How to curb inequalities in Europe
ILO News speaks with Daniel Vaughan-Whitehead, ILO Senior Economist and co-author of the book.
Much international debate has focused on increased income inequalities and their negative effects on the economy and societies. A new ILO publication addresses the root causes of inequality by looking at various labour market policies and industrial relations’ systems.
ILO News: There have been many books on inequality. What’s new about your research?
Most of the recent research looked at pay inequalities. This publication also addresses other forms of inequality, such as those related to the distribution of working time, access to training, career opportunities and social protection coverage, and access or re-access to jobs. It also identifies inequalities in earnings and working conditions between men and women and by age group, and includes research on part-time workers, temporary workers and the self-employed. It aims to trace back the root causes of inequalities in the world of work.
ILO News: Can you give us some numbers that illustrate rising inequalities?
In 2000, the top 10 per cent tier of households in all EU countries had an income 7.9 times higher income than the bottom 10 per cent. Sixteen years later, the ratio had increased to 9.7 – a 23 per cent increase in income inequality. These averages hide significant differences between the 28 countries: In Sweden – where income inequality was lowest – the top 10 per cent earned 5.7 times more than the bottom 10 per cent, while in Spain and Romania the top 10 per cent earned respectively 15 and 20.7 times more than the bottom 10 per cent. Social transfers targeting poverty reduction declined from 38 per cent in 2005 to 33.6 per cent in 2016.
ILO News: Are industrial relations helping slow the growth of the low pay sector?
The active role of industrial relations in Sweden, Denmark and Finland have helped boost policies to upgrade skills, leading to the lowest level of low-paid jobs among OECD countries. The strengthening of collective bargaining made Belgium one of the three best performers on wage equality. In 2015, Germany introduced a national minimum wage combined with a stimulation of collective bargaining that reversed the past decade’s growth in the number of low-paid workers.
ILO News: You mentioned the minimum wage – how does it affect inequality?
Our country studies show that the minimum wage contributes to reducing inequality, but only if combined with collective bargaining.
In the United Kingdom, the minimum wage, has helped limit the rise in low pay, but the lack of further collective bargaining rounds impeded additional negotiation levels. There is not much sectoral level and very limited enterprise level bargaining in the private sector, where only 16 per cent of workers are protected by collective agreements. This situation also led to various types of work contracts with different wage levels and working conditions that increased inequality. By contrast, the minimum wage in Ireland has helped reduce inequalities because it was complemented by strong social dialogue between workers and employers on work contracts and pay conditions.
Collective bargaining also plays a central role in ensuring more equal outcomes for women and youth.
As it boosts wages at the bottom end of the wage scale, collective bargaining usually helps categories of workers like women, youth and migrants, who are over-represented among the low-paid. However, these groups are often under-represented in collective bargaining. For instance, student schemes – as introduced in the Netherlands – are characterised by very low levels of pay, with minimum working hours, and often fall outside the coverage of collective bargaining. The substantial worsening of the quality of jobs in the aftermath of the economic crisis mainly affected youth and low-skilled workers in countries like Italy, Spain, Portugal and many others.
Collective bargaining also helps to redistribute working hours more equally, for instance in a context where insufficient working hours for part-time workers can also boost inequality, as the example of the Netherlands and other countries shows. Our book presents sectoral collective agreements in a number of countries like France, Finland, Ireland, or Spain that have set a minimum number of hours for part-time workers. Involuntary part-time work, which represents a major source of income inequality, is reported to be growing in most EU countries. In Spain, for example, 60 per cent of part-time work is involuntary.
In several countries, including Slovenia and Germany, some agreements improved working conditions for agency workers. A number of collective agreements at the regional level – for instance in Catalonia — also helped temporary workers find permanent employment, and facilitated more flexible working hours.
ILO News: Are governments, workers’ and employers’ representatives ready to address changing work arrangements?
Strengthening the capacity of employers’ and workers’ organizations will help them address new types of work.
The increase in sub-contracting for instance, through the complex organisation of services and manufacturing along supply chains, can be a source of inequality, especially for workers in the lower tiers. Our book presents innovative collective agreements that helped improve wages and working conditions of sub-contracted firms where employment and working conditions are often of poor quality.
Other agreements highlight the role of the social partners in improving skills – notably through training accounts or training breaks. Denmark, Germany, Sweden, France and Luxembourg have helped employees prepare for transformations in the world of work.
ILO News: Can industrial relations help reverse the trend towards increasing inequalities?
Our volume shows that industrial relations are resilient in many countries, despite the crisis, and play a key role in reducing inequality trends. Collective bargaining for instance, contributes in making equal pay for work of equal value a reality, as we have seen in Denmark, France, Slovenia and Sweden where the reduction of the gender pay gap is a target of some collective agreements.
The State – a main actor of industrial relations – can promote effective social dialogue between workers and employers, and help maintain and stimulate industrial relations institutions. There is a clear need for joint and inventive action of unions, employers and governments to make labour markets more inclusive and more equal by extending employment rights and welfare state protection to all workers. Innovation for inclusive and effective social dialogue in a rapidly changing world of work is an urgent task.