The Choice of the Bargaining Agenda in Imperfectly Competitive Markets ebook

Table of Contents

Cover

Title

Colofon

Acknowledgments

Chapter 1. The collective bargaining level in advanced economies

1. Introduction

2. Overview

2.1. Methodology

2.2. Structure

Chapter 2. The union-firm bargaining agenda selection in monopoly

1. Introduction

2. Bargaining models: Right-to-Manage and Efficient Bargaining

2.1. Preliminary considerations

2.2. The Right-to-Manage model

2.3. The Efficient Bargaining model

3. Extensions

3.1. Network industries

3.2. Managerial delegation

3.3. Public/private monopoly

4. Conclusions

Chapter 3. The choice of the bargaining agenda in a duopoly: the basic framework and some extensions

1. Introduction

2. The basic model

3. A unionised labour market

3.1. The Right-to-Manage institution

3.2. The Efficient Bargaining institution

3.3. Mixed case: one bargaining unit chooses Efficient Bargaining and the other chooses Right-to-Manage

4. Equilibrium agendas

4.1. A game with simultaneous Efficient Bargaining and mixed case 1

4.2. A game with simultaneous Efficient Bargaining and mixed case 2

4.3. Discussion of the outcomes of two timings of the bargaining agenda game

5. Extensions

5.1. Different degrees of market competition: a conjectural variation model

5.2. Unions have distinct preferences: a more general union utility function

5.3. Network industries

6. Conclusions

Chapter 4. Concluding remarks

Bibliography

Acknowledgments

To write a book can barely be defined as the only merit of the author(s). In my case, I have to thank two groups of people that have helped me in completing this work.

The first group consists of those that have provided me with their support from a personal perspective. In this regard, I would like to thank my wife, Olga, for her love and patience, in particular during my “blue days”, and my charming “little scamp”, Enrico, who, despite sleepless nights and subsequent “not-very-well” performing mornings, gives me “la joie de vivre”, so necessary to go ahead.

I would like to thank my parents, Gelsomino and Michela, and my sister, Irene, and her husband, Daniele for their love. Despite their physical distance (I am in Poland, they live in Italy), they have always encouraged me in my efforts. I am also enormously indebted to my in-laws, Krystyna and Jan, for their material and moral aid.

The second group is composed of those that have helped in professional terms. In this regards, I am extremely grateful to Luciano Fanti, my friend, colleague, mentor, and an academic guide, with whom I have discussed and developed a few parts of this work. No words exist to describe how he has helped me in my professional growth.

I would also like to thank Nicola Meccheri and Sławomir Kalinowski for useful comments and suggestions on the previous draft of this work. Moreover, I would like to thank my academic institution, Kozminski University in Warsaw, and my colleagues at the Department of Economics, especially professor Adam Noga, for the support given over the years, and for providing me with very nice working conditions, prerequisite to have the adequate serenity to concentrate on the editing of this work.

Finally, I should also have to mention a dozen of other people who, directly or indirectly, consciously or unconsciously, have helped me over these years. For them, I have a special place in my heart and mind.

Finally, I would like to thank myself for my perseverance.

Chapter 1 The collective bargaining level in advanced economies

1. Introduction

The interactions between product and labour markets are tight. As Booth (1995) remarks, “It appears to be an empirical regularity that imperfections in the labour market are correlated with imperfections in the product market”. Moreover, negotiation and bargaining are essential elements of several economic settings. Among them, the most significant ones are labour-management relationships and negotiations, which are central to the functioning of labour market institutions, mostly in advanced economies. The bargaining process is relevant not only for labour market regulations but also for the organisation of productive activities within the industries and the market of final products. Indeed, in recent times, economists and policymakers as well as antitrust authorities have focused their attention on those links, considering in depth the role of unionised labour. However, incorporation of unionised labour markets in the economic analysis of the interconnections between market competition and labour markets is relatively new and, therefore, the mechanisms through which imperfections in the labour markets counterbalance the imperfections in the product market are not yet fully clear. The present monograph focuses on a precise aspect of labour market institutions characterised by unionised labour: the scope of bargaining and the choice of the negotiation agenda. The scope of bargaining refers to the issues included in the bargaining agenda, i.e. the issues which are the subject of bargaining between the bargaining parties, unions and firms. It is evident that the scope of bargaining as well as the wage setting structure are crucial to the determination of the wage outcomes at the firm level. In fact, both bargaining parties (labour unions and firm’s management) try to influence/impose the most preferred bargaining agenda during the negotiation process to enhance their respective positions.

Before carrying out an in-depth analysis of selection of the bargaining agenda in unionised industries, a preliminary discussion on the level of bargaining centralisation in the most developed economies (such as OECD countries) appears to be of vital importance in this context because the level of bargaining centralisation plays a significant role, on the one hand, in the link between wage-setting characteristics and, on the other hand, in the economic and labour market performance measures. In practical terms, the collective bargaining level refers to the level at which the most important issues, such as wages and working time, are negotiated between labour unions and firms. A bargaining system is said to be centralised when the core bargaining matters are negotiated at a higher level between the unions’ confederations and employers’ associations, and this applies to a large part of national economies, and provides a detailed insight into what can be negotiated at decentralised levels. On the other hand, a bargaining system is decentralised when mostly company (or even plant level) agreements cover the main bargaining issues, and these agreements apply to a large portion of the economy and can function largely autonomously of what is established at national, cross-industry or sectoral levels. In what follows, a special focus is placed on the experience of the European Union (EU) in the matter in question.

Over recent decades, a continuous move towards decentralised forms has been a noticeable characteristic of the features of collective bargaining in the EU, with the company level becoming predominant vis-à-vis the sector and cross-industry levels. Several factors may help to explain this trend. European Commission’s (EC) initiatives such as the approval of the European Work Councils (EWC) and the European Company Directives, and pressures exerted by employers have predominantly altered the level at which collective bargaining takes place, triggering a shift towards decentralisation. Moreover, Visser (2013) argues that product market diversification can contribute to a widening of the discrepancy between what is agreed at a higher-level and the market conditions individual companies face. Because of the influence of worldwide market developments, firms and unions may need to readapt immediately to changes in conditions of uncertainty. It is conceivable that decentralised negotiations ensure a shorter response time to changing market conditions.

Table 1. Bargaining level in the enlarged EU

Country

Key level of collective bargaining

Western Countries 

Austria

Industry

Belgium

National (sets the framework)

Cyprus

Industry and company

Denmark

Industry – but much left to company negotiations

Germany

Industry

Greece

Now almost exclusively company because of legislative changes

Finland

National

France

Industry and company

Ireland

Company

Italy

Industry and company (varies with sectors)

Luxembourg

Industry and company (varies with sector)

Malta

Company

Netherlands

Industry (also some company)

Portugal

Industry

Spain

Industry (also some company)

Sweden

Industry – but much left to company negotiations

United Kingdom*

Company

CEECs 

Bulgaria

Company

Croatia

Industry and company

Czech Republic

Company (also some industry)

Estonia

Company

Hungary

Company (also some industry)

Lithuania

Company

Latvia

Company

Poland

Company

Romania

Now almost exclusively company because of legislative changes

Slovakia

Company (also some industry)

Slovenia

Industry

* Leaving the EU after the referendum in June 2016. Source: Fulton (2015).

This decentralisation process may be classified between organised decentralisation – an increase in the company-level bargaining which occurs within the framework of rules and standards arranged by industrial agreements – and disorganised decentralisation, namely the switch from a higher level of bargaining towards company-level bargaining (Traxler, 1995).

Western Europe, traditionally characterised by sector bargaining (see Table 1), seems to have experienced in the past two decades a decentralisation process of organised type. This results mainly from a relatively lasting shift from central-level to industry-level bargaining in several countries, notably Denmark, Sweden, and Spain (Traxler, 2002), with the exception of the UK (Marginson et al., 2003 Du Caju et al., 2008) and, recently, Germany (Keune, 2009). The EU enlargement in direction of Central and Eastern European Countries (CEECs) that have, in general, more decentralised, single-employer bargaining systems in contrast to the standard multi-employer bargaining in Western Europe, has further deepened the decentralisation trend within the EU. Sectoral or national levels of wage agreements existed in some Eastern European countries in the mid-1990s. However, after 2006, those agreements no longer played any significant part.

Apart from the changes in Eastern Europe, no major variation in the dominant level of wage bargaining over time has been observed. Nonetheless, in the period 2007–2013, the median value of the centralisation decreased slightly across EU Member States: the predominant bargaining level moved from the sector or industry level to an intermediate level between the sector and the company level, or to a level alternating between sector and company bargaining. Speaking more specifically, since 2013, centralised collective bargaining has prevailed only in Belgium and Finland, with the former increasing the level of centralisation in the very last years. Company-level collective bargaining has been dominant in the Czech Republic, Estonia, Ireland (as of 2009), Latvia, Lithuania, Hungary, Malta, Poland, Romania (as of 2011), and the United Kingdom (European Commission, 2015).

The financial and economic crisis that took place in 2007–2008 also undermined the centralised collective bargaining level in some countries. For instance, in Ireland, no new cross-industry social pact was signed in 2009, ending a series of pacts concluded since 1987 and leading to a system characterised predominantly by company level bargaining. Similarly, in 2009, the Slovenian social partners failed to renovate the cross-industry pacts that defined working conditions for those industries not covered by agreements. In 2011, Romania revised its legislation as well, replacing the former cross-industry agreement with ‘branch agreements’, i.e. more decentralised ‘sector agreements’, which made the company level bargaining become the dominant one. A strong decentralisation trend has also been observed in Bulgaria, Greece, Spain, Italy, Cyprus, and Austria (Marginson and Welz, 2014).

The shift towards multi-level bargaining structures that occurred in the recent past in several countries has further increased the potential for implementing decentralisation in different ways and to different extents. In fact, many industrial relations systems in the EU, traditionally based on sectoral or cross-industry agreements, have gradually given more room for decentralised bargaining. This may take place 1) by inverting the hierarchy of levels (the favourability principle); and 2) by including clauses that devolve the regulation of a number of issues to lower level agreements (opening clauses) and clauses which allow lower-level agreements to derogate from the regulations set in higher-level agreements (opt-out clauses) (European Commission, 2015).

At present, opening clauses are in place in the national laws on wages and working conditions in Bulgaria, Germany, Ireland, Greece, Spain, France, Italy, Cyprus, Austria, Portugal, Slovenia, and Sweden. Speaking in more detail, opening clauses have been permitted in Portugal since 2012, when amendments to the labour code were brought in. In Italy, the scope of opening clauses related to wages was introduced under a cross-sector agreement on productivity wages, concluded in 2012. Once-in-a-lifetime opening clauses were introduced for certain sectors of economy in response to the crisis in Germany, Austria, and Finland. Sweden brought in an opening clause in 2010, in the scope of negotiations over short-time working at a local level (Marginson and Welz, 2014).

Despite the fact that firms can legally circumvent sectoral level clauses (as in Austria, France since 2005, Greece, Hungary, Italy, the Netherlands, Poland, Slovenia and Spain), these “escape clauses” were scarcely used before 2006. The legal framework in Greece (2010), Spain (2010) and – for certain sectors – Ireland has been significantly modified, making it possible for companies to derogate from higher-level agreements. However, because of the economic crisis, derogation has started to be commonly taken advantage of in some EU countries. For example, Germany in recent years has allowed for more flexibility at the company level as individual firms have been able to control and cut down on wage costs by restricting, for example, bonus and holiday payments. Agreements made at the cross-sector level in Italy (2012) and France (2013) gave companies the opportunity of opting-out on the grounds of economic hardship (in France, subject to the condition of no redundancies). Subsequent legislations have ratified (and, in Italy, broadened) these agreements. Bulgaria, Cyprus, and Slovenia have reported a growth in the use of the existing opt-out provisions (Marginson and Welz, 2014). The option to derogate from agreements has in many cases existed for some time already. However, the number of companies that take advantage of derogation has significantly increased in recent years because of the fact that since the crisis, more companies have faced economic hardship, which is the main justification for its use.