Minimum Wages, Pay Equity, and Comparative Industrial Relations

Damian Grimshaw

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136682193
• Edition: 1
• Topic: Commerce
• Subtopic: Gestion industrielle

With growing concern about the conditions facing low wage workers and new challenges to traditional forms of labor market protection, this book offers a timely analysis of the purpose and effectiveness of minimum wages in different European countries. Building on original industry case studies, the analysis goes beyond general debates about the relative merits of labor market regulation to reveal important national differences in the functioning of minimum wage systems and their integration within national models of industrial relations.

There is no universal position on minimum wage policy followed by governments and social partners. Nor is it true that trade unions consistently support minimum wages and employers oppose them. The evidence in this book shows that interests and objectives change over time and differ across industries and countries. Investigating the pay bargaining strategies of unions and employers in cleaning, security, retail, and construction, this book's industry case studies show how minimum wage policy interacts with collective bargaining to produce different types of pay equity effects. The analysis provides new findings of 'ripple effects' shaped by trade union strategies and identifies key components of an 'egalitarian pay bargaining approach' in social dialogue. The lessons for policy are to embrace an inter-disciplinary approach to minimum wage analysis, to be mindful of the interconnections with the changing national systems of industrial relations, and to interrogate the pay equity effects.

1 Introduction and Plan of the Book

Damian Grimshaw

We know from historical and comparative research that unfettered labour markets are not reliable instruments for serving the changing social and economic needs of individuals, households and society. In response to their failure to correct a range of problems, including high rates of unemployment, excessive working hours, spiraling executive pay or a low-skill workforce, governments, unions and employers have intervened in a variety of ways in efforts to narrow the disconnects, or distortions, between norms of societal progress and labour market functioning. One significant distortion is the failure of free, competitive labour markets to prevent the payment of exploitative wages—a practice that has fuelled social and academic commentary for decades, whether in the early twentieth-century critiques of ‘parasitic’, low-wage factory employers (Webb 1912) or in the contemporary theoretical accounts of women's undervalued work in the care sector and evidence of poor treatment of migrant workers in the agriculture and food-packaging industries (e.g. England and Folbre 2003; Ruhs and Anderson 2010).

At the centre of the ongoing academic debates and societal conflicts over how best to address labour market exploitation is a set of questions about a country's system of minimum wages and its effectiveness in achieving a better distributive outcome. While minimum wages may be effective in defining a wage floor, thereby preventing employers from paying very low wages, the evidence for some countries suggests they can also generate a substantial spike in wage distribution at the minimum wage level because employers pay exploited workers the minimum wage rather than laying them off, or reduce the wages of some workers paid more than the minimum wage in order to offset the additional costs. The problem is that a minimum wage can, in these circumstances, reinforce or even exacerbate a low-wage problem. This issue was illuminated in Richard Freeman's (1996) assessment of the likely effects of the introduction of a statutory national minimum wage in the UK in 1999. In a response to widespread fears that it would stoke wage-led inflation, he correctly forecasted that most retail employers would not restore pay differentials among their weakly unionised, female part-time workforce; the result, he argued, would be a growing segment of workers paid at or only slightly above the minimum wage. But what conditions shape this particular effect? We know that in other countries, the character of minimum wage policy, the forms of wage-setting and the distributive outcomes are different. For example, when the national minimum wage in France is increased, because it interacts with base rates in many extended collective wage agreements and because these collective agreements define a ‘wage grid’ of established pay differentials, a minimum wage increase has a knock-on impact (a ‘ripple effect’) on higher rates of pay so that a rise in the minimum wage is accompanied by rises in pay for jobs paid above the minimum wage (Gautié 2010). The more far-reaching these ripple effects are, the more likely workers will be lifted out of low wages (assuming that the minimum wage rise is not replicated all the way up the wage distribution, which would cancel out its distributive purpose).

As well as general country differences, there are major differences across sectors within countries. Some sectors are more unionised than others, some are more likely to be protected by extended collective wage agreements than others and some suffer from worse problems of noncompliance. Also, the relevance of a minimum wage depends very much on the proportion of workers in the sector earning low wages. The distinctiveness of sectors is especially relevant in Germany because it has recently developed a new system of legally binding minimum wages that sets multiple wage floors for a growing number of sectors in line with sector collective agreements. In each sector, the strength of trade unions, the power of employers, the particular product market conditions and sector-specific skill requirements forge distinctive conditions that influence both the fixing of the minimum wage floor and its effects on the wage grid of pay differentials within and across firms in the sector.

A focus on the interaction between minimum wages and collective bargaining opens up the question about the different outlooks of employers and unions towards minimum wages. Employers are thought to oppose statutory minimum wage regulation, but comparative, historical evidence suggests a more nuanced picture with positive support sometimes motivated by a desire to weed out parasitic firms or to establish a realistic labour market benchmark upon which to build a productive model of interfirm competition. The position of unions is also nuanced. They may play a role in campaigning for and supporting a legally mandated minimum wage, or during certain periods may display a distinct preference for wage protection through voluntary collective bargaining. And, while minimum wage rules are designed largely with a distributive goal in mind, these may or may not align with union strategies towards pay equity. On the one hand, unions may be able to dovetail the development of minimum wage policy with campaigns to reduce wage inequality, improve job quality and strengthen gender pay equity. But, on the other, they may be concerned that erratic policy changes put at risk established pay differentials, or that a minimum wage fixed at too high a level might erode the influence of collective bargaining as a force for setting wages for low-wage workers. Governments are similarly unlikely to adopt a universal position towards the design and use of minimum wage policy. At particular moments, government may favour active intervention to further policy goals of reducing wage inequality or addressing working poverty, even where it harbours concerns about the risk of inflation, problems of wage competitiveness or job losses.

The motivation for this book grew out of the need to understand this complex constellation of country differences in minimum wage rules, sector-specific forms of collective bargaining, and the diverse and changing outlooks of unions and employers towards minimum wage policy and pay equity. Despite the fact that the primary goal of any country's minimum wage system is to change the distribution of the wage structure, there is very limited research explicitly focused on this. Most research is in the economics discipline and focuses on modelling employment effects, an issue we address in the final chapter of this book. The novelty of this book, therefore, is its analysis of original comparative data on employer and union approaches to wage bargaining in different country and sector settings, its focus on pay equity processes and outcomes, and its framing of the issues in the context of diverse developments of minimum wage policy and collective bargaining. The book's approach is comparative and institutionalist. It draws on original research conducted in five European countries (Croatia, Germany, Hungary, Spain and the UK), as well as secondary data and literature for Europe and the United States. It interrogates the different rules and functions of minimum wages in their country settings, analyses the intersections with a country's model of industrial relations and explores the role of pay equity both in shaping patterns of policy development and collective bargaining and as an outcome of different combinations of wage-setting institutions. Overall, the book seeks to contribute to institutionalist theories of labour markets, to empirical analysis of minimum wages and pay equity, to policy debates about how to generate fairer labour market outcomes through embedding processes of social dialogue and to the development of union, employer and government actions towards pay equity and the rooting out of noncompliance.

This short introduction serves three purposes, which are addressed in the following three sections. It identifies the theoretical and empirical points of departure for the programme of research and sets out the key research questions. It provides an overview of the research project, especially its design, method and description of primary data sources. Finally, it provides a summary outline of the chapters of the book.

1.1 POINTS OF DEPARTURE AND RESEARCH QUESTIONS

In order to improve our understanding of the different approaches of governments and social partners towards minimum wage policy and the varying pay equity effects, this programme of comparative research set out to interrogate the intersections at multiple levels between a minimum wage system and a country's model of industrial relations. It aimed to shed light on the way minimum wage systems interact with the pay bargaining strategies of trade unions and employers through the analysis of secondary data and collection of primary data in diverse country and sector environments. Several theoretical and empirical insights from complementary fields of study provide key foundations, or starting points, for the book.

First, the book is grounded in an institutionalist analysis of labour markets and their functioning within the wider society rather than a neoclassical economics approach. The problem with neoclassical economics is not that it is uninterested in institutions. It has borrowed many examples from the institutionalist and industrial relations literatures in attempts to renew models of competitive labour markets, including notions of fair wage differentials, union bargaining power, long-term employment relationships and discriminatory hiring, among others.¹ But such analyses are limited in their tendency to rework a stylised institutional fact into an economic construct and then integrate this into the given framework of market forces of supply and demand (with transaction and information costs), still assuming rational behaviour on the part of individualist actors.

By contrast, an institutionalist approach attempts to explain the dynamic interrelationship between institutions, economic organisation and societal context through an interdisciplinary lens; the potential for contradictions, variety and change is favored over an economics focus on Pareto optimality, universalism and equilibrium. This drives three key points of departure for an institutionalist analysis of minimum wages, pay equity and collective bargaining:

(i) because unfettered labour markets generate unequal bargaining power at the point of labour market exchange, institutions for collective labour organisation and statutory employment protection can improve the balance;

(ii) labour markets are segmented and discriminatory, and this generates specific employment practices and conditions in sectors and organisations with an overrepresentation of workforce groups (especially women, young workers, migrant workers and minority workers); and

(iii) labour market institutions have heterogeneous effects across countries and within countries at different points of time due to the different interlinking and embedding with economic conditions and with other institutions (especially those associated with welfare, social, industrial, legal and corporate governance policies) (for recent contributions, see Deakin and Wilkinson 2005; Kaufman 2010; Lee and McCann 2011; Levin-Waldman 2011; Reich 2008; Rubery 2007).

Building on these insights into the comparative, cross-national effects of labour market institutions, a second important foundation for this book concerns recent developments in the interdisciplinary analysis of varieties of models of capitalism (e.g. Bosch et al. 2009; Coates 2000; Hancké et al. 2007; Morgan et al. 2010). These studies analyse the contradictions between major dimensions of employment models, thereby identifying both the causes of new conflicts of interests among social actors (such as government, unions and employers) and the triggers for institutional adaptations. Moreover, as the collection of studies in Streeck and Thelen (2005) demonstrate, institutional change only occasionally involves rupture and transformation. More pervasive is the type of ‘gradual transformative change’ involving the incremental displacement or erosion of one set of institutional arrangements with another. A country's past legacies are critical in defining current and future paths; growing pressures of liberalisation do not dictate a universal route of change (op. cit.). This type of approach emphasises the need to interrogate the possibilities for both complementarities and tensions in country models of wage-setting institutions, which is a key concern of this book. The comparative approach focuses on tensions at national, sector and organisation levels and seeks to understand the multiple perspectives of government, employer and unions, and to trace the diverse trajectories and outcomes of change in policy and practice.

A third point of departure for this book is the treatment of country and sector dynamics in recent comparative industrial relations research, especially Marginson and Sisson's (2004) comprehensive treatment of industria...