gautié 2010). 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 non-compliance. Also, of course, 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 the case of 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. It is often said employers are opposed to 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 inter-firm 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 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 and for the European research project upon which it is based grew out of the need to understand this complex constellation of country differences in minimum wage rules, sector-specific forms of collective bargaining and diverse and changing outlooks of social partners 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 pay 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, 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 non-compliance.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. Points of departure and research questionsIn 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 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. 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 inter-disciplinary lens; the potential for contradictions, variety and change is privileged 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 over-representation of workforce groups (especially women, young workers, migrant workers and black and ethnic 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 inter-disciplinary analysis of varieties of models of capitalism (eg. Bosch et al. 2009; Coates 2000; Hancké et al. 2007; Morgan et al. 2010). These studies analyse the contradictions between major dimensions of employment models, thereby identifying both the causes of new conflicts of interests among social actors 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 multi-level 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 (EC 2008; Schulten et al. 2006; Vaughan-Whitehead 2010), which clarifies certain institutional patterns: in particular that a) countries with high levels of effective collective bargaining coverage tend to enjoy a high value statutory minimum wage; and b) 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 inter-related 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?; andwhat 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 gap in our knowledge about the details of pay bargaining for low-wage work. For example, a rising minimum wage may dovetail 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 ought this to 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 non-compliance 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?The research designThe 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 completed during 2009-2010. 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 (above) that require an inter-disciplinary 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 EU member 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 European Union 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; Vaughan-Whitehead 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 being used as ‘the going rate’, 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.The 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) that 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 Hungary are illustrative of countries with relatively weak protection provided by collective bargaining and a low-to-average 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.[INSERT TABLE 1.1 HERE]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 the 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 Ra?i? Bakari? for Croatia;Josep Banyuls, Ernest Cano and Empar Aguado for Spain;Gerhard Bosch and Claudia Weinkopf for Germany;László Neumann for Hungary; andDamian Grimshaw, Claire Shepherd and Jill Rubery for the UKThe 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 Bakari? (2010, national report) and Neumann (2010, national report). Moreover, all country experts have collaborated to provide updated information in preparing the chapters 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. These 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.[INSERT TABLE 1.2 HERE]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 69 interviews were completed (table 1.3). All interviews were transcribed and coded manually following collective and country-specific research themes.[INSERT TABLE 1.3 HERE] Plan of the bookThe 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 pay equity effects 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 character of the sector, the structure of industrial relations and collective bargaining, pay trends and the relevance of the minimum wage, and pay bargaining approaches. 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 and is 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 client businesses 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. In order to provide 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. Industry-wide collective agreements with wage grids differentiated by skill level serve such requirements and are widespread in this industry even in liberal market economies 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 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.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 of the book 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) 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 hopefully provide convincing analytical reasoning and cross-national comparative empirical evidence that contributes to advance 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 indicators of 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.ReferencesBanyuls, 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, projects.aspx.Bosch, G., Lehndorff, S. and Rubery, J. (eds.) (2009) European Employment Models in Flux, 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. 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(2006) Minimum Wages in Europe, Brussels:ETUI-REHS.Streeck, W. and Thelen, K. (eds.) Beyond Continuity: Institutional Change in Advanced Political Economies, Oxford: OUP.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. ................
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