1

Collective Bargaining and Harmonious Social Economy

Chang-Hee LeeSenior Specialist on Industrial Relations and Social

DialogueILO

ACFTU/ILO Workshop on Collective Bargaining and Wage Negotiation

August 2006, Yinchuan, Ningxia

2

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

3

Industrial relations in a market economy Move towards what kind of market

economy? Industrial relations influence on the

relations between market and its stakeholders, and therefore define nature of a market economy (next slide).

What kind of society does ACFTU with more than 100 million members want to build for the future of China?

Sound IR system is a key to ensuring a harmony between economic efficiency and social justice, leading to social harmony.

4

Union Density and Collective Bargaining Coverage (2001)

USAUSAJapanJapan

UK

UKGer

Ger

Nether

Nether

Italy

Italy

Sweden

Sweden

France

France

Austria

Austria

0

10

20

30

40

50

60

70

80

90

100

Collective bargaining coverage Union density

5

Union Members in China “Where there is a worker, there should be a

union” Campaign for union membership has

contributed to increase of union membership since 1999

Recent breakthrough of union organizing in Wal Mart!

020000000400000006000000080000000

100000000120000000140000000160000000

1996

1997

1998

1999

2000

2001

2002

Union members

6

Industrial Relations and Social Policy Challenges in a Market Economy Labor is not a commodity: a fundamental principle of IR

and ILO Can we leave wage determination to the market alone? Workers who possess labor power needs to support not

only his/her living but also their family’s living as well. Workers are a source of productivity and progress.

Under individual contracts alone, workers are too weak to get equal contract with employers, because workers are desperate to find jobs

Birth of trade union in 19th century and gradual spread of collective bargaining in 20th century. “Take wage out of competition” was a goal of trade unions. Collective IR emerged…

IR is one of major social policy areas to reconcile social justice/equity and economic efficiency in a market economy since 19th century…

7

Importance of autonomous industrial relations Pure market forces (in the absence of collective representation)

Competition based upon sub-standard working conditions, undercutting living standards

Social legitimacy eroded, social stability undermined Government regulation:

Government tends to lack information required for wage determination in a market economy

By its nature, government regulation tends to be rigid and uniform, unable to consider specific conditions of enterprise and business sectors

Collective bargaining: Workers (represented usually by trade unions) and employers negotiate

working conditions including wages Considering specific business conditions of the enterprise: unreasonably

high wage will lead to loss of competitiveness, damaging workers as well; too low wage will lead to high turn-over of workers.

Bound to find an equilibrium suitable both for workers and employers But bad relations between two parties may lead to sub-optimal solution

8

PART 2RECENT DEVELOPMENT OF

INDUSTRIAL RELATIONS IN CHINA

9

Past achievements and future challenges in China Opening of the economy in late 1970s; rural reform in

1980s; urban reform in 1980s and 1990s including SOE restructuring; accession to WTO; highest economic growth of largest country in the world combined with successful records of poverty reduction.

At the same time, widening gap between the rich and poor, and urban and rural areas.

Explosion of various forms of labour disputes and growing concern on social stability.

Great and urgent need for balanced development and social harmony.

IR institutions intersects society and economy, reconcile social equity and economic efficiency.

Building sound IR is a key condition to harmonious society.

10

Major Industrial Relations Development

Established tripartite consultative committees at all levels

Union membership campaign And recent breakthrough of union

organizing at Wal Mart branches Promotion of collective bargaining Promotion of wage negotiation

11

Tripartite consultation mechanisms National tripartite consultation committee set

up in 2001 All provinces and most municipalities

completed TCC establishment, and moving down to district level

Instrumental in spreading collective bargaining and coordinating IR

Issues: Employers’ representation Scope of agenda for consultation: IR or broader

social and labor policy issues Feedback from constituents at enterprise level

12

Spread of Collective Agreements

Since adoption of the Labor Law in 1995, collective bargaining has been rapidly introduced

Tripartite consultation mechanism further accelerated spread of collective agreements

Experiments of industrial/territorial agreements underway

0100000200000300000400000500000600000700000

1997 1998 1999 2000 2001 2002

Enterprises with CA

13

Wage negotiation Wage negotiation has been actively promoted since

early 2000s. More than 30 million workers are covered by wage agreements.

By its nature wage negotiation involves negotiation over new interests and new conditions of work instead of legal minimum.

Until recently, wage negotiation used to deal only with total wage bill of enterprises without negotiation of further distribution of wage bills among different groups of workers.

Wage negotiation creates an incentive for workers to actively participate in union activities and collective bargaining and therefore provides a momentum for unions to become more accountable and representative to their members.

14

Labour Disputes Both individual and collective disputes are on rapid rise

(three times higher than GDP growth rate) Spread of CA does not help to reduce the number of

disputesFigure 4. Labour Disputes Referred for Aribration

0

50000

100000

150000

200000

1996 1997 1998 1999 2000 2001 2002

tota

l num

ber o

f dis

pute

s

0

2000

4000

6000

8000

10000

12000

colle

ctiv

e di

sput

es number of disputes forarbitration

number of collectivedisputes for arbitration

15

Challenges 1: Improving quality and process of collective bargaining

Quantity achieved. Need to improve

quality of collective agreements

Need to improve process of collective bargaining

Need to improve representational structure of trade unions at the workplace

Internal coordination among different categories of workers/members within trade union is as important as labour-management relations

Need to find a solution to break the deadlock in collective bargaining

16

Challenges 2 Wage negotiations

Policy consideration on relationship between local minimum wages, municipal wage guidelines, negotiated wages at sectoral (district) and enterprise level.

Also, more active participation in local MW setting and municipal wage guideline formulation is important.

17

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

Developing a strategy to organize migrant workers and representing them effectively through democratic process of collective bargaining

Developing a union strategies, including wage negotiation and social protection strategies, to reverse the trend of widening income gap

18

Part 3: Three Models of Collective Bargaining

Note: This part was prepared for a workshop for Vietnam General Confederation of Labour in early 2006.

19

Model 1: Purely enterprise bargaining

Practices in many East Asian countries (Japan, most sectors in Korea, China?, Thailand, the Philippines etc). Vietnamese labour law and practices appear to be based on this model.

Advantage: flexibility and adaptability for setting enterprise specific working conditions suitable for workers and management in the enterprises concerned

Disadvantage: disparity between companies Disadvantages in Vietnamese context: enterprises

trade unions are too weak to negotiate with their employers at the workplace.

20

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

Practices in USA, some sectors in Malaysia, a few sectors in Korea. Same advantage as pure enterprise bargaining model Disparity between companies may be less, as trade unions (and

employers’ organizations) at higher level (usually at industry/regional level) may have desire to produce more or less similar bargaining outcome across the companies in the sector concerned.

Advantages in Vietnamese context: trade unions at higher level are independent from the management of specific companies, while enterprise union leaders are close to the management rather than workers.

Still, there is a need to establish strong and direct link between trade unions at enterprise and higher level, and rank-and-file members, through prior consultation before entering into CB and approval of tentative agreements by union members.

21

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

Practices in most continental European countries (Germany, Italy, France, Belgium, Sweden etc), two sectors in Korea, port workers in Japan, some sectors in USA

Advantages: better solidarity among workers, less bargaining costs, enterprises are relatively free from hassle of negotiation and therefore conflicts.

Disadvantages: less flexibility and adaptability for each enterprise Trend: decentralization more towards enterprise bargaining

(globalization) In Vietnamese context, it runs the same danger of disconnection

between trade unions at higher level and their members at the enterprise level. Without democratic linkage between unions and employers organizations at higher level, and their members at enterprise level, this system may not function.

22

Note and Questions Model 2 can be a

stepping stone for a transition towards model 3.

It may be also conceivable that model 2 may gradually strengthen the capacity of enterprise unions to negotiate with their employers at the enterprise level.

Questions Any relevance for China? What is current situation

in China? Share your experiences

of industrial or district bargaining

What is your view about three models?

23

Part 4: Wage negotiation in a broader IR context: wage

negotiation, minimum wage policy and tripartite

consultation

24

Union strategy on wage negotiation and income distribution in a market economy

Union as balancer in a market economy Trade unions are a crucial social actor and institution in a

market economy, ensuring social cohesion and harmony, representing voices of workers’ legitimate desire for decent work as a human being, against and within the force of a market.

Union’s strategy on wage negotiation and income distribution has a critical importance in ensuring decent work and harmonious society.

Specific model of a market economy is to be shaped not only by ‘market force’ but also by interaction between various economic and social actors – particularly unions.

25

Contradiction is a driving force of progress of history. And history is not straightforward.

26

Factors for Wage Increase:ACFTU Collective Consultation Text Book (1996)

External factors Inflation Economic growth

in the locality Demand & supply

of labour Interest rates Local wage

guideline issued by government

Internal factors Enterprise profits Productivity Labour costs Balance sheet of the

enterprises Debt/Asset ratio Wage level of other

companies in the same sector and region

27

Different Priority Factors When Each Party Decide Their Bargaining Policy

Government GDP growth Inflation Labor market situation Interest rates

Employer Profit Productivity Balance sheet Labor costs etc

Union at regional level Survey of average working

family’s expenditure for decent living

Inflation Labour market and

economic situation of the locality

Enterprise union Ask its members how

much they need and want! Fair sharing of profits as

workers are main contributors to the profit

Productivity

28

Unions do not need to internalize all factors which are main concerns of other parties in the beginning of the negotiation process.

In any case, other parties will bring those factors in the consultation and negotiation, and therefore final outcome will be produced based upon consideration of all factors.

29

Case of Korea and Japan Before annual wage

negotiation, nation centres of trade unions announce its demand.

Their demands are formulated in the form of standard living costs for standard workers family, through a union survey.

While also considering GDP and productivity growth, they place importance on the concept of living wages for standard working family.

Employers’ organizations (Korean Employers’ Federation and Japan Business Federation) formulate their response based upon GDP growth, competitiveness, profitability of industries.

The proposals by both unions and collective employers at national level set the parameter for negotiators at lower level.

Lower level negotiators will consider the guideline set by higher level social partners, but not necessarily bound by them.

30

Other models Singapore: National

Wage Council Wage guidelines

From a non-binding recommendation on wage increase rate until mi 1980s

To a recommendation on flexible wage model

Ireland: wage negotiation in a broader economic policy

From decentralized enterprise bargaining on wage

To centralized social dialogue on income policies (tax, income, training, wages and HR innovation)

31

From simple living wage concept to combination of different factors

As a staring point, the concept of living wage is important for trade unions

Composition of wages: Invariable and variable components of wages

Or basic wages and other benefits What to be negotiated at enterprise, sectoral/regional and

national level? Direct wage and social wage components

What to be negotiated at enterprise, sectoral/regional and national level?

As unions get mature and get involved in various policy formulation, other factors come into play more and more important role

32

Wage negotiation in a broader IR context Wage negotiation

At enterprise level At higher levels

(sectoral and/or district)

Minimum wage

Wage guidelines at municipal level

Tripartite consultation system

What are ideal relations between different IR processes regarding wage determination?

What are the policies and approaches of ACFTU?

What are respective roles of each process?

What are the implications of these processes for harmonious society?

33

Minimum wage : Policy Goals

Ideally, MW instrument designed to protect the most at-risk workers as a social protection measure.

Social purpose of MW: to prevent labour exploitation and avoid poverty; i.e., the minimum wage should provide sufficient purchasing power to enable a worker to have a basic standard of living.

However, no single formula for MW policy

Closely related with other factors such as collective bargaining, income policy and social protection measures.

34

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

Locality 2004 (yuan)

2003 (yuan)

increase rate

北京 545 495 10.10%

上海 635 570 11.40%

廣州 廣東省

684 510 34.12%

成都 四川省

450 340 32.35%

This suggests that wage negotiation does not function properly

This indicates that local MW is close to actual wages for unskilled workers.

Rigidity Low wage- low

productivity trap MW is not ideal tool for

actual wage determination, economically and socially…

35

Wage negotiation and MW process What is the policy of

municipal trade unions regarding the relations between MW and wage negotiation?

Ratio of MW to average wage

Idea of living wages for standard workers’ family

How do municipal trade unions participate in MW determination process?

What is – should be - the role of municipal wage guideline in the context of local MW and enterprise bargaining?

36

Consultation with and participation of social partners 2 Government fixes MW

No obligation to consult social partners: Lao

Following direct consultation with W&E: China, NZ, Czech, Russia

Following advice or recommendation of specialized body: Cambodia, Thailand, Japan, Ireland, UK etc

Specialized body sets MW Australia, Korea,

Turkey, Poland etc Collective bargaining

and other procedures Austria, Germany,

Greece, Belgium etc

37

Minimum Wage : Criteria for adjustment

According to ILO survey, most frequently cited criteria for MW fixing are

Inflation/cost of living General economic

condition Wage levels Workers’ need Productivity Employment rate

Different ways of applying the criteria

In some countries, strict Inflation automatically

linked MW adjustment in some countries

In others, loose Consideration of

general economic condition leaves plenty of scope for interpretation

38

Questions: Municipal unions’ participation in MW determination and municipal wage guideline

You are the leaders of municipal union federation. Your city has recently experienced labour shortage and workers are not happy with current wage levels.

How do you see respective roles of enterprise wage negotiation, municipal wage guideline and MW?

What would you do regarding MW determination and formulation of municipal wage guideline?