The IMF and dismantling of collective bargaining in Europe


The first page of the business section of the 4 December edition of the New York Times carries a detailed article on the destruction of collective bargaining in Europe.

It notes, for example, that the number of workers covered by collective agreements in Portugal fell from 1.9 million in 2008 to 300,000 last year.

A UC-Berkeley labour economist is quoted as stating that the decline "is going to blow the wage distribution apart".

The article contains several other good quotes including from our friend Andrew Watt of Germany’s Institut für Makroökonomie und Konjunkturforschung (or Macroeconomic Policy Institute).

The article attributes the rationale for "furiously dismantling workplace protections in a bid to reduce the cost of labor" to the Merkel government in Germany, the European Commission and "somewhat less enthusiastically" the IMF.

The unsupported assertion that the IMF is a less-than-enthusiastic participant in the dismantling of European labour market institutions may be based on the staff discussion papers and guidance notes on "Jobs and Growth" that the Fund has published in the past year, which appear to put forward nuanced views toward labour market institutions and regulations.

However, there is no nuance in the IMF’s frontal attack on labour market institutions in the country-level policy advice in European countries, especially those that have had to borrow from the Fund.

This, as opposed to research papers on inequality and rhetorical pronouncements about inclusive growth, is where the IMF’s "rubber hits the road".


’Good’ examples

The IMF’s current lending programme in Portugal is a good example.

Despite the more than five-sixths decline in collective bargaining coverage, which is mostly due to the weakening and dismantling of sector-level bargaining, the Fund’s latest loan review report issued in November shows no lack of enthusiasm for reducing wages.

It suggests that even more must be done to "decentralize" collective bargaining:

"… improving external competitiveness also requires reducing production costs, including wages. Yet, despite the important reforms enacted under the [lending] program, there remain persistent nominal rigidities…. [IMF] staff suggested to investigate policy options to ensure more effective decentralization of wage bargaining; encourage more wage flexibility; and ensure proper alignment of incentives to challenge dismissals in court …"

A similar sharp fall-off of collective bargaining coverage took place in Romania, where a new labour code and "social dialogue" law enacted in 2011 increased labour market flexibility, abolished national collective bargaining and severely restricted sector-level agreements.

Measures to reduce labour market "rigidity" had been advocated by the IMF since 2010, when it invoked Romania’s poor performance as measured by the discredited "Doing Business" labour market flexibility indicator, which the World Bank suspended and told its own staff not to use starting in 2009

As was the case in Portugal, the IMF found a receptive audience to the idea of dismembering workers’ protection in Romania’s centre-right government in 2011.

However, by mid-2012 that government was defeated and a new centre-left coalition took action to correct the social dialogue law, which had not only caused a sharp decline in collective bargaining but of which the ILO found parts contravened international labour standards.

The government quickly found the IMF in its way.


No social dialogue

In an opinion it sent to the Romanian government in October 2012, the IMF jointly with the European Commission recommended that the government not proceed with its plans to modify the social dialogue law. The comments specifically objected to a restoration of national collective bargaining agreements unless they "do not contain elements related to wages".

It also urged the government to place limits on protecting workers’ representatives from discrimination or retaliatory firing and on the ability of unions to undertake strikes.

In July 2013 the IMF reiterated its opposition to correcting the social dialogue law unless the amendments receive the consent of "all stakeholders", which presumably includes the American Chamber of Commerce in Romania.

The latter business association was the only major group among the employers and trade unions of Romania that did not endorse the changes to the law the government had proposed in 2012.

By asking that the Romanian government grant a de facto veto right to any stakeholder that objects to modifying the law, even if the changes are required to meet international labour standards, the IMF seems to seek guarantees that the law will not be corrected.

One may add that the Fund is highly selective in its view that changes to labour laws should obtain unanimous consent from stakeholders.

In 2011, the IMF welcomed the changes that did away with collective bargaining for most Romanian workers, despite vehement objections from the country’s unions and some employers’ associations.

The IMF itself acknowledged that the changes were "controversial".


The ITUC issued two detailed reports earlier this year on the IMF’s involvement in labour market reforms and changes to collective bargaining institutions:`