Wage Setting Systems and Wage Developments

1. Main features of wage setting institutions and their implications for wage outcomes There are different types of wage setting systems and there is no strong evidence in support of a single, superior wage setting model. Indeed, many variables beyond the bargaining framework affect the way in which wages react to changes in economic fundamentals.1 However, several characteristics of wage setting institutions have a bearing on wage outcomes and the way they can contribute to the emergence of internal and external macro-economic imbalances.
Table 1: Wage bargaining characteristics
(value of indicators by country, years ranging from 2008 to 2010)
Union density, 2008
AUT BEL BGR CYP CZE DEU DNK ESP EST FIN FRA GBR GRC HUN IRL ITA LTU LUX LVA MLT NLD POL PRT ROM SVK SVN SWE 28.1* 51.9 20.1 54.3 17.4 18.6* 67.6 15 7.3 70* 7.6 27.6 24 16.8 35.2 35.1* 8.5 37.3 14.8 51.2 19 15* 19.3* 32.8 17.2 29.7 68.9*

Coordination of wage bargaining, 2010

4 4 2 2 2 4 3 4 1 3 2** 1 4** 2 2 4 1 2 1 1 4 1 3 2 2 3 3

The dominant level(s) at which wage bargaining takes place, 2010

2 4 2 2 2 3 2 3 1 2.5 2** 1 4** 2 1 2 1 2 1 1 2 1 2 3 1 3 3

Minimum Wage Setting, 2010

2 3 5 7 8 3 1 5 3 1 8 6 7 4 6 1 5 7 8 7 7 5 8 5 8 7 1

Bargaining coverage, adjusted, 2008

99* 96 30 52 43.2 62.5 84.5

Extension index, 2009

2 2 1 0 1 1 0 2 1 2 2 0 2 2 0 0*** 1 2 1 0 1 1 2 1 1 2 0

Employer organisation density, 2009

100 76 55** 62.5** 35 60** 65** 75** 23.8 75** 35** 4.7** 40** 60** 58** 20** 80** 35** 60** 85** 20** 65** 60** 29.2** 55 83

90 33.6 65 35.9 44 80 15 58 25 55 82.3 38 65 70 40 92 91

* Data 2010 ** Data 2008 ***De-facto extension on the basis of interpretation of the Constitution not taken into account Note: See the Annex for a description of the ICTWSS indicators Source: Jelle Visser. 2011. The ICTWSS Database: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts in 34 countries between1960 and 2010. AIAS, University of Amsterdam, available at: http://www.uva-aias.net/208

For instance, increases in social contributions or labour taxation will correspond to higher Unit Labour Costs in the short to medium term; unemployment benefit systems characterised by high replacement rates or long durations increase bargaining power of unions and may reduce the response of wages to fundamentals because they induce higher reservation wages which theoretically lead to a stronger discrepancy between actual wages and their free-market equilibrium levels; strong employment protection legislation on the one side may lead to lower wages as employers are tempted to pass on the costs to the employees, on the other side by rising the bargaining power of the employees, may raise their ability to set wages and the higher difficulty of replacing current workers with lower-wage outsiders may induce downward wage rigidity.

The degree of centralisation (the level at which wage bargaining takes place) may affect to some extent aggregate wage developments, the way in which wages can reflect differences in productivity (across sectors, firms and geographical areas) as well as the extent to which bargaining takes into account national level objectives. However, it is difficult to find a robust relationship between the centralisation of wage bargaining and economic outcomes2. Wage bargaining may either be highly decentralised (taking place mostly at firm level, e.g. UK), highly centralised (wage formation at national level, e.g. Slovenia), or may take place at an intermediate level, normally at the level of sectors (e.g. Italy), and in some cases at the level of regions (e.g. Spain) or occupations (see Table 1 on page 1, and Table 4 in the Annex). Generally speaking, in countries where the sector level is dominant, company level agreements cannot be less favourable to employees than sectoral agreements (Table 4). Even if firms can legally avoid sector-level clauses (as in Austria and France) 'escape clauses' have been so far scarcely used. On the other hand, escape clauses have been commonly used in Germany, allowing for more flexibility at the company level. Decentralisation at firm level can also be associated with strong unions, at least in companies of a certain size, or where the German co-decision model (Mitbestimmung) implies strong employee participation at the establishment level. Pressures for increasing wages may be stronger at firm level if the firm faces increasing labour shortages. Wage developments may also depend on the actual degree of coordination among various actors3. Coordination may take place in different ways (e.g.: bipartite or tripartite national agreements setting guidelines for wage negotiations at lower level; sectoral wage agreements that will be used as a reference by other sectors) and may coexist with decentralised wage bargaining. This has played an important role in countries where the external constraint imposed on the export sector is also internalised by sheltered sectors, helping to maintain international competitiveness in the economy as a whole. The evidence seems to suggest that coordinated sectoral wage bargaining may lead to similar outcomes as centralised bargaining systems and that semi-coordinated bargaining can lead to higher levels of employment. Wage behaviour and bargaining power of wage-setters depend on employer and union density and collective bargaining coverage. Empirical studies suggest that the relationship between union density and economic outcomes is unclear, because this depends to a larger extent on employer density. Theoretically, therefore, in countries with high union density, unions may be more likely to succeed in pushing up negotiated wages if this is also associated with high employer density4. The impact may be significantly reduced if unions participate in productivity-enhancing activities at the firm level. On the other hand, there is robust evidence5 that higher levels of bargaining
2

See Aidt and Tzannatos (2005) and Flanagan (1999). Most European countries operate under some form of wage coordination. Coordination can be 'horizontal' - where some sectors act as leaders in setting wage agreements with others following them (so-called 'pattern bargaining', notably in Austria, Germany and Sweden) or inter-association agreements are concluded - or 'vertical', where agreements at national level, for instance a tripartite national agreement sponsored by the government and peak social partner organisations, set the guidelines for wage negotiations at the lower levels (e.g. in Belgium). Horizontal coordination in the form of national inter-association agreements has gained importance over the last decade and is often the dominant mechanisms of wage coordination, as in Belgium and Spain. European Commission, Industrial Relations in Europe (2008, 2010) Industrial Relations in Europe 2008, Chapter 3
2

coverage and more centralised or coordinated bargaining, as well as high union density, are associated with a compression of the wage distribution and a reduction of earnings inequality. The existence of a procedure for legal extension of collective agreements, making them binding to non-unionised employees or non-signatory firms, can significantly broaden the coverage of collective agreements. They are widespread in the EU and generally concern occupational and sector-level contracts and cover both wage and non-wage conditions (Table 4). In most countries, the extension is the outcome of an explicit decision by the government, and in many cases it is granted upon request of one or both of the parties (e.g. DE, FR and NL). In other countries, the extension is quasi automatic (e.g. IT, ES and FI)6, or is the result of the fact that all employers are obliged to be members of the employers' association (e.g. AT). As a result of extension of collective agreements, wages may not be able to fully adjust to differences in productivity across firms or geographical areas within the same sector. The more important these differences are, the stronger the risk that the extension results in a misallocation of labour, with too high wages (and low employment, output) in lowproductivity firms. Extension mechanisms are also likely to reduce the responsiveness of nominal wages to shocks, as wages are less responsive to local conditions. However, the extension may help overcome coordination problems and improve working conditions in small firms, provided that they are not knocked out due to competitiveness problems if extension leads to too high wages. In the medium-to-long term, the extension might raise the overall wage level. The literature also suggests that the average duration of wage agreements may also influence relative wage flexibility. The average length of collective agreements varies between one and three years in Europe (see Table 4). All EU countries have some form of minimum wage floor that is fixed either centrally and/or legislated by the government (statutory) or collectively agreed by social partners.7 In many countries social partners tend to play an active role in the statutory minimum wage setting. In July 2012, 20 Member States had national legislation setting a statutory minimum wage by statute or by national inter-sectoral agreement. There is no clear-cut answer on the employment effects of minimum wages. If fixed at too high levels, they may affect negatively the employment of lower productivity workers at the bottom end of the wage distribution (as their costs can be driven above their productivity level) and of young workers (as they tend to be the least experienced and their productivity may fall short of the minimum wage). Some other segments of the population (less-experienced and unskilled workers, women and part-time workers in low-paying sectors and small enterprises) can be adversely affected as well. However minimum wages may increase the incentives to work and help prevent in-work poverty, although this may also be achieved through well-designed in-work benefits In times of a

As shown by the Court rulings related to posted workers, the absence of a procedure ensuring a general/universal application of collective agreements may lead to legal uncertainty with regard to the extent of the implementation.
Collectively agreed minimum wages are applied in Germany, Italy, Austria, Finland, Sweden, Denmark and Cyprus. Cyprus has the statutory minimum wage only for a few specific occupations in which unionization and the collective agreement coverage are low and the employees have a weak bargaining power. Austria has a dual system with both the minimum wages for some sectors and collective agreements for other sectors. However, collective agreements dominate. Germany has statutory sector-specific minimum wages in four branches (the main construction industry, the roofing industry, the painting industry and the demolition/wrecking industry) that are based on the German Posted Workers Act. In Belgium and Greece the minimum wage is set through a national agreement between the social partners. However, in terms of coverage and universality, it is equivalent to the statutory minimum wage as it is legally binding in all sectors. 3

severe economic downturn, appropriate minimum wages put an anchor underpinning prices and thereby sustaining aggregate demand and reducing the risk of deflation; they also help to boost wage equality by maintaining an adequate living standard for the most vulnerable workers. Acting as wage floors, they need to be sufficiently adjustable to reflect overall economic developments. Different systems of wage indexation mechanisms regulated by law are currently in place in four EU countries: Belgium, Cyprus, Luxembourg and Malta (see Table 2). Wage adjustment is automatic and is based on price inflation in the recent past. In addition to these four Member States, a number of other EU countries used to have such a system in the past but have now abolished it (e.g. Denmark, France, Italy and Netherlands). In Spain, ex-post indexation used to be common in collective agreements, although being no longer prescribed by law, but it has been put on hold by a social partners' agreement for the period 2012-2014.
Table 2: Summary of automatic wage indexation systems, by country
Coverage Pay, minimum wage, social benefits Pay and, to some extent, minimum wages and social benefits Method of adjustment Health index = CPI excluding tobacco, alcohol, petrol, diesel CPI, excluding excise taxes on tobacco, alcohol, fuel + other items Regularity of adjustment Diversity of indexation arrangements according to sectoral conventions Every six months Irregular, depending on evolution of CPI. In the last 25 years one increase every 12-13 months on average. Every year Type of collective bargaining Negotiation at sector level monitored by negotiation at central level Decentralised but with some monitoring at central level Derogation procedure Yes, but rarely used No Yes, if Tripartite Coordination Committee finds it necessary Yes

Belgium

Cyprus

Luxembour g

Pay, minimum wage, social benefits

Only applied if CPI rises above 2,5%

Rather decentralised

Malta

Pay, minimum wage, pensions at all levels of workers

RPI

Decentralised at company level

Source: Eurofund; European Commission, Industrial Relations in Europe 2010

The mechanistic application of indexation to wages risks making adjustment more difficult. First, indexation can easily create a wage-price spiral and thereby is likely to make any nominal shock (e.g. a worsening of terms of trade) lasting (especially in the case of a country in a monetary union with irreversible nominal exchange rates). Second, indexation makes real wages more rigid and consequently works against adjustment in the labour market, for instance to cope with an adverse productivity shock or increased competition from abroad. The macro-economic effects of indexation depend very much on the way it is designed and implemented (relevant variables include e.g. the coverage (what is indexed), the method of adjustment (ex-ante or ex-post inflation, the CPI or a refined indicator), derogations (if there is possibility of opting-out), monitoring, and the regularity of adjustments). On the other hand, indexation clauses may facilitate the conclusion of multi-annual agreements, which provide stability in industrial relations and reduce the risk of recurrent conflicts in relation to wage negotiations. As a general principle, while indexation systems can be an effective tool to preserve the purchasing power of wages and salaries, they need to be designed in such a way and be flexible enough to ensure cost competitiveness vis--vis a country's trading partners, and adequate adjustment capacity. 2. Elements for assessing the main challenges in the Member States Key concepts

The role of wage developments in influencing macroeconomic performance has received increased attention in recent EU economic surveillance: Wage changes are one of the major channels of labour supply-demand adjustments and directly influence employment outcomes. Therefore too high or too low wage growth (compared to productivity and price growth) could signal internal imbalances in the labour and product markets, inducing cost-push inflationary (deflationary) pressures and making it less (more) attractive to hire and maintain workers, thus affecting employment opportunities (although a severe deflationary situation will also influence recruitment negatively). Wage developments affect external price competitiveness. Wage increases may lead to higher Nominal Unit Labour Costs (ULC) and Nominal ULC-based real Effective Exchange Rate (REER) if they are not offset by productivity developments, mark-up reductions or matched in partner countries, or by changes in the nominal exchange rates (outside a monetary union). The converse of this argument holds for wage developments that decrease ULC. Thus, excessive wage developments may signal existing or potential external imbalances in price competitiveness. Wages are a major part of income and have an impact on aggregate demand through household consumption and through the indirect effect on business profits which affect their investment decisions. Indeed an increase (decrease) in wages will lead to a decrease (increase) in profits. To the extent that the propensity to spend out of wage income is larger than the propensity to spend out of profits, the rise (moderation) in wages will induce an increase (decrease) in total demand. Beside the average wage level of the whole labour force, the distribution of wages across employees also influences aggregate domestic demand.

The specific characteristics of countries and the state of their business cycle need to be taken into account in the interpretation of the above mentioned transmission mechanisms. Modernising wage-setting systems is thus instrumental to contributing to correcting the large macroeconomic imbalances that have materialised in a number of Member States and to reducing unemployment. This is particularly important in the euro-area, since costs and price adjustment is the only way of nominal adjustment in a monetary union. Such adjustment has already started, but needs to continue to reduce internal imbalances (notably high and persistent unemployment) as well as external ones (progressive competitiveness deterioration leading to current account imbalances). Wages are not the only drivers of international competitiveness as other costs (such as bureaucratic costs, capital costs) affect price competitiveness and as non-price competitiveness (e.g. productivity levels and developments, geographical and technological specialisation) also play a key role to this respect. Furthermore, some of the underlying causes of wage increases (such as easy availability of cheap credit for consumption and construction) might be exogenous to the labour market, but yet push-up labour demand and thus wages. Governments have a number of levers to affect labour costs developments: Public sector wage policies can be used to signal desired wage developments in the economy at large. The level and conditions of employment in the public
5

sector, often a major employer, affect the normal functioning of the labour demand and supply in the private sector. Minimum wage policies affect the wage distribution and increases in minimum wages also play a signalling role. Statutory wage indexation is another tool in place in some countries with impact on the labours costs. If the system does not allow for changes in terms of trade, its effects can be damaging for competitiveness if, for instance, a cyclical increase in energy prices is translated in wage increases. Changes in social security contributions and direct labour taxation affect competitiveness: policy changes that lead to higher (lower) non-wage labour costs correspond to increases (decreases) in ULCs in the short-to-medium term. More broadly, labour market reforms can affect wage responsiveness. For instance, changes to the generosity of unemployment benefits system and activation policies have the potential to reduce reservation wages, increasing labour supply and therefore reducing wage pressures in the economy. Country specific recommendations In light of the overarching priority to ensure the rebalancing of EU economies and supporting structural change towards dynamic sectors, the Annual Growth Survey for 2012 recommends, among others, that policy measures should aim at "moving forward with the implementation of the agreed recommendations on revising wage-setting mechanisms". Trends in unit labour costs are also subject to surveillance and recommendations within the framework of the Macroeconomic Imbalances Procedure (MIP). This is reflected in the Country-Specific Recommendations addressed to a number of countries in June 2012, which have been asked to review their wage setting mechanisms, in conformity with national social dialogue and practices, in order to ensure: That wage setting mechanisms appropriately reflect productivity developments, so as to boost competitiveness and support labour market adjustment and job creation (Belgium, Finland, Slovenia), there including as concerns minimum wage developments (France, Slovenia); that indexation mechanisms do not hamper the capacity of wages to adjust to productivity and to changes to economic fundamentals (Belgium, Cyprus, Luxembourg and Malta).

From their part, Spain and Italy have been asked to monitor (and if necessary reinforce) the implementation of their new wage setting frameworks in order to contribute to the alignment of wage and productivity growth at sector/ company level. A recommendation has been also addressed to Germany, in light of the fact that in the past wage developments have been protractedly been lagging behind productivity. Recent action taken Over the last couple of years, some countries (e.g. Spain and Italy) have introduced far-reaching reforms of their wage setting systems in the direction of higher wage responsiveness to economic conditions at local level. Major reforms were also passed as part of the reform packages agreed under the financial assistance programmes in Greece, Ireland, Portugal and Romania. Limited progress was on the contrary made in countries
6

with less urgent need for reforms, but where the functioning of certain wage setting and wage indexation systems has been identified as a possible threat to competitiveness. Measures taken towards decentralisation of collective bargaining were adopted in Romania, Greece, Spain and Italy. A cap on the extension of expired and not renewed contracts was decided in Spain and Greece. Wage flexibility was also supported by temporary restrictions to the application of the wage indexation systems in Luxembourg and Cyprus, but these changes are not structural. The minimum wage was cut in Greece, frozen in Czech Republic, Latvia, Portugal and Ireland, and increased by a lower rate than previously agreed in Poland. In the United Kingdom, the youth minimum wage has remained frozen while the other rates have increased by less than inflation. These measures were adopted on the assumption that decentralisation would lead to wages to better reflect productivity developments at the local level and help quicker absorption of unemployment. Recent wage developments Recent wage developments go in the direction of supporting the adjustment of external macro-economic imbalances and, in the longer term, unemployment divergences. In 2011, the dynamics of compensation per employee8 started exhibiting an increasingly clear differentiation between countries with stronger needs to reduce unemployment and rebalance external positions, and countries with a more sustained recovery and current-account surpluses.9 Within the euro-area, this resulted in a sharp downward wage adjustment in countries facing stronger rebalancing needs (with Portugal and Greece recording negative wage growth rates, Ireland close to zero and Spain 0.7%), and positive and above average growth rates in countries such as Germany, Belgium, Austria, France, Cyprus and Finland. In the non-euro area countries, developments were also uneven, with growth rates going from 3% in Lithuania to above 7% in Bulgaria and 18% in Latvia, and below 2% in Sweden, Denmark and the United Kingdom.
Graph 1: Nominal compensation per employee, y-o-y % change

Countries are displayed in ascending order of the unemployment rate in 2010. DG ECFIN AMECO database

Compensation per employee is the total remuneration payable by an employer to an employee in return for work done by the latter during the accounting period. It encompasses wages and salaries both in cash and in kind as well as employer's social security contributions. In the period that preceded the crisis surplus countries recorded a more subdued wage dynamics than in the period after 2008, when they also started to record stronger growth than in the other countries. Germany, in particular, knew a strong wage moderation, which led to increase of employment in the export industries and a constrained domestic demand.
7

After growing above productivity in 2009, real compensation per employee expanded in 2011 at a rate below that of productivity, thus confirming the trend initiated in 2010. Yet, in some countries, the speed and breath of downward real wage adjustment seems not to be proportionate to the unemployment challenge. This is notably the case of Spain, where, despite a subdued wage growth and some competitiveness improvements, so far the adjustment has not been accompanied by a reduction of the very high unemployment rate. While in the three-year period preceding the crisis surplus countries recorded a lower wage growth compared to productivity than in the remaining EU countries, in the period between 2008 and 2012, wages in these countries have been growing on average 0.8 point a year above productivity. Levels of compensation per employee and productivity also matter for assessing trends, beyond their variation. Graph 2 plots compensation per employee and labour productivity in levels as measured in purchasing power standards in 2011. One first fact to point out is the enormous heterogeneity in the level of compensation per employee among EU countries, reflecting different states of development. This is an important aspect to take into account due to the catching-up effects which can be reflected in overall wage variations. The second aspect relates to the alignment between compensation and productivity. The graph shows that in general there is alignment between levels of compensation and levels of productivity across Member States. The Netherlands and Austria, but also - to a minor extent - Slovenia and Romania stand out, among others, as having a level of compensation relatively higher as compared to productivity in the same country.
Graph 2: Productivity and compensation per employee in 2011 (PPS)

DG ECFIN AMECO database

Recent developments in nominal unit labour costs (NULC) have also been supportive of adjustment.10 After having accumulated strong divergences during the last decade, NULC began to converge moderately with the onset of the crisis, as Greece, Portugal and Spain started to show a declining trend in nominal unit labour costs as a result of productivity increases and wage moderation, while in Germany labour costs continued to increase, outpacing wage and nominal unit labour costs developments in those countries.

10

Nominal unit labour costs are defined as the total wage compensation per unit of output. They are obtained by dividing the wage rate per employee by the real GDP per person employed (labour productivity).
8

Graph 3 shows a negative relationship between unemployment rates and growth rate in real unit labour cost (RULC), suggesting that the real cost of labour is adjusting (in comparison with productivity adjustments) more in Member States with high unemployment rates than in Member States with low unemployment rates.11 This process could help reducing unemployment rates. However, the beneficial effects of the adjustments in wages and in ULC may not be fully reaped if they are not reflected in similar price-competitiveness adjustments or if the corresponding increase in the share of profits does not translate into higher aggregate demand through higher investment by business.
Graph 3: RULC and unemployment rate

DG ECFIN AMECO database

Monthly statutory minimum wages varied widely in 2012, from 148 EUR in Bulgaria to 1.801 EUR in Luxembourg (see Graph 4). When adjusted for price differentials across countries, the disparities among Member States are reduced from a range of one to twelve (in EUR) to a range of one to five in purchasing power standards (PPS). At the opposite ends of the scale were Romania (276 PPS) and Luxembourg (1.478 PPS).
Graph 4: Statutory minimum wages in EU Member States, Croatia, Turkey and the USA, July 2012

Source: EUROSTAT, Commission services

In 2011, the statutory minimum wage level varied between 30 % and 50 % of average gross monthly earnings in industry, construction and services. The highest values are reported for Greece (50.1 %) and Slovenia (50.0 %) followed by France (2010) and Malta (both 47.4 %), and Luxembourg (46.7 %). At the lower end of the scale Spain,

11

Real unit labour costs are obtained by dividing nominal unit labour costs by price level.
9

Estonia, Bulgaria, the Czech Republic and Romania report minimum wages below 35 % of the average gross monthly earnings.

Graph 5: Statutory minimum wages as proportion of the mean value of average gross monthly earnings in EU Member States, Croatia, Turkey and the USA, 2011

Source: EUROSTAT, Commission services

Information about the labour market relevance of the minimum wage is provided by the share of workers earning the minimum wage (effective coverage). The latest available data from Eurostat refer to 2007 and show considerable differences in effective coverage across countries with statutory minimum wages (from 0.7% in Spain to 12.4% in Bulgaria and 9% in France). Effective coverage declined in many countries between 2000 and 2007, in particular in those with the previously highest effective coverage, with the exceptions of Bulgaria and Romania, where coverage increased substantially up to 2004-2005 and declined thereafter. Higher statutory minimum wages (as a % of average wage) may not unambiguously imply a higher effective coverage. Overall, effective coverage depends also on the countrys educational and age structure of workers. A relatively low effective coverage may also reflect the importance of collective agreements in wage setting and/or individually negotiated wages set above the minimum wage. Tighter labour market conditions may push wages further above the minimum wage, thus additionally reducing effective coverage.
Table 3: Effective coverage - Proportion of full-time employees earning the minimum wage
1999 Bulgaria France Latvia Luxembourg Lithuania Romania Hungary Estonia Portugal Ireland Poland Slovenia Netherlands Czech Republic : 12.8 : 16.8 : : : : 7.5 13.7 : : 2.2 : 2000 : 13.6 13.9 16.2 8.2 6.5 3.9 6.5 6.2 : : 2.0 2.1 1.6 2001 : 13.9 16.7 15.5 7.8 6.1 8.4 7.4 4.0 2.2 2.9 2.6 2.2 1.7 2002 5.1 14.0 15.4 15.1 8.8 8.9 11.4 6.9 4.0 2.1 4.0 2.6 2.3 2.0 2003 : 13.4 13.6 16.9 10.2 12.2 8.1 6.4 5.7 3.1 : 2.7 2.2 2.0 10 2004 : 15.6 13.6 18.0 12.1 12.0 8.0 5.7 5.3 3.1 4.5 2.0 2.1 2.0 2005 16.0 12.2 12.0 11.0 10.3 9.7 8.0 4.8 4.7 3.3 2.9 2.8 2.2 2.0 2006 13.9 10.6 8.9 11.0 8.5 8.2 7.8 : 4.2 3.3 2.3 2.5 : 2.3 2007 12.4 9.0 9.2 11.0 7.0 : 2.4 : 5.5 : : 3.4 : :

United Kingdom Slovakia Malta United States Spain

2.5 : : 2.4 2.6

1.4 : 3.4 1.8 1.4

1.0 0.2 4.7 1.5 0.9

1.8 0.1 3.5 1.5 0.8

1.2 0.4 1.1 1.4 0.9

1.4 1.9 1.5 1.4 0.8

1.8 1.7 1.5 1.3 0.8

1.8 1.9 1.5 1.1 1.0

2.0 1.6 4.2 1.3 0.7

Source: EUROSTAT, Commission services

11

Table 4: Detailed description of key wage-setting institutions

source ETUI, year depending on country ECB and ETUI Favourability principle: coding 2-Yes; 1- No; 0- Not or less relevant Eurofound (2010): Derogation clauses on wages in sectoral collective agreements in seven European countries; EIR (2010) Opening clauses (coding: 3-Yes and used; 2- Yes and hardly used 1- No; 0- Not or less relevant) 2 / No derogations foreseen by law. Yet, in sectoral agreements, clauses can be included that specifically permit derogations. One variant is that collective agreements can include opening clauses which define a certain framework for a flexible adaptation at company level. The second is that sectoral agreements can include opening clauses which under certain conditions allow companies to undercut standards determined by the sectoral agreements. There are hardly any sectoral agreements including opening clauses. Since 1997 some wage flexibility is provided by the so-called distribution option. Under this provision, the works council and the employer can redistribute a certain amount of the total wage bill at company level. Compared to the Nordic countries and Germany, however, this amounts to a highly limited form of decentralization; the basic wage is still firmly set at the sectoral level. 2 / Labour legislation does not explicitly provide for the possibility of company-level deviations from sectoral collective agreements that go below the sectoral standards. Company-level standards can only undercut sectorally-defined minimum or absolute standards when this possibility is explicitly foreseen in the sectoral agreement, for example in an opening clause. However, whatever room the sectoral agreement provides for company deviations, in all cases the inter-professional minimum wage has to be respected. There are hardly any sectoral agreements including opening clauses. ETUI ECB, data 2006

Key level of collective bargaining and comments

Extension procedures: Criteria and comments

Main employee representation at workplace

Average agreement length (in years)

AT

Industry / Negotiations take place between unions and the chambers of commerce. These chambers are legal bodies representing employers in almost all industries, to which all employers must by law belong. There are only a very few areas, parts of the finance industry and parts of the printing and newspaper industry, where the negotiations are with employers' industry associations rather than with the chambers. Individual employers have no right to collective bargaining (with some minor exceptions)

No need for extension procedures given the mandatory membership of employers in the Austrian Economic Chamber

Works council

BE

National (sets framework)/ National level agreements set a framework for negotiators at lower levels to follow (industry and company negotiations). The national agreement sets the key elements of pay and conditions every two years and this agreement itself is tightly constrained by legislation limiting pay increases to forecast pay costs in Belgiums neighbours. With automatic pay indexation linked to inflation, negotiators at other levels have only limited room for manoeuvre.

Coverage is high because agreements signed at industry level automatically extend to all those employed in that industry

Union and works council but union dominates

BG

Company/ Bargaining takes place at both industry and company level (municipal level for municipal employees) but company level bargaining has become more important.

Where an industry agreement has been signed by all the representative unions and employers, the government can, at their request, extend it to all the employers in the industry. (There are currently six representative employers associations, who must have at least 500 members and meet set criteria in terms of members across the country and across industry; see section on unions for representative unions.) Until 2009 no industry level

Union but law also provides for the election of other representatives

agreements had been extended in this way. However, in 2010, four agreements covering wood and furniture, water supply, brewing and the paper and pulp industry were extended to all employers and their workforces in those industries.

CY

Industry and company/ Industry and company level bargaining co-exist and are not directly linked. Most employees are covered by industry level bargaining but some employees, particularly in larger companies, are covered by company level agreements. Company/ Collective bargaining can take place at both industry level and at company level. The most important level of collective bargaining is at company level, although a majority of companies are not covered by any collective bargaining. The number of employees covered by industry level agreements increased since 2004 when the rules on extending industry level collective agreements to non-signatory parties were revised. Under the revised procedure, requests to extend collective agreements must be made jointly by the largest union and the largest employers association in the industry. The extended agreements do not apply to those employing fewer than 20 employees. The general tripartite agreement has not been signed since 1994.

Union

2.5 1.5 years/ Collective agreements at company level normally run for a year. At industry level, agreements are increasingly signed for periods of two years or more, although the pay element is still normally for 12 months, with pay rates being updated annually through a supplementary agreement.

CZ

Extension only in industry and market services

Union but works council can be set up as well if there is no union

DE

Industry/ Industry agreements are normally negotiated at regional rather than national level. However, the main elements of the agreements, in particular the size of the pay increase, will normally be the same across all regions. The existing system of industry level settlements has come under growing pressure as some employers are leaving the employers' federations in order to pay wages lower than those set in collective agreements.

Extension possible only if 50% of employees in a sector are covered. No extension in nonmarket services.

3/ Law does not provide for derogations. The bargaining parties may include opening clauses in sectoral collective agreements that allow, under certain conditions, a divergence from collectively agreed standards. The opening clause then sets out the possible derogations and procedures. A large number of sectoral agreements allow for wage derogations at company level in times of serious economic difficulties and in times of competitiveness problems. Opening clauses are used frequently at company level. Since the 2004 Pforzheim agreement in metal engineering in Germany and a similar, earlier agreement in chemicals, opening and hardship clauses in sector agreements have been tied to company negotiations over employment, investment and, in some cases, advantages for union members (Ellguth and Kohout 2008; Haipeter 2009).

Works council

2.2

13

DK

Industry but much left to company negotiations/ Bargaining at national level sets the rules for issues which in many other countries would be regulated by the law and provides a framework for much of the Danish industrial relations system. The most important agreement is the general agreement which covers the right to organise, rights on dismissal and industrial disputes. Pay and conditions are negotiated between unions or cartels of unions and the employers at industry level (thus setting a framework for negotiators at lower levels), but complementary negotiations at company level are becoming increasingly important. In Denmark, only 17% of all private sector employees have their pay entirely set by the industry level collective agreement. National level agreements used to cover also wages, in 1960s and 1970s. Company/ The key level of collective bargaining is at the level of the company or organisation, both in the private sector insofar as bargaining takes place at all and in the public sector. For example, the terms and conditions of employees in local government are set through negotiation between each individual municipality and the unions. Where an employer signs a collective agreement, it applies to all employees, irrespective as to whether or not they are union members. Industry at both national and provincial level/ Industry and company level bargaining co-exist and are not directly linked. Most employees are covered by industry level bargaining normally at provincial level but some employees, particularly in larger companies, are covered by company level agreements. National level agreements from 2002-2008 provide guidelines on pay increases for lower level bargainers. The agreed formula was an agreement combining a pay increase at the level of forecast inflation with an amount to take account of higher productivity, plus, in later years, a clause guaranteeing a catchup payment if inflation turned out higher than forecast. At the end of 2009, negotiations on a national agreement restarted, and, in Feb 2010, a new agreement was signed for three years. On pay the agreement recommended a 1% increase in 2010, an increase of between 1% and 2% for 2011, and an increase of between 1.5% and 2% for 2012. The agreement included safeguards against inflation proving to be higher than forecast, as well as an acceptance that companies in economic difficulties would not be required to pay the increases.

No need of procedures given trade union density

extension very high

Recent agreements in industry detail general conditions and procedures, as well as minimum, youth and entry wages, and leave the allocation and division of pay rises to firm level negotiations.

Union but employee groups from outside the union can be represented in the structure

EE

By law, industry level agreements can easily be extended to other employers in the industry. All that is necessary is the agreement of the two parties. In practice this has only happened rarely and only two sectors, transport and health care, had agreements extended to non-signatory employers.

Union but since 2007 employee representatives can be elected as well

ES

Extension possible only if 50% of employees in a sector are covered. The government also has powers to extend collective agreements in areas where negotiations have not taken place and these powers were strengthened in 2005.

2 / Since 1994, the Workers Statute contains a mandate to include an opt-out clause in collective agreements at sectoral or intersectoral level allowing companies to adopt lower wages than those agreed at higher level when they temporarily undergo economic difficulties. Collective agreements adopted above company level must now contain the conditions and procedures for the application of such opt-out clauses, e.g. concerning wages. Royal Law Decree 10/2010 of 16 June modifies the legal framework for the use of wage opt-out clauses aiming to make it easier to use them. A large number of sectoral agreements allow for wage derogations at company level in times of serious economic difficulties. Yet, in practice opening clauses are rarely applied.

Works council although dominated by unions which are also present directly

2.5

14

FI

Industry but much left to company negotiations/ National level agreements used to set a framework for negotiators at lower levels to follow (since 1968). This pattern, which had lasted for almost 40 years, ended in 2007 when the employers refused to negotiate a new national agreement. Bargaining has subsequently shifted to sector level, with employers pressing for flexibility at company level. Accordingly, the sector agreements concluded in 2008 and 2009 introduced some measure of flexibility, especially regarding working hours and overtime. Inclusion in 2009-2012 agreement of provisions decentralising pay bargaining to company level and linking it to the economic situation in each year, with the possibility of no wage increases in especially poor circumstances, in order to secure employment.

Extension possible only if 50% of employees in a sector are covered

1/ Not until recently. Company level negotiations, which take place within the framework of industry level agreements, can produce improvements on the industry settlement, but may also involve other changes. Employers have for some time pressed for greater flexibility, and in the 2010 negotiating round a number of settlements allowed individual companies to adjust the increase agreed for the industry as a whole to reflect their own financial circumstances.

Union

2.5

FR

Industry and company/ Collective bargaining is possible at the national level covering all employees (though not pay), industry level involving national, regional or local bargaining, and company level. Since 2013 national agreements will only be valid if they have been signed by a confederation(s) with at least 30% support nationally, as demonstrated in works council and similar elections, and if they are not opposed by other confederations that together have majority support. An industry agreement will only be valid if it has been signed by unions with at least 30% support in the industry, based on works council and similar elections, and it is not opposed by unions with majority support. The government may extend the terms of an agreement to non-signatory parties. Since 2008 a valid agreement at company level can only be reached if it is signed by unions which have 30% support in the company and not opposed by unions with majority support on the basis of elections for works councils or employee delegate. There is an obligation to negotiate in companies with more than 50 employees though not to reach an agreement. Sector agreements play a key role in setting minimum standards in sectors with many small firms, with extension either within the same sector or across similar sectors.

Frequent extension of agreements by the government to non-signatory employers, combined with the legal obligation on employers to negotiate annually at company with more than 50 employees and (in some circumstances) at industry level, explains a high level of coverage. Although collective bargaining coverage is high, a significant number of agreements have rates which are below the national minimum wage and therefore invalid. Individualised pay increases, which are not negotiated, also play an important role in setting the pay of many workers. No extension is possible in sector of non-market services. As industry agreements will only be valid if it signed by unions with at least 30% support in the industry, based on works council and similar elections, and they is not opposed by unions with majority support, then this is the necessary but not sufficient condition for extension of industry level agreements. The possibility of extending industry level agreements to those employers who had not signed them has been abolished in December 2010. Before, extension possible only if 50% of employees in a sector are covered

3/ The 2004 legislation (Filon Law) made it easier for company agreements to diverge from industry level agreements (except from the minimum wage), which was extended in the area of working time by the 2008 legislation. Derogations are possible with respect to additional wage elements such as performance-related pay, shift work, night work, allowances for marriage or childbirth, or seniority payments.

Union and works council/employe e delegates but union normally dominates if present

1.5 / Where unions and employers organisations have already signed an industry agreement on pay there is an obligation to negotiate annually on pay rates, and every five years on job classifications. At company level there is also a requirement for the employer to negotiate annually on pay, working time and other issues.

GR

Industry/ Collective bargaining takes place at national, industry and company level. In the past the national agreement, normally negotiated every two years, provided a basis from which improvements could be negotiated. However, changes introduced following the 2010 crisis and the provision of IMF and EU financial support, have fundamentally changed the bargaining structure and introduced much greater flexibility at company level.The national collective agreement was agreed after lengthy discussions in July 2010. However, because of the difficult economic situation, the GSEE union confederation

1/ N until December 2010/ since then, company negotiators can agree worse conditions than those set at industry level.

Union works councils exist in theory but not often in practice

15

HU

IE

agreed that pay would be frozen until July 2011 and that increases after that date until July 2012 could not exceed the average inflation forecast for the whole of the EU. This agreement was given legal force through legislation, but rather than setting the agreement as a floor on which other agreements could build, it made its limits binding on all agreements at both industry and company level as a ceiling. Company/ Collective bargaining primarily takes place at company level, despite considerable efforts by both unions and the government to encourage industry level bargaining. Unions are, however, able to influence bargaining developments through a tripartite body called National Interest Reconciliation Council (OT). This was reconstituted by the then socialist-led government in 2002 after being largely dismantled by the previous right-wing government. It provides a forum in which the three parties can agree the national minimum wage for the coming year and set a minimum rate for skilled workers. It also has an important role in making recommendations on the proposed level of pay increases to lower-level bargainers, although these recommendations are not binding. National (breaking down) and company/ National level agreements used to set a NON-BINDING framework for negotiators at lower levels to follow. These pacts did not have legal force but unions and employers' organisations were expected to exert discipline on their own members to ensure they keep to them. Until the 2008 economic crisis they were widely observed, and it was possible to refer disputes to the Labour Relations Commission (LRC) and, in the case of a failure to reach agreement, to the Labour Court. The system of national agreements which have set pay increases, among other things, for more than 20 years, seems to have broken down under the pressure of the economic crisis (as in Finland). The employers and trade unions subsequently adopted joint guidelines for the company-level negotiations that would take its place (though not on pay norms), in this way maintaining some form of central steering. Industry/ Industry level agreements set a framework for negotiators at lower levels. Industry level bargaining providing wage increases which keep pace with inflation, while productivity gains (and risk of job losses) are taken into account at company level. At national level, there are also discussions between unions, employers and the government, which sometimes lead to agreements. The most important of these was the agreement between employers, unions and the government in July 1993, which reformed the system of collective bargaining. It restructured the links between industry and company level bargaining, and drew up new bargaining timetables. The 1993 agreement also laid the basis for a new system of workplace representation and finally ended the system of wage indexation. Most recently, new bargaining agreement, which have not been agreed by the largest Italian confederation CGIL, was signed in 2009, on a trial basis for 4 years. It potentially gives greater weight to company level bargaining.

Extensions are rare and are regulated by a commission

Union and works council - overlap to some degree

In addition to company level bargaining, there are also some industry level agreements and some of these have been extended to all employees in concerned industry. This is done through a request of the two parties to the Labour Court and the agreements then become Registered Employment Agreements (REAs). In practice, they are important in construction and electrical contracting.

IT

There is no legislation which makes industry level agreements generally binding but courts have normally interpreted them in this way.

2/ The National Minimum Wage Act includes an inabilityto-pay clause. When an employer cannot afford to pay the minimum wage due to financial difficulties, an application may be made to the Labour Court which can, following an inquiry, exempt the employer from paying the minimum rate for three to 12 months. The employer must be able to demonstrate that the proposed exemption would be needed to preserve jobs and has the consent of a majority of the employees, who must also agree to be bound by the Labour Court decision. The court determines, if applicable, the level of the wage to be paid by the employer during the period of the temporary exemption. Additionally, the court cannot exempt a company which has previously been exempted. There are hardly any sectoral agreements including opening clauses. 2 / No specific regulations on opening clauses, yet possible in sectoral collective agreements. In 2009 a number of employer associations, including the major employer association, the Italian Confederation of Workers Trade Unions (CISL) and the Union of Italian Workers (UIL) signed the Framework Agreement for the Reform of the Collective Bargaining System (FARCB). The government also signed it itself as employer for the public sector. The FARCB contains, among other things, the contingency for opening clauses permitting companylevel collective bargaining or territorial-level bargaining concerning specific regions or cities in Italy to change, for the worse, the rules of national sectoral collective agreements with regard to wages and other norms. This would be in cases of economic crisis, or to promote economic and employment growth. However, the FARCB also leaves open broad possibilities for the sectoral social partners to control the specific conditions and procedures of such opening clauses. There are hardly any sectoral

Union but other structures are possible and since 2006 these can be triggered by employees

Union although largely elected by all employees

16

agreements including opening clauses.

LT

Company/ The law permits collective bargaining at national, industrial, regional and company/organisation level but, although there have been national accords dealing with broad aspects of policy, in practice collective bargaining is limited to company/organisation level and even there only affects a small minority of employees. Industry and company (varies with sector)/ Industry and company level bargaining both co-exist and are not directly linked. Company bargaining is key in some sectors, industry bargaining in others. There are no national level pay negotiations for the whole economy, although legislation introduced in 2004 allows for national level agreements in the area of social dialogue for the first time. The specific examples listed in legislation include the organisation of working time, training and the implementation of European level agreements and directives. Company/ Company level bargaining is the most important, with relatively few industry level agreements. Despite this, collective bargaining coverage is relatively high, at 34% of all employees, although there are no negotiations for large parts of the private sector.

Union or works council if there is no union

LU

Extension is possible in services only (market + non-market)

Works council/employe e delegates

LV

Collective agreements reached at industry level may be extended to all employees in an industry provided that the employers association that has signed the agreement represents more than 60% of all the employees in the industry.

Union although possible to elect other representatives Union with other representatives for those with no union

MT

Company/ Company level negotiations which predominate

NL

Industry/ Industry and company level bargaining co-exist and are not directly linked. Most employees are covered by industry level bargaining but some employees, particularly in larger companies, are covered by company level agreements. There is a tendency for industry level agreements to become framework agreements, with detailed provisions being negotiated at company level. Union negotiators at both industry and company level work within a framework of recommendations coming from the confederations centrally, which are largely observed. These follow the traditional autumn meeting between unions, employers and the govt who meet at national level to exchange views about economic prospects. There are few rules governing those who are entitled to bargain. The only requirement placed on trade unions is that they should have a legal personality and that its rules should give it authority to bargain. Similar applies for the employers and employers' organisations; they have no legal obligation to negotiate with trade unions. Collective agreements depend on both sides' willingness to negotiate.

Extension possible only if 60% of employees or more in a sector are covered. Government action in extending collective agreements adds around 10% to bargaining coverage.

Most sector agreements detail pay increases, but there is now a staggering diversity in types of agreements. In the private sector area of FNV Allies and the employers federation AWVN, which covers some 700 of the countrys 1000 agreements, 36% of all agreements are multi-level, 55% have la carte provisions which allow employees to make a choice between types of working hours arrangements and between pay and working hours, and the building up of personal budgets for training, paid leave and early retirement (Zielschot, 2010). Decentralization has hardly affected the predominant role of sector and inter-sectoral wage bargaining in determining the basic wage.

Works council

17

PL

PT

RO

SE

Largely at company or organisation level/ Company level negotiations predominate (multi-workplace possible as well). The Tripartite Commission brings together unions, employers and government and must be consulted on legislation concerning the labour market, state benefits and employment rights (also plays a role in setting the minimum wage). The majority of employees are not covered by collective agreements at any level. The only requirement where there is no collective agreement and the organisation has more than 20 workers is that the employer should produce a set of rules setting out the basis on which individuals are paid. Industry/ The most important level of bargaining in Portugal is industry level. Figures for 2010 from the ministry of labour show that there were more agreements signed at this level than at company level 141 as opposed to 64 company agreements and 25 agreements covering several companies, but not an industry-wide employers association. More significantly, industry level agreements, which are often also for specific regions, also cover many more people. In total, 1,309,300 employees were covered by industry agreements signed in 2010 as opposed to 33,300 by single company agreements and 64,500 by agreements signed by several companies. National for minimum terms; improved at industry and company level/ Obligation to negotiate in companies with more than 21 employees though not to reach an agreement. National agreement, together with the law, is a very important source of regulation of wages and working hours, since few large companies exist. Industry but much left to company negotiations/ The pay for more than 80% of employees is set by a combination of industry and local negotiations. Industry level agreements set a framework for negotiators at lower levels to follow, including in the area of pay, and lower level bargainers have substantial room for manoeuvre. This is often done through a nationally agreed increase on the total pay bill, with local negotiations on its distribution, sometimes with individual supplements linked to performance. Agreements also often include fall-back arrangements, which set the increases to be paid if no local agreement is reached, and frequently there is also a guaranteed minimum increase for individuals. This decentralisation and flexibility has been at least as common in the public as in the private sector. In Sweden only 6% of all private sector employees have their pay entirely set by the industry level collective agreement. Previously, collective bargaining took place also at national level. Since beginning of 80s, however, this is not case anymore in the area of pay.

Union and works council but most works councils are in unionised workplaces

Extension is not automatic, but the Ministry of Labour frequently extends agreements to employers who were not signatories. The extension is done to employees and employers within the sector and has to take into account economic and social factors Agreements signed at national level legally cover all employees, based on criteria of representativeness of social partners

Union works councils exist in theory but less frequently in practice

Union other employee representation possible but rare

No need of procedures given trade union density

extension very high

Recent collective agreements in industry have incorporated provisions for local pay review and opportunities for individuals to negotiate their own wages (Granqvist and Regnr 2008).

Union

2.5 / Agreements typically last several years, however, it is possible to terminate an agreement one year before it ends.

SI

Industry/ National collective bargaining ceased to exist in the private sector in 2005 while it still takes place in the public sector. There is a national agreement for employees not covered by industry agreements. In 2005, only 4% of workers (primarily senior management) held an individual contract.

Until 2006: no need for extension procedures given the mandatory membership of employers in the Slovenian Economic Chamber Now extension possible only if 50% of employees in a sector are covered. Trade unions have to be representative.

Union and works council - overlap to some degree; only trade union can conduct collective bargaining

18

SK

Industry and company/ The overall coverage of industry level collective agreements is falling as employers are leaving employers associations, so as not to be bound by the agreements the associations sign. In 2007 and 2009, the then social democratic-led government made changes to legislation on collective bargaining, making it easier for agreements to be extended to non-signatory companies. Easier extension proved to be extremely controversial among employers and the new government intends to introduce legislation to again make extension subject to the agreement of both parties. By law, company agreements can only improve on what has been negotiated at industry level. However, in practice industry level collective bargaining increasingly sets only minimum standards, often simply repeating existing legal obligations, and does not fix effective pay rates. These are set in individual companies, which have become the key level for bargaining. As a result, pay varies widely between companies. No general tripartite agreement signed since 2000. Company/ Pay and conditions of most employees are not negotiated. When bargaining occurs in the private sector, its most important level is the company or individual workplace. In the public sector, where two-thirds of employees are covered, industry level bargaining is more important. It is also quite common for there to be different agreements for different grades of worker, most commonly manual and non-manual. This is the case both for industry agreements and for those at company level. At national level the TUC has not been involved in negotiations about pay since end of the 1970s. There is also no tradition of negotiations between the TUC and the CBI on other issues.

Extension may be requested by only one of the parties and it is then discussed in the tripartite consultative committee, made of representatives of government, unions and employers, with the final decision being taken by the government. These changes, to effectively remove the employers veto, appear to have had only a limited effect, with very few collective agreements being extended in this way.

Union and works council - overlap to some degree

2.4 - Legislation on collective bargaining assumes that agreements last for 1 year unless otherwise stated. Research carried out by the Institute for Labour and Family Research in 2009 found that only a quarter of company agreements lasted 1 year with 32% lasting 2 years and the same percentage lasting 3; 11% lasted for longer than 3 years.

UK

Union but other structures are possible and since 2005 these can be triggered by employees

2.5

19

Annex: Description of the ICTWSS indicators of wage setting institution

ICTWSS variable Union Density Description Union Density rate, net union membership as a proportion wage and salary earners in employment (0-100) = NUM*100/WSEE

Coordination of wage bargaining

The dominant level(s) at which wage bargaining takes place Minimum Wage Setting

Bargaining coverage, adjusted

5 = economy-wide bargaining, based on a) enforceable agreements between the central organisations of unions and employers affecting the entire economy or entire private sector, or on b) government imposition of a wage schedule, freeze, or ceiling. 4 = mixed industry and economy-wide bargaining: a) central organisations negotiate non-enforceable central agreements (guidelines) and/or b) key unions and employers associations set pattern for the entire economy. 3 = industry bargaining with no or irregular pattern setting, limited involvement of central organizations, and limited freedoms for company bargaining. 2 = mixed or alternating industry- and firm level bargaining, with weak enforceability of industry agreements 1 = none of the above, fragmented bargaining, mostly at company level 5 = national or central level 4 = national or central level, with additional sectoral / local or company bargaining 3 = sectoral or industry level 2 = sectoral or industry level, with additional local or company bargaining 1 = local or company bargaining 0 = No statutory minimum wage, no sectoral or national agreements 1 = Minimum wages are set by (sectoral) collective agreement or tripartite wage boards in (some) sectors; 2 = Minimum wages are set by national (cross-sectoral or inter-occupational) agreement (autonomous agreement) between unions and employers; 3 = National minimum wage is set by agreement (as in 1 or 2) but extended and made binding by law or Ministerial decree; 4 = National minimum wage is set through tripartite negotiations; 5 = National minimum wage is set by government, but after (non-binding) tripartite consultations; 6 = Minimum wage set by judges or expert committee, as in award-system; 7 = Minimum wage is set by government but government is bound by fixed rule (index-based minimum wage); 8 = Minimum wage is set by government, without fixed rule. Employees covered by wage bargaining agreements as a proportion of all wage and salary earners in employment with the right to bargaining, expressed as percentage, adjusted for the possibility that some sectors or occupations are excluded from the right to bargain; ranges from 0 to 100.

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