Pay norm under debate

Download article in original language : BE0212302NFR.DOC

In late 2002, the Belgian social partners are discussing a new intersectoral agreement for 2003-4. The maximum margins for growth in wage costs over the next two years are central to the talks. In early November, the Central Economic Council published its technical report providing an indication of the pay norm, which it puts at 5.1%. This procedure, which is particularly complicated on this occasion, has relaunched debate on Belgium's pay norm system.

In late 2002, the social partners are discussing a new intersectoral agreement providing a framework for the pay and conditions of all workers in private sector enterprises for 2003 and 2004, as is the practice every two years in Belgium (BE0101337F). On this occasion, the 'pay norm' for 2003-4 is a matter of key concern.

To restore competitiveness to Belgian enterprises in the wake of the economic crisis of the 1970s, the government tried to regulate pay rises, initially by applying a number of laws that froze wages, and later, in 1996, by passing a law that fixed pay movements in a 'preventive' manner. This was the 'law on employment promotion and preventive safeguarding of competitiveness', which largely based Belgian pay movements on the forecast pay trends of the country's main trading partners (France, Germany and the Netherlands). In the two-yearly negotiations over a new intersectoral agreement, the maximum permitted margins for pay increases are now central to the social partners' discussions, and a crucial factor in the negotiations (BE0008323F).

Under the provisions of the July 1996 competitiveness legislation, every year the Central Economic Council (Conseil Central de l’Économie/Centrale raad voor het bedrijfsleven, CCE/CRB) produces a technical report on the maximum permitted nominal wage cost increase margin; this is based on anticipated movements in the three reference countries. In this report, the calculation of maximum permitted margins is based on wage cost movements in Belgium over the previous two years, and on forecast pay trends in the three reference countries (Germany, France and the Netherlands). The data in this report come from the Organisation for Economic Cooperation and Development (OECD) - using estimates of previous years and forecasts based on the OECD's medium-term scenarios - and from the Belgian Institute of National Accounts (Institut des Comptes nationaux/Instituut voor de Nationale Rekeningen, ICN/INR). Since 1994, the ICN/INR has incorporated into a single national accounting system data from the National Statistics Institute (Institut National de Statistiques/Nationaal Instituut voor de Statistiek, INS/NIS), the National Bank (Banque Nationale de Belgique/Nationale Bank van België, BNB/NBB) and the Federal Planning Bureau (Bureau Fédéral du Plan/Federaal Planbureau).

The social partners use this report every two years within the framework of the intersectoral agreement as the basis for fixing the maximum limit for wage cost increases. The total of pay indexation, pay scale increases and pay benefits negotiated at various levels cannot exceed this maximum limit for wage cost increases in nominal terms per full-time equivalent worker. In the absence of an agreement between the social partners, the government formulates a mediation proposal, and if no agreement is reached at the end of this procedure, the final decision is taken by the government.

A 'corrective' mechanism was put in place by the law of July 1996. This mechanism may be triggered if, during the period of the intersectoral agreement, it appears that wage movements in Belgium are higher than in the reference member states. In these circumstances, the maximum limit is reduced.

Since the 1999-2000 intersectoral agreement (BE9811252F), the social partners have sought to link movements in wage costs with developments in employment and training. The overall development of these three factors is examined: if it is not satisfactory, it means that there will be a need to check whether this unfavourable development cannot be explained by economic developments, or whether an unfavourable movement in one field may be compensated for by favourable developments in the other two. If this is not the case, the abovementioned corrective mechanism can be applied (BE0008323F).

The table below outlines the history of the maximum permitted margin for increases in wage costs, showing how the initial constraints have gradually been expanded.

In 2002, at a time of a slowdown in economic activity, the Central Economic Council produced its technical report prior to the intersectoral negotiations. Hourly wage costs in the reference countries will rise by an average of 6.6% according to OECD forecasts made in June 2002, but this estimate has not been taken into account by CCE/CRB . The Council states, on the one hand, that the OECD figure is 'the outcome of an acceleration in hourly wage costs in France, where movements are different from those observed in Germany', and on the other that 'the scenario that provides the OECD with a basis for establishing these forecasts dates from the spring of 2002, and it is since then that economic perspectives have begun to become gloomy.'

The CCE/CRB called on the Federal Planning Bureau to draw up 'a projection coherent with the economic forecasts made in September 2002'. On this basis, the CCE/CRB published a new version of its technical report in early November, stating that: 'the increase in wage costs that stabilises the proportion of wages in added value is likely to be 5.1% for the period 2003-4 with a GDP growth scenario of between 2.1% and 2.5%.'

When the social partners received this new version of the technical report, two of the three trade union confederations expressed their disagreement with the 5.1% figure - the smallest maximum permitted margin since the pay rise norm - through statements to the press. The Federation of Liberal Trade Unions of Belgium (Centrale Générale des Syndicaux Libéraux de Belgique/Algemene Centrale der Liberale Vakbonden van België, CGSLB/ACLVB) censured the Central Economic Council for introducing fresh criteria when determining the percentage figure; and the socialist Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV) stated that there were conceptual problems in the new estimate, and claimed that the Council had appropriated areas that were reserved for the social partners.

However, the Confederation of Christian Trade Unions (Confédération des Syndicats Chrétiens/Algemeen Christelijk Vakverbond, CSC/ACV) saw things differently, while distancing itself from the document and reiterating the freedom of the social partners: 'as there is considerable uncertainty about economic forecasts, the pay rise norm could be called into question'. For the employers, it is clear that in the prevailing economic climate, it will not be possible to think of going beyond the limits fixed by the Central Economic Council, and that the norm is an important indicator, and necessary for the competitiveness of enterprises.

Lastly, and from a different standpoint, in November 2002 the Institute of Economic and Social Research (Institut de Recherche Économique et Sociale, IRES) at the Catholic University of Louvain published a paper entitled Salaires et norme salariale en Belgique, which defends the pay norm, while at the same time arguing for it to be improved: 'The wage norm is a socio-economic construction whose aim above all is that all players who are party to the negotiations take on board the need for pay restraint in a very open economy eroded by sustained unemployment, and deprived of the exchange rate instrument with which to confront imbalances vis-à-vis its European partners. In practice, this tool is more of an indicator than a genuinely corrective mechanism.'