The term ‘minimum wage’ refers to the regulatory restriction on the lowest rate payable by employers to workers. Statutory minimum wages are regulated by formal laws or statutes. Collectively agreed minimum wages are stipulated within collective agreements between trade unions and employers. The aim of the EU directive on adequate minimum wages is to strengthen both statutory minimum wages and collective wage bargaining.
This article provides a short synopsis of developments in collective wage bargaining between 2009 and 2023, with information drawn from Eurofound’s working papers collection: Developments in working life 2023.
Developments in negotiated wages since 2009
National statistics on developments in collectively agreed pay are available for only 12 EU Member States (see Tables 1 and 2). According to these statistics, after some years of decline during the financial and economic crisis, negotiated wages grew substantially in real terms from the 2010s until 2020. However, the high inflation that prevailed from 2021 had eroded all these gains in the median country by 2023.
Developments in actual wages (‘employee compensation’, which includes wages and salaries in kind as well as employers’ social security contributions) in real terms, on the other hand, were more favourable, both in the 12 Member States that had data on negotiated wages and in the euro zone. The decline in real terms due to inflation was shorter lived, and gains were not eroded. Developments in negotiated pay tend to lag behind actual compensation in real terms.
Figure 1: Developments in negotiated pay and actual compensation in real terms since 2009
The situation is more diverse, however, when the data for individual countries are examined.
Collective wage bargaining plays a more prominent role in the 14 EU Member States that had joined the EU prior to 2004 (EU14): the coverage of workers by collective agreements is higher on average in those countries than in the Member States that joined the EU in 2004 and later. It was mainly the countries that joined the EU in 2004 and later that saw more substantial increases in negotiated pay in real terms, which – albeit greatly diminished – were not wiped out by the recent increase in prices.
Among most of the EU14 that had available data, growth in negotiated real wages was more modest, and workers earning collectively agreed rates recently saw a considerable decline in their pay in real terms, which has not yet been restored to the real levels of 2009. A closer look at how collectively agreed wages were negotiated throughout 2023, and the role inflation played during these negotiations, is therefore of interest.
To begin, Tables 1 and 2 show the nominal and real negotiated wages, respectively, in the 12 Member States that have the relevant data.
Table 1: Negotiated wages, nominal
Table 2: Negotiated wages, real
How inflation was considered in wage bargaining during 2023
Higher-level regulations govern wage developments in a minority of countries. For wages in general, this is the case only in Belgium and Luxembourg; in France, such regulations govern statutory minimum wages as they are indexed to inflation and parts of the wage growth with a knock-on effect for negotiated wages; and in Cyprus and Malta, ‘cost of living allowances’ (which top up wages) are indexed and thus compensate workers to a certain extent for rising inflation.
In a few countries – such as Portugal and Spain – bipartite and tripartite higher-level agreements that consider expected inflation developments were reached in 2022/2023. These agreements had an impact on further pay negotiations and/or actual wages.
Collective agreements do not generally contain any indexation clauses for wages. This is expressly prohibited in France, and was phased out in Italy, the Netherlands and Spain decades ago, mainly due to concerns of provoking ‘wage-price spirals’ – a phenomenon experienced during the 1970s and in later years. Such concerns were also identified in the case of the Swedish trade unions’ most recent strategy to moderate their wage demands in the current inflationary climate.
It is only in exceptional cases that individual examples of collective agreements with wage indexation clauses were reported. Examples include the staff agreement concluded for American Airlines’ contact centre in Ireland; the Dutch union FNV’s own collective agreement; the Slovak housing sector agreement; and the agreement for Romanian healthcare workers.
Another variant involves conducting more frequent renegotiations of collective agreements, which can also be triggered when certain price increase thresholds are reached. In Finland, this takes place in the form of additional ‘wage rounds’ in the second year of an agreement; in France, review clauses in some agreements are linked to statutory minimum wage increases; in Spain, 45% of workers who had signed a collective agreement for 2023 had wage revision clauses that would allow wages to be increased if actual inflation exceeded the forecasted level; and, in Romania, it is mandatory that agreements do not exceed 24 months in duration, allowing, in principle, a more frequent update of wages in line with inflation.
Inflation is generally considered on an ad hoc basis in collective wage negotiations, with more or less streamlined approaches within countries. In Austria, for example, the ‘Benya formula’ (inflation plus half the increase in labour productivity) is the main figure referred to when negotiating wages. During this bargaining round, this practice had been questioned by employers but no change was agreed. Thus, most countries reported ‘business as usual’ in collective wage bargaining in 2023: inflation was still present, still high and did not change wage setting as such, but was an integral part of the negotiations.
Looking at processes, however, there are cases where collective bargaining was reported to be more conflictual and/or prolonged than usual due to high inflation. Ultimately, however, agreements were generally reached. Examples include many sectors in Austria, Cyprus and Germany, the Finnish pace-setting technology sector agreement and the public sector in Slovenia. An exception is Italy, where a very large number of agreements were not renewed during 2023, leading to a further decline in the purchasing power of wages.
In terms of outcomes, negotiated increases were said to fall short of inflation in some countries. These included most agreements for members of the ČMKOS trade union in Czechia; various pay agreements in Ireland in 2023 (according to an analysis conducted by Industrial Relations News, IRN); and the wage increase provided to public sector employees in Slovenia. While this is anecdotal in the absence of comprehensive data in many Member States, it aligns with the picture on modest developments in negotiated pay and the resulting decline in real terms seen in Figure 1. Likewise, responding to inflation by resorting to one-off compensation payments instead of more substantial increases in basic pay featured in collective bargaining in some countries, including Austria and Germany, while tax-free vouchers were awarded in Ireland.
Changes to collective bargaining frameworks in 2023
As recently as 2023, some EU Member States were reforming aspects of their collective bargaining frameworks and structures. In Finland, a general amendment of the Act on Mediation in Labour Disputes 420/1962 entered into force in the beginning of 2023. Several measures were applied or discussed to prevent collective bargaining disputes, and the role of the National Conciliator’s Office was strengthened. During 2023 and going forward, Finland also restructured the public sector, which had implications for collective bargaining. Increased possibilities for company collective bargaining and agreements and deviations from labour law within individual employer agreements are also being considered. See Finland: Developments in working life 2023.
In Portugal, changes to the Labour Code aimed to make the unjustified termination of collective agreements more difficult; one way of doing this was by introducing a new modality called ‘arbitration to assess the complaint for termination of a collective agreement’. See Portugal: Developments in working life 2023. Norway, in contrast, set up a tripartite working group in March 2023 to explore the possibility of reducing the need for compulsory wage arbitration (in addition to the appointment of a committee to examine challenges posed by the current wage formation model). See Norway: Developments in working life 2023.
In France, ensuring a faster renewal of collective agreements and dynamic developments in pay scales was on the agenda. The government issued a decree aimed at speeding up the extension of collective agreements to all workers and companies in a sector. This is to avoid situations where the agreed minimum wage in a branch is permanently lower than the legal national minimum wage (SMIC). In addition, a new High Council on Remuneration, Employment and Productivity was set up in March 2024 to monitor ‘the determinants and evolution of wages, in particular the evolution of real wages and wage bargaining’ as well as ‘classifications’. See France: Developments in working life 2023.
An attempt to promote regional wage setting was made in Spain, where the Ministry of Labour and Social Economy issued Royal Decree 7/2023 in December. Under this decree, regional agreements were given priority over national or sectoral agreements if they provided for more favourable working conditions. This measure was included to guarantee the support of the Basque Nationalist Party (PNV) for the investiture of the new coalition government but was repealed when it was rejected by the parliament in January 2024. See Spain: Developments in working life 2023.
The most substantial reform of the collective bargaining framework and law took place during 2023 in Romania. The reform aims to promote collective bargaining (coverage), which declined substantially following legislative changes in the early 2010s. The Law on Social Dialogue, adopted at the end of 2022, underwent substantial modifications as a result of Government Emergency Ordinance No. 42/2023, which was approved by law in November. See Romania: Developments in working life 2023.
Summary and conclusions
Negotiated pay has reacted more sluggishly to the high levels of inflation than actual compensation or national minimum wages. As a result, any gains made in real terms in the median country since 2009 were wiped out in 2023. With actual compensation in real terms on the rise again, negotiated wages are also expected to follow suit. A collective bargaining framework that supports frequent renegotiation and helps the bargaining partners to renew agreements, even in the event of disputes, is therefore vital. The most recent adaptations of bargaining frameworks are in countries where collective bargaining coverage is already high (Finland, France, Norway, Portugal and Spain). These adaptations often seek to make collective bargaining more dynamic and/or flexible, while also aiming to prevent or manage conflicts. It is important that those countries with less bargaining coverage and dynamism in wage negotiations will also follow. With Article 4 of the directive on adequate minimum wages suggesting that Member States promote collective wage bargaining, we can expect to see more advancements in other Member States in the coming years.
Image © olga_demina/Adobe Stock
