Sector agreements, wage and productivity in Uruguay

Graciela Mazzuchi

Collective Bargaining, wages and productivity

ILO/IZA Conference

“Assessing the Effects of Labour Market Reforms – A Global Perspective”

10-11 March 2016

Presentation outlines

Collective bargaining 2005-2008

Collective bargaining 2010 wage guidelines with productivity indicators (macro and sector)

Collective bargaining 2012 wage guidelines with productivity indicators (macro)

Collective bargaining 2015:wage guidelines with fixed adjustments according to the situation in each sector.

The views of stakeholders on the results

Final comments

Tripartite Bargaining 2005 -2015

The first leftist government in Uruguay, carried out significant changes in labor matters,

going from a State that didn't take part in labor relations to one that was active,

promoting social dialogue and tripartite collective bargaining,

regulating the collective legal framework and

protecting workers as individuals.

o Institutional changes

Higher Tripartite Council, Rural Council (first time), Bipartite public sector, Domestic service Council in 2008 (first time)

o Legal changes (Collective rights)

Union rights act (libertad sindical) (dic 2005)Colective bargaining law for public sector (jun 2009)Colective bargaining law for public sector (set 2009)

Tripartite Bargaining 2005 -2015

Wage guidelines

2005 and 2006: annual agreement with semester adjustments: future inflation after corrected, plus fixed adjustments (up to 4.02%)

2008: 24 or 30 month agreement (semester or annual adjustments), future inflation, plus fixed adjustements from 3.5 to 5.5% (greater for lower wages), and additional wage increase according to the situation in each sector.

Easy with a clear goal: to make up for the real wage loss of purchasing power

Results

70

80

90

100

110

120

130

140

150

1998 2000 2002 2004 2006 2008 2010 2012

GDP

60

70

80

90

100

110

120

1998 2000 2002 2004 2006 2008 2010 2012

Real Wage

Unemployment 2005 more than 11%, 2009: 7.3%

Private workers with social security coverage2005: 866,5542009: 1,102,919

200 agreements each round,85-95% by consensus, most followed the guidelines

Tripartite Bargaining 2010-2012

In this period a new Administration of the same

political party started.

They had to face a new round of wage negotiation since most agreements would expire that year.

In 2010 the government saw that, although the economy was growing, there was uncertainty in the international economic situation.

They considered that the wage loss had been rectified so they released new guidelines for the private sector to moderate the wage growth in order to avoid inflationary pressure and to take into account the huge differences between sectors.

Wage guidelines 2010

Term: 3 to 5 years with annual adjustments

Expected inflation (corrected)

Macro component: expected growth of the economy over employment (50% weighed)

Sector component: sales growth over sector employee (50% weighed)

Problems: formula and information

Macro: aggregate, no changes in quality

Sector: problems with deflate

Critisisms

Macro is estimated and corrected in two stages

Sector:

the level of detail is too big

errors in the classification

sales are volatiles

small sized enterprises are not included

the number of enterprises is fixed

there aren't price index by sector

contributors doesn't reflect variations in work hours

the regularization of workers distorts the number of contributors

Results 2010

Acuerdos y decretos con contenido salarial Total Porcentajes

Consensos 187 84,2

Acuerdos por mayoría 27 12,2

Decretos 8 3,6

Total 222 100,0

Con crecimiento fijo 190 85,6

Sub tot con crecimiento variable según indicador 33 14,9

Macro 28 12,6

Productividad macro 16 7,2

Otros 12 5,4

Sector 20 9,0

Productividad sector 8 3,6

Otros sector 12 5,4

Wage guidelines 2012

Term: 3 years with annual adjustments

Expected inflation (corrected)

Macro component: expected growth of the economy over employment (50% weighed)

Sector component: Indicator to agree on negotiation (50% weighed) with increases according to the evolution of the sector

Productivity bargaining is suggested at the enterprise level

Sector Adjustments

Negative 0

From 0 to 4% From 0 to 2%

More than 4% From 2 to 4%

Results 2012

Acuerdos y decretos con contenido salarial Total Porcentajes

Total 61 100,0

Con crecimiento fijo 45 73,8

Sub tot con crecimiento variable según indicador 16 26,2

Macro 11 18,0

Productividad macro 7 11,5

Otros 5 8,2

Sector 5 8,2

Productividad sector 3 4,9

Otros sector 2 3,3

Wide lines 2013

Two alternatives were suggested and both considered the economic situation and the sector but with a fixed table where the growth depends on what happens to the GDP and the sector (poor, average or good).

PIB <2% 2-4% >4%

SECTOR

Bien 1% 2,25% 3%

Regular 0,50% 1,25% 2%

Mal 0% 0,25% 0,50%

Número Porcentaje

Acuerdos y decretos con contenido salarial 71 100,0

Con crecimiento fijo 57 80,3

Con ajuste único 6 8,5

Con crecimiento basado en indicadores 8 11,3

Con productividad 3 4,2

Results 2013

60

70

80

90

100

110

120

130

140

150

160

1998 2000 2002 2004 2006 2008 2010 2012 2014

GPD

2004-2014 +61%

Results

60

70

80

90

100

110

120

130

1998 2000 2002 2004 2006 2008 2010 2012 2014

Evolución del salario real

Medio

Público

Privado

2015/2005GDP/employment=+45%Real wage =+54%

Significant increase in the formalization of work

Contributors 2004: 916.147

2015: 1.454.331

Increase in the real minimum wage: ene2016/ene2004= 271%

Decrease of wage dispersion: Gini 0.45 in 2004 to 0.36 in 2014

Contributors to the trade unions 1990 = 227.800

2003= 126.600

2015= 230.400

Results

But not very well in terms of number of agreements that incorporate productivity adjustments

Porcentaje de acuerdos ajustes por productividad macro o sectorial

2010 10,8

2012 16,4

2013 4,2

Results

Term: 3 years with semestral adjustmen

Adjustment by sector: dynamic (increase +4%), médium (between 0 and 4%) in difficulty if not grow

Corrective at the end of year (real inflation and adjustment)

Safeguard: if inflation exceeds 12% salary adjustment for the difference between inflation and gains made

Higher wage increases for submerged (+2.5 or 3.5 per year)

Adjustment 11.5, 10, 9.5 and 11.7% per year for minimum wage

Wage guidelines 2015

1st year 2nd year 3rd year Accumulated

Sectors

Dynamic 10 9 8 29,5

Médium 8,5 7,5 7 24,8

In difficulty 8 6,5 6 21,9

Reasons for poor results in productivity

adjustments according to negotiators

Significant cultural change

Sectors are very heterogeneous

Wrong information at the wrong time

Information is provided only by employers

There were some mistakes in the indicators that led to widespread distrust

Low-wage workers preferred negotiating price floors

Government negotiators were not sufficiently trained

Final comments

The 1st Adm. (2005 – 2009) made up for the real wage loss in the previous Adm.

The 2nd Adm. (since 2010) tried to associate wage increase with productivity growth, admitting the idea of limiting wage increase or linking it to the economic growth.

The idea has reasonable grounds but success in implementation has important requirements to change old traditions.

The change will be adopted if all stakeholders have all the conditions for understanding, right information to calculate indicators with clarity and transparency and are willing to adopt it.

Suggestions

Put the issue on the public agenda to be discussed, explained and debated.

Make simpler formulas trying to avoid corrections over time that hinder calculations and understanding.

Generate good quality information by all the parties involved.

Train the team, prepare the negotiators so that they can deal with the new way of negotiation.

Create a Productivity Institute to promote this discussion and give advice to enterprises in order

to solve growth problems.