Business Against Markets: Employer Resistance to Collective Bargaining Liberalisation During the Eurozone Crisis

Abstract

Employer organizations have been presented as strong promoters of the liberalization of industrial relations in Europe. This paper, in contrast, argues that the preferences of employers vis-à-vis liberalization are heterogeneous, and documents how employer organizations in Spain, Italy and Portugal have resisted state-led reforms to liberalize collective bargaining during the Eurocrisis. It shows that the dominance of small firms in the economies of these countries make employer organizations supportive of selective aspects of sectoral bargaining and state regulation. Encompassing sectoral bargaining is important for small firms for three reasons: it limits industrial conflict, reduces transaction costs related to wage-bargaining and ensures that member firms are not undercut by rivals offering lower wages and employment conditions. Furthermore, the maintenance of sectoral bargaining and its extension to whole sectors by the state is a matter of survival for employer organizations. The paper presents rationales for employer opposition to liberalization that differ from the Varieties of Capitalism approach.

Full text

Business Against Markets: Employer Resistance to
Collective Bargaining Liberalization During the Eurozone
Crisis
Journal:
Comparative Political Studies
Manuscript ID
CPS-18-0069.R2
Manuscript Type:
Original Article
Keywords:
Political Economy, Industrial Relations, Euro crisis, Economic Policy,
Southern Europe
Abstract:
Employer organizations have been presented as strong promoters of the
liberalization of industrial relations in Europe. This paper, in contrast,
argues that the preferences of employers vis-à-vis liberalization are
heterogeneous, and documents how employer organizations in Spain,
Italy and Portugal have resisted state-led reforms to liberalize collective
bargaining during the Eurocrisis. It shows that the dominance of small
firms in the economies of these countries make employer organizations
supportive of selective aspects of sectoral bargaining and state
regulation. Encompassing sectoral bargaining is important for small firms
for three reasons: it limits industrial conflict, reduces transaction costs
related to wage-bargaining and ensures that member firms are not
undercut by rivals offering lower wages and employment conditions.
Furthermore, the maintenance of sectoral bargaining and its extension to
whole sectors by the state is a matter of survival for employer
organizations. The paper presents rationales for employer opposition to
liberalization that differ from the Varieties of Capitalism approach.
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List of interviews and oral sources
1. Italy: Industrial relations expert. Former member of the Scientific Department of
Confindustria, former Director of the FIAT Historical Archive, by phone from Milan. 25.9.2018
2. Italy: Responsible for the Trade Union Department, Confindustria, Milan Province Territorial
Association (Assolombarda), by phone from Milan. 5.10.2018
3. Italy: Head of the Welfare State and Human Capital Department Confindustria, Milan
Province Territorial Association (Assolombarda), Milan. 26.09.2018
4. Italy: Head of the Trade Union Department Confindustria, Turin Province Territorial
Association (Unione Industriale di Torino), by phone from Turin, 8.10.2018.
5. Spain: Industrial relations expert, by phone from Barcelona. 6.11.2018
6. Spain: Industrial relations expert, by phone from Madrid. 13.11.2018
7. Spain: Industrial relations expert, by phone from Madrid. 20.11.2018
8. Spain: Industrial relations expert, by phone from Madrid. 20.11.2018
9. Spain: Trade unionist, industrial relations expert, director of the Studies Department of the
Spanish trade union CCOO. By phone from Madrid. 23.11.2018
10. Portugal: President, Confederation of Portuguese Services, 24.10.2017
11. Portugal: President, Confederation of Portuguese Farmers CAP, Lisbon, 20.10.2017
12. Portugal: President, Confederation of Portuguese Entrepreneurs CIP, 18.10.2017
13. Portugal: Legal advisor, Confederation of Portuguese Farmers CAP, Lisbon, 3.11.2017
14. Portugal: Former State Secretary for Employment 2011-2013, London, 23.05.2015.
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Fabio Bulfone, Max Planck Institute for the Study of Societies
Alexandre Afonso, Leiden University
Acknowledgements
For comments on earlier drafts the authors would like to thank Aidan Regan, Stefano Sacchi,
Donato Di Carlo, Lisa Dorigatti, Marcello Natili, Arianna Tassinari and participants in the 24th
International Conference of Europeanists held in Glasgow, July 12-14, 2017.
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Business Against Markets: Employer Resistance to Collective Bargaining
Liberalization During the Eurozone Crisis
Fabio Bulfone, Max Planck Institute for the Study of Societies
Alexandre Afonso, Leiden University
Abstract Employer organizations have been presented as strong promoters of the liberalization of industrial
relations in Europe. This paper, in contrast, argues that the preferences of employers vis-à-vis liberalization
are heterogeneous, and documents how employer organizations in Spain, Italy and Portugal have resisted
state-led reforms to liberalize collective bargaining during the Eurocrisis. It shows that the dominance of
small firms in the economies of these countries make employer organizations supportive of selective
aspects of sectoral bargaining and state regulation. Encompassing sectoral bargaining is important for small
firms for three reasons: it limits industrial conflict, reduces transaction costs related to wage-bargaining and
ensures that member firms are not undercut by rivals offering lower wages and employment conditions.
Furthermore, the maintenance of sectoral bargaining and its extension to whole sectors by the state is a
matter of survival for employer organizations. The paper presents rationales for employer opposition to
liberalization that differ from the Varieties of Capitalism approach.
Introduction
Recent scholarship on industrial relations in European countries has pointed to a common trajectory of
liberalization. According to Baccaro and Howell (2011; 2017) or Streeck (2009), even if the
institutions that regulate labor markets in Europe have displayed a high degree of resilience and
diversity in form (e.g. high collective bargaining coverage), their functions have considerably changed
and converged in a (neo-)liberal direction. Recent developments have fostered more individualized
relationships between firms and their employees, a greater role for market processes, and disinflation
as an overarching economic goal. As a result, the solidaristic features of organized systems of wage
bargaining have been eroded, income inequality has increased, and the power balance between capital
and labor has shifted. Within this trajectory, recent labor market reforms have come to “reduce the
constraints - in the form of labor law or collective regulation - acting on employers and thus on their
ability to manage the workplace and their relationship with employees as they please” (Baccaro &
Howell, 2011, pp. 527-528).
Employers have often been perceived as supporting this trajectory because liberalization, defined as a
movement “away from centralized authoritative coordination and control towards dispersed
competition, individual instead of collective action, and spontaneous market-like aggregation of
preferences and decisions” (Streeck, 2009, p. 149) is thought to correspond to their primary interests.
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Even if their ability to effectively achieve it is constrained by the power balance with labor, they “will
prefer greater discretion [towards their employees] to less” (Baccaro & Howell, 2017, p. 20). This line
of analysis stands in sharp contrast with the Varieties of Capitalism (VoC) approach, which
emphasizes not only the high degree of stability in European industrial relations, but also the
persisting desire of employers to support and maintain institutions of non-market coordination, notably
as a way to ensure an adequate supply of skills (Hall & Soskice, 2001; Estevez-Abe et al., 2001).
Using Southern Europe in the wake of the Eurozone crisis as a case study, we show in this paper that
employers can have heterogeneous preferences when it comes to liberalization, and document
rationales of employer opposition to it that are different from those proposed by VoC. While some
employers have first-order preferences for decentralized bargaining and liberalization, others oppose
the decentralization of collective bargaining and the shrinkage of coverage, defending measures that
limit their own discretion. Drawing on earlier analyses of collective bargaining and welfare formation
in Europe and the United States (e.g Pontusson & Swenson, 1996; Swenson, 2002), we argue that
important segments within business may prefer to limit their own discretion not to preserve the skill
supply, as the VoC approach argues, but for other more context-specific reasons: to limit competition
by other firms, reduce industrial conflict, minimize the transaction costs associated with collective
bargaining, and ensure the organization survival of business associations. These strategies are
particularly important for small firms, who are more likely to face low-wage competition, and for
whom the transaction costs associated with firm-level bargaining with unions are higher.
To substantiate our argument, we look at post-Eurocrisis collective bargaining reforms in Italy, Spain
and Portugal, three countries that faced a tremendous amount of pressure for liberalization, and where
small firms play a central role in the economy. At the peak of the crisis, supranational institutions
(European Commission, European Central Bank, IMF) made access to financial support - either in the
form of aid packages or purchase of Southern European sovereign bonds - conditional on the
implementation of reforms geared towards the reduction in domestic prices and wages. When it came
to labor markets, these reforms mainly centered on two objectives: loosening employment protection,
and making industrial relations more flexible to allow for quicker (downward) wage adjustments
(Afonso, 2019). This process of flexibilisation entailed the promotion of firm-level bargaining instead
of agreements covering whole economic sectors, a greater level of autonomy for firms to opt out from
the terms of collective agreements, and in some cases more restrictions on the extension of sectoral
agreements to non-bargaining parties (Meardi, 2012; Marginson, 2015; Sacchi, 2015).
While these reforms could potentially further shift the power balance from labor to employers (Dubin
& Cioffi, 2016, p. 424), important segments of employers in these countries opposed the
flexibilisation of collective bargaining. For instance, in Italy, employers’ associations signed a number
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of bipartite agreements with trade unions aimed at preserving the existing collective bargaining
structure. In Portugal, employer organizations lobbied for reinstating the state-backed extension of
collective bargaining agreements to non-bargaining parties, after the government unilaterally made
criteria for these extensions more restrictive. Drawing on in-depth comparative case studies and 14
interviews, we explain this resistance to liberalization initiatives by looking at the specific power
configuration within employer organizations in Southern Europe, which partly sets it apart from the
countries that comparative political economy has drawn on so far in theory building.
The contribution of this paper is twofold. First, we contribute to a more nuanced understanding of the
role of business in liberalization processes by taking a middle way between the “liberalizers” (e.g
Baccaro & Howell, 2011; 2017) and the “coordinationists” (VoC): while we agree with the empirical
assessment of greater liberalization of the former, we emphasize the internal conflicts within business
against the implicit assumptions of employer homogeneity of preferences. Regarding the
coordinationists, following Pontusson and Swenson (1996) and Swenson (2002), we assume employer
opposition to be more driven by short-term strategies to regulate internal labor relations rather than an
economy-wide functional logic. Second, the paper provides a better understanding of employer
preferences and liberalization mechanisms in the Southern European context. In contrast to the
economies of Northern Europe, where governance mechanisms at firm level are well institutionalized
(e.g. codetermination in Germany), the extreme decentralization of collective bargaining in Southern
Europe would lead to the end of coordination altogether because there is minimal cooperation at lower
levels, especially in small firms.
The rest of the paper is organized as follows. Section two reviews the main studies on employers’
preferences and collective bargaining, showing how the opposition to collective bargaining
decentralization by Southern European employers’ runs counter to influential views in the literature.
Section three deals with the rationale for case study selection and outlines the categorization used to
classify the collective bargaining measures implemented in Southern Europe. Sections four to six are
devoted to country-based case studies covering the main collective bargaining reforms implemented in
Italy, Spain and Portugal and the reaction of employers’ associations. Section seven concludes with
some comparative reflections.
2. Collective Bargaining and Employer Preferences in Southern Europe
While earlier literature in comparative political economy focused essentially on trade unions and labor
mobilization as drivers of labor market and welfare changes, in recent decades there has been a
renewed focus on employers and their role in shaping and even designing work and welfare
institutions (Korpi, 2005). Scholars have shown that employers played a prominent role in the
construction of welfare states and labor market regulations in the early 20th century (Mares, 2003;
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Paster, 2014; Thelen, 2003) as well as in their transformation from the 1980s onwards (Swenson &
Pontusson, 1996; Baccaro & Howell, 2011; 2017). Employers have variously been portrayed as
protagonists (actively promoting coordination to serve their interests), consenters (accepting
coordination as part of political bargains), or antagonists (actively pushing for liberalization) of
welfare and labor market coordination (Korpi 2006). These different views on the role of employers
have also been associated with different understandings of the trajectory of industrial relations in
Europe in recent decades.
The “employers as protagonists” view has been associated with the early VoC approach (Hall &
Soskice, 2001; Iversen et al., 2001) and has assumed a high degree of resilience in coordinated
capitalist institutions (see recently Iversen & Soskice, 2019). In this perspective, limits on pure market
processes (e.g. coordinated bargaining which prevents firms from competing against each other over
wages) are ultimately “beneficial constraints” for employers because they create incentives for firms
to provide common goods that benefit the economy as a whole, such as a well-trained workforce. In
this view, employers will support systems of welfare protection and coordinated collective bargaining
even despite the processes of globalization. Thelen (2003) argues that globalization and “just in time”
production processes have actually provided even further incentives for employers to accommodate
labor unions through limits on market competition to ensure industrial peace. Indeed, in most
countries, core industrial relations institutions have persisted; collective bargaining coverage remains
high, social dialogue still takes place, and few countries have effectively gone through a process of
radical decentralization (Baccaro & Howell, 2017, Chapter 3).
However, more recent accounts have argued that behind a façade of stability, significant changes have
been taking place, and employers have been an important liberalization force. In the German case,
Streeck (2009, p. 50) and others find that even if the core institutions of the coordinated market
economy model have been fairly resilient, their functions have been seriously altered. Employers are
no longer benevolent supporters of coordination and redistribution mechanisms. For instance, the BDI
(Bundersverband der Deutschen Industrie) pushed a number of radical reforms, notably an
(unsuccessful) campaign to end worker co-determination on company boards. Collective bargaining
coverage has only slightly declined, but collective agreements have become “thinner” and less
constraining for firms, allowing them to opt out from specific collective commitments more often;
employer associations still retain their membership, but now provide arrangements allowing their
members not to comply with negotiated agreements (Streeck, 2009, p. 48).
In a more recent analysis, Baccaro and Howell (2011; 2017) similarly see employers essentially as
antagonists. Accordingly, employers will always favor measures expanding their discretion vis-a-vis
their employees and the state because the Post-Fordist capitalist system places a premium on their
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ability to rapidly respond to market impulses (Baccaro & Howell, 2017, p. 18). For this reason,
Baccaro and Howell posit that in the realm of industrial relations employers will always push for
“deregulation, decentralization, individualization and the conversion of existing institutions to
function in a manner that expands employer discretion.” (ibid., p. 178). Concerning the level of
negotiation employers will favor “a shift from higher levels of collective bargaining to lower ones,
closer to the firm or workplace; greater recourse to individual bargaining between employee and
employer or unilateral employer decision-making.” (ibid., p. 18). In their frontal assault against
coordinated industrial relations institutions, employers’ associations are helped both by the state and
by the deepening of European integration. In Baccaro and Howell’s words:
“Employer organizations, on the other hand, have become more politicized, more self-confident, more
committed to neoliberal formulations and more willing to challenge existing industrial relations
institutions. In this task they have increasingly been joined by governments, including those of the
center left. States have proved more interventionist in industrial relations even as they have retreated
from direct regulation of the labor market. All this has taken place in the context of a reinvigorated
project of European integration that has institutionalized a deflationary and deregulatory economic
logic, simultaneously creating a harsh macroeconomic environment for labor while closing off
opportunities to use any residual national political influence.” (ibid., p. 196).
In this paper, however, we show that employer preferences are much more heterogeneous and sector-
specific. Using case study evidence from Southern Europe, we do not find support for the functionalist
logic of VoC linking collective bargaining centralization with skill formation, nor for a uniform push
by employers towards liberalization. Instead, like Swenson (2002) and Swenson and Pontusson (1996)
we find that the preferences of employers and their associations are more driven by sector-specific
business strategies and political calculations.
For instance, studying the demise of peak-level, economy-wide wage bargaining in Sweden,
Pontusson and Swenson find that large export-oriented engineering employers were the principal
drivers of collective bargaining decentralization because they wanted wage differentials between
export-oriented and sheltered sectors to rise in order to secure an adequate supply of motivated labor,
and needed more flexible employment conditions to remain internationally competitive in the
production of “high value-added, internationally tradable consumer durables and producer goods”
(Pontusson & Swenson, 1996, pp. 224-5, 236). Swedish employers were not united in calling for
collective bargaining decentralization. Commercial and retail employers defended peak-level
bargaining as it allowed them to limit industrial conflict. In his comparative analysis of the
development of labor market regulations and welfare systems in Sweden and the US, Swenson also
questions the then-prevailing view that business will always oppose labor decommodification
(Swenson 2002). Instead, he shows that employers’ preferences concerning collective bargaining and
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social legislation are contingent and derive from “strategies pursued to secure their interests in labor
markets, and through labor market control, in their product markets.” (p. 21). Swenson argues that in
low added-value sectors like construction, retail and mining, employers have an incentive to favor
collectively agreed wage floors to prevent cut-throat wage competition. This is especially relevant for
the small firms that overwhelmingly populate these low-wage sectors.
This paper argues that employer opposition to liberalization in Southern Europe can be motivated by a
number of factors: the need for small firms to deter low-wage competition, to limit industrial conflict,
especially at firm-level, reduce the transaction costs associated with wage-bargaining, and ensure the
organizational survival of business organizations, which depend on incentives for the collective
organization of firms. These arguments are particularly relevant in the South European context
because of the prevalence of small firms, both in the economy as a whole and in the membership of
employer associations in particular. In 2016, companies with less than 10 employees accounted for
46% of total employment in Italy, 40.8% in Portugal and 41.2 in Spain (against 20.2% in Germany
and 31.9% in France) (European Commission, 2017). The pivotal role of small firms is reflected in the
membership of Southern European employers’ associations. In 2003, firms with less than 250
employees constituted 97% of the membership of the Italian peak employers’ association
Confindustria (Vatta, 2007, p. 219) accounting for more than 90% of the membership fees (Business
People 9/9/2016). In 2015, this proportion was 90% for the Portuguese CIP, accounting for 73% of
membership fees (Deloitte, 2015). The dominance of small firms has important consequences for
employer preferences in collective bargaining for a number of reasons (Afonso, 2012; Paster, 2014).
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Figure 1 Small firms’ contribution to employment in the non-financial sector (2016)
Source: European Commission 2017.
Micro firms are firms with less than 10 employees, small firms have 10 to 49 employees, medium firms 50 to 250.
First, small firms organized within employer associations may want minimum standards to be imposed
on their (non-organized) competitors in order to ensure a level-playing field (cartelism strategy)
(Swenson, 2002). In this sense, collective bargaining is not only an instrument that regulates the
relationship between workers and employers, but also one that regulates competition between firms in
product markets. If competing firms do not need to comply with the wage standards agreed in
collective agreements, there is no longer an incentive for firms to negotiate them in the first place,
because they can be undercut by unorganized firms. Extension rules are important tools to ensure
compliance, whereby the outcomes of collective bargaining are made compulsory for non-bargaining
parties, either by courts or ministries. They are common in many European countries, and have been
shown to be a decisive predictor of higher collective bargaining coverage (Traxler, 2004). Minimum
wages are another possible instrument that has the same function, which ensure the same function.
Following this logic, Bachmann et al. (2014) document employer support for sector-specific minimum
wages in Germany, especially from higher productivity firms (who pay higher salaries) and in sectors
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with low entry costs (low skills/low wages). This is especially important in Southern Europe, where
low-wage competition in sectors such as construction or government contracting is rife.
Second, since most small firms do not have elected work councils, their owners view firm-level
bargaining with suspicion, fearful that it might ignite social conflict, preferring instead to combine
“reference to sectoral wage agreements with internal unilateral, paternalistic management.” (Meardi,
2012, p. 76). If they have to deal with militant unions, small firms may therefore prefer to keep them
outside the workplace and within the framework of sectoral bargaining. More broadly, firms may
object to liberalization if they think it would stir industrial conflict, especially in sectors where trade
unions are better organized.
Third, and relatedly, small firms may lack the industrial relations expertise to negotiate work-related
issues at firm-level, and may prefer to outsource this task to sectoral organizations. This can be tied to
a lack of resources or the lack of a tradition of firm-level bargaining.
Finally, the maintenance of coordinated wage bargaining at the sectoral level responds as well to the
primary interests of peak employer organizations themselves (organizational survival). Employer
organizations have an interest in wage negotiations taking place at the sectoral level because multi-
employer bargaining is their primary raison d’être (Sheldon et al., 2016; Traxler, 2004). If bargaining
is decentralized to the firm level, the incentives for firms to organize collectively decrease. Indeed,
reforms that transfer regulatory functions to the firm level might turn employer associations into
hollow shells, with few incentives for firms to remain in them. That is for instance what happened in
Australia after a radical decentralization of the bargaining framework (Sheldon et al., 2016). The same
reasoning applies to the extension of collective bargaining outcomes to non-bargaining parties: if non-
organized firms are not bound by the agreements made by employer organizations, there is a strong
incentive for firms to leave employer organizations in order to free themselves from the straightjacket
of collective agreements (Traxler, 2004). This would call into question the very existence of peak
employers’ associations.
3. Cases and Methods
The analysis is based on a comparative case study of employer reactions to liberalization in Spain,
Portugal and Italy during the Eurozone crisis. The qualitative case study format is aimed at
documenting expressed rationales for employer opposition to liberalization through interviews and
other sources. The case selection can be justified for the following reasons. First, these three countries
were confronted with similar external pressures to liberalize their collective bargaining systems during
the crisis, either through direct conditionality within the framework of a Memorandum of
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Understanding agreed with a Troika of international lenders (Afonso, 2019), or through implicit
conditionality based on severe and unsustainable conditions on the bond market (Sacchi, 2015). The
countries selected share many similarities in the setup of their political economies and welfare
regimes, most notably the prevalence of small firms in the economy and within employer
organizations, as argued above. They also share similar growth models, namely a demand-led model
relying mostly on domestic consumption. In this type of model, we expect the skill-based argument to
explain the support of employers for coordination to hold. Because of the prevalence of small firms in
the economy, the three countries are therefore most-likely cases for the rationales we highlight: if the
rationales for employer opposition cannot be observed in these cases, they may not be observed
elsewhere (Gerring, 2006, p. 120). We do not include Greece in our analysis for two reasons. First, the
amount of external pressure faced by the Greek labor market and employers, as well as the
deterioration of its economic conditions, was so strong that it reduced any ability for employers to
express opposition. Second, in contrast to the other countries analyzed here, Greece has never
developed institutions enabling proper dialogue between employers and unions (Lavdas, 2005), which
we can consider as a scope condition of our argument.
We limit the analysis to the study of wage-bargaining in the private sector, thus leaving the public
sector aside. Although acknowledging the important role of public sector wage bargaining as a source
of competitiveness divergence within EMU (see Hancké, 2013; Höpner & Lutter, 2018; Johnston et
al., 2014; Johnston & Regan, 2016; Scharpf, 2011), we believe that wage negotiations in the public
sector follow their own logic. This is due to the fact that, when setting public wages, the government
acts both as an employer and as an enforcer of the negotiating outcome. This in turn creates a specific
political tension between the responsible and responsive functions of elected governments (for a
detailed analysis see Di Carlo, 2018), different in nature from that between governments and domestic
employers that we are exploring here. We therefore restrict our focus to the regulatory functions of the
state.
The analysis is based on press reports, documents provided by employer associations, secondary
literature, and 14 interviews with country experts and representatives of peak employer associations.
For each case, we outline the main characteristics of the collective bargaining system, trace the
reforms carried out on the brink of and during the crisis, focus on the position adopted by peak
employer organizations, and explain them. We conclude with some theoretical implications. For the
purpose of the analysis, we use a broad concept of liberalization, understood as a movement “away
from centralized authoritative coordination and control towards dispersed competition, individual
instead of collective action, and spontaneous market-like aggregation of preferences and decisions”
(Streeck 2009, p. 149). Applied to collective bargaining reforms, this concept measures both (vertical)
liberalization (initiatives to shift the focus of wage setting from the central to the sectoral to the firm)
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and (horizontal) liberalization limiting the scope and coverage of collective bargaining. In all our
cases, we find that employers were resistant to the most radical liberalizing reforms unilaterally
implemented by the government supporting a (vertical and/or horizontal) re-coordination of the
collective bargaining framework.
4. Italy
The Italian wage-setting system historically centered on two main levels: the national sectoral, which
is hierarchically superior and defines industry-wide pay and conditions, and the company-level for
work-related issues. The two main levels are integrated by a centralized cross-sectoral agreement
covering very general issues and by territorial agreements, replacing company-level bargaining for
SMEs (Colombo & Regalia, 2016a). For decades, the system remained largely voluntarist and poorly
institutionalized. The two-level bargaining structure was only formalized in 1993 with a tripartite
agreement sanctioning centralized sectoral bargaining that set wage increases in line with expected
inflation, while firm-level (or territorial-level for small firms) bargaining determined pay scales and
productivity gains (Perez, 2000). Even though the 1993 agreement aimed at favoring firm-level
negotiations, sectoral agreements remained the main instrument of regulation of employment
conditions (Simoni, 2011; Baccaro & Howell, 2017).
In January 2009 the collective bargaining framework was reformed through a tripartite agreement
between the Center-Right government, Confindustria and two of the three main trade unions (leaving
out the most radical CGIL). The 2009 agreement increased the flexibility of the system allowing
employers to suspend the standards of sectoral agreements at company level, conditional on unions’
approval, to address industrial crises or foster employment (Simoni, 2011). Although enhancing the
possibility of deviating from sectoral bargaining at firm-level, the 2009 tripartite agreement
maintained the priority of sectoral agreements on most issues. As a consequence, it is an instance of
vertical liberalization negotiated by the social partners similar to those implemented in the pre-crisis
period in core EU economies (Marginson, 2015). However, the new bargaining framework was soon
called into question when in 2010 FIAT, the largest domestic manufacturing employer, reorganized
the production of its plant in Pomigliano, near Naples. The Pomigliano plan was part of an ambitious
project to reorganize FIAT’s production system inspired by the new CEO Sergio Marchionne
(Interview 1). At the head of FIAT since 2004, Marchionne had saved the carmaker from bankruptcy
before engineering the acquisition of the US carmaker Chrysler.
FIAT’s plan for Pomigliano involved the restructuring of the assembling techniques in order to
achieve a leaner productive structure (Simoni, 2011). However, this reorganization required trade
unions to sign firm-level agreements deviating from the national sectoral contract regarding strikes
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and sick leave. Crucially, FIAT asked Pomigliano workers to agree to a peace clause restricting the
right to call strikes in the plant (Simoni, 2011). This clause was deemed unacceptable by FIOM, the
metalworking branch of the most radical union CGIL, while it was accepted by the two other unions,
CISL and UIL. A referendum among the workers of the Pomigliano plant sanctioned the FIAT
agreement, leading to the exclusion of FIOM from the plant. Predictably, the Center-Right
government immediately showed its support for FIAT, pleading for the decentralization of collective
bargaining (Rehfeldt, 2012). More puzzlingly, Confindustria openly criticized FIAT’s unilateral
deviation from the national metalworking agreement (Meardi, 2012).
By signing an unprecedented first-level agreement alternative to the national metalworking agreement,
FIAT was pushing for a vertical liberalization of collective bargaining in order to obtain more
discretion vis-à-vis its employees (Baccaro & Howell, 2017; Leonardi & Pedersini, 2018). For this
reason, FIAT’s behavior resembles that of Swedish engineering employers as described by Pontusson
and Swenson (1996). However, unlike in Sweden where the employers’ association was dominated by
large multinationals, FIAT is the only global manufacturing MNE in Italy1 (Simoni, 2011). FIAT
aside, the Italian manufacturing sector centers on networks of SMEs - including many ‘pocket-sized
multinationals’ with very strong export orientation (Colli, 2010) - that rely on national sectoral
agreements to define their wage levels. The dominant position of small firms within Confindustria
explains why the employers’ association could not accept the unilateral deviation from sectoral
agreements imposed by FIAT. As an official of Confindustria’s Milan territorial association put it:
“In those days we were worried that other firms could deviate from the national sectoral
contract and say: now I will make my own contract. Which… from the point of view of a
firm is for sure a way to address the issue, but from the organizational point of view, it’s
clear that the organization has to defend all the firms… and the interests of FIAT are very
different from those of a small firm owner.” (Interview 2)
The tensions between Confindustria and its most powerful member further increased in 2011. While
FIAT progressively extended its new decentralized agreement to other plants located in Italy,
Confindustria engaged in bipartite dialogue with the trade unions to preserve the two-level bargaining
system. To this end, in June 2011 Confindustria signed an inter-confederal agreement with all the
main trade unions, including the most radical CGIL. The June 2011 agreement established rules to
measure unions’ representativeness and further increased the scope for firm-level deviations from the
national sectoral agreements, under specific conditions to be established for each sector by the relevant
national agreement (Colombo & Regalia, 2016b). Hence, the reform preserved the traditional
1 Fiat is the only Italian manufacturing firm featuring in the Forbes 500. The other Italian MNEs included in the ranking are
either utilities or financial firms.
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hierarchy between sectoral and firm-level agreements (Meardi, 2012; Marginson, 2015).
Even though with the June tripartite agreement Confindustria had rebuffed the endogenous pressure
towards vertical liberalization coming from FIAT, since mid-2011 Italy’s growing involvement in the
Eurozone crisis had led to an increase in the exogenous pressure to disarticulate the bargaining system
(Marginson, 2015). In August 2011, with Italy’s borrowing costs spiraling out of control, the ECB’s
incumbent President Jean-Claude Trichet and his recently elected successor Mario Draghi sent a letter
to Prime Minister Berlusconi in which they implicitly made the purchase of Italy’s sovereign bonds
conditional on the implementation of a series of structural reforms (Sacchi, 2015). Concerning the
wage-setting mechanism in particular, the ECB asked for a reform of the collective bargaining
framework to ensure the prevalence of firm-level over sectoral bargaining (Meardi, 2012).
In September, the Center-Right government passed a budget law that, along with a series of
emergency austerity measures, included in Article 8 a provision allowing company-level agreements
(here labelled ‘proximity agreements’) to deviate from national sectoral agreements on a wide range of
topics, including working time and layoffs. The latitude with which firm-level agreements were
allowed to deviate from national sectoral agreements effectively reversed the hierarchy between the
two, thus leading to a radical (vertical) liberalization of the wage-setting framework (Baccaro &
Howell, 2011; D’Amuri & Giorgiantonio, 2014; Leonardi and Pedersini, 2018). Concerning the
Pomigliano issue, Article 8 retrospectively legitimized the agreement signed by FIAT’s workers, as
well as similar agreements signed in its other Italian plants (Berta, 2012).
Confindustria saw the government’s unilateral intervention as an invasion of the sphere of autonomy
of the social partners (Interview 3). Furthermore, within Confindustria there were concerns that the
retroactive validation of the FIAT agreements could exacerbate the relationship with the main trade
unions (Interview 4). This is why in September 2011 Confindustria signed an agreement with the trade
unions which confirmed the validity of the June agreement and warned the Center-Right government
that “industrial relations and wage bargaining are issues regulated autonomously by the social
partners” (La Repubblica 2011, September 22). Apart from preserving the traditional hierarchy
between sectoral and firm-level bargaining (Pedersini et al., 2018), the September agreement limited
the scope of Article 8 by making its applicability subject to the unions’ consent (Berta 2012). The
September 2011 bipartite agreement is an instance of ‘re-coordination’ as employers and trade unions
limited the impact of the vertical liberalization unilaterally imposed by the Center-Right government
with Article 8. The September 2011 agreement further exacerbated the already tense relationship
between Confindustria and its most prominent member FIAT, leading to FIAT’s unilateral decision to
leave Confindustria. In this context, Confindustria saw the defense of centralized collective bargaining
as a way to re-affirm its institutional role vis-à-vis the government and its own members, thus
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preventing other firms from following FIAT’s example:
“The breakup (with FIAT) occurred because, for its image, Confindustria had to prevent a
diaspora from other firms. They could not give the impression that it was right to leave
Confindustria”. (Interview 4)
In November 2012 Confindustria and two out of the three main trade unions signed an agreement
containing measures to improve labor market productivity. This new agreement served to better
specify the conditions under which company level agreements could deviate downward from sectoral
agreements, and again stressed the autonomy of the social partners in the bargaining arena, implicitly
criticizing the unilateral measure of the Center-Right government (Colombo & Regalia, 2016a).
The available data on the Italian wage-setting system confirm the resilience of two-level bargaining.
Collective bargaining coverage has never fallen below 80% in international sources, while according
to the domestic statistical office ISTAT it encompasses 99.4% of the labor force (Leonardi et al.,
2018, p. 191). Between 2012 and 2013 nearly 69 per cent of the firms with more than 10 employees
relied solely on the relevant national sectoral agreement without engaging in firm-level bargaining
(Istat 2015, p. 171). Firm-level bargaining continues to be strongly related to firm-size. Between 2012
and 2015 only 7.5% of firms with more than 10 and less than 50 employees engaged in firm-level
bargaining, while the share rises to 66% among firms with more than 500 employees (Leonardi et al.,
2018, p. 200). Firm-level bargaining is in particular prevalent among large export-led firms located in
Northern Italy (D’Amuri & Nizzi, 2017, pp. 14-5). In the majority of cases firm-level bargaining
improves employment conditions; the issues most often negotiated include salaries, working hours
and, recently, supplementary welfare benefits (Adapt, 2018). Concerning the relationship between
firm-level and industry-wide bargaining, in most sectors national agreements cover a wide array of
issues, leaving little scope for firm-level bargaining. That is particularly true of capital-intensive
sectors like the chemical industry in which labor costs are a marginal factor, but production losses due
to firm-level disputes are very costly (Sheldon et al., 2016; Interview 3). At the other extreme, labor-
intensive heterogeneous sectors like metalworking and textiles opt for a ‘light’ sectoral contract used
as a reference by small firms, leaving more scope for firm-level negotiations by large firms. In
quantitative terms, most sectors nevertheless still opt for a strong national sectoral contract (Interview
2).
Hence, the collective bargaining framework is still strongly centered on the national sectoral level and
the vertical liberalization Article 8 aimed to achieve did not come about. In fact, although Article 8 is
still valid it was applied in very few cases, also due to resistance from the trade unions, and thus had a
negligible impact on the collective bargaining framework (Interviews 2, 3 and 4). Furthermore, while
other large firms left Confindustria following FIAT’s example, none of them adopted a firm-level
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contract alternative to the sectoral contract. Hence, the FIAT contract remains the only instance of a
firm-level agreement alternative to the national sectoral agreement (D’Amuri & Giorgiantonio, 2014).
The coming to power of the Center-Left leader Matteo Renzi again threatened the two-level collective
bargaining structure. Renzi has repeatedly hinted at the possibility of replacing the wage-setting part
of sectoral agreements with a statutory minimum wage (Colombo & Regalia, 2016a). The Five Star
Movement also supports the introduction of a statutory minimum wage. As an employer organization,
Confindustria opposes the statutory minimum wage because it perceives it as a threat to its internal
stability. In fact, Confindustria’s internal organization is still shaped by its role in the industrial
relations arena. Therefore, by weakening sectoral agreements a statutory minimum wage would force
a radical restructuring within the employers’ association (Interview 1). In the words of a member of
the Turin Employers’ Association:
“The statutory minimum wage, even more than the FIAT agreement, threatens to reduce
the importance of sectoral collective bargaining. This is a concern both for Confindustria
and for its sectoral organizations…. what is at stake is the political role of the sectoral
organizations” (Interview 4)
All in all, it is clear that Confindustria opposed a radical liberalization of collective bargaining
throughout the crisis, siding with the main trade unions in defense of a two-level bargaining system.
Hence, with the exception of FIAT, we do not find Italian employers to have a “first-order
preference... for decentralized firm-level bargaining” (Baccaro &Howell, 2017, p. 181). Instead,
Confindustria defended the two-level bargaining system because of the pivotal role small firms play in
the Italian economy. In fact, strong sectoral agreements are vital for small firms for three reasons.
First, they keep the level of industrial conflict low. In a context in which work councils are found in
only 8% of firms with less than 50 employees (Leonardi et al., 2018, p. 201), owners of small firms
see the creation of workers’ representations inside their plant as a potential source of industrial
conflict:
“Many entrepreneurs who don’t have to deal directly with trade unions, because they
don’t have a representation in their small firms, think that it is better to keep trade unions
outside the plant… Because they’re afraid that firm-level negotiations would be more
expensive than simply abiding by the national sectoral agreement.” (Interview 1)
Second, and related, many small firms simply lack the expertise and time to negotiate at firm-level:
“In Italy we won’t ever dismantle the national sectoral agreement because we have an
industrial structure centering on small firms that lack the time, determination, strength
and internal structure to re-negotiate everything at firm-level. They just rely on the
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national sectoral agreement hoping that we will tailor it according to their needs.”
(Interview 4).
Third, national sectoral agreements provide a wage floor to prevent wild competition and wage
dumping in labor-intensive low value-added sectors. This is for instance the case in the food sector:
“In the food sector there are some big firms and a myriad of small firms. In this context the
national sectoral contract sets a similar wage floor for small firms so that there is no (need
for) firm-level bargaining.” (Interview 3)
The importance of sectoral agreements as wage floors is confirmed by the fact that Confindustria’s
main concern recently has been to limit the spread of so-called ‘pirate agreements’, sectoral
agreements alternative to the main industry-wide agreements signed by unrepresentative bargaining
units that offer inferior salary conditions. Although pirate agreements cover a negligible share of the
labor force, they have proliferated since the crisis, in the retail sector in particular (Leonardi et al.
2018). Confindustria sees a threat in these contracts precisely because they lead to ‘wage dumping’,
breaching the wage floors established in the national sectoral agreements (Interviews 2, 3 and 4). The
importance of this issue for both employers and trade unions underlined by the fact that the last inter-
confederal agreements signed in 2014 and 2018 dealt with the definition of binding criteria for
measuring the representativeness of employer associations and trade unions (Leonardi et al., 2018).
5. Spain
Similar to Italy, collective bargaining in Spain formally centered on two main levels: the national
sectoral and firm-level. This two-level architecture was defined in a tripartite agreement signed in
1997 under the rule of the right-wing Partido Popular (PP). The 1997 agreement sanctioned the
exclusive competence of national sectoral agreements over issues concerning minimum employment
standards, at the same time establishing guidelines and recommendations for lower-level bargaining.
Along with national and firm-level agreements, provincial agreements also played a prominent role in
the collective bargaining framework, progressively emerging as the main bargaining loci (Molina
2014).
Until the recent crisis, the Spanish collective bargaining system was built around two principles: the
statutory extension according to which sectoral agreements signed by the most representative
organizations are automatically applied to all workers and firms who belong to the relevant
geographical area or sectoral constituency, and the ultraactividad that sanctions formally expired
agreements remaining in force if not renewed or renegotiated (Fernandez Rodriguez et al. 2016a). The
principles of statutory extension and ultraactividad allowed collective agreements to cover 80 per cent
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of the labor force between the 1980s and 2010 (Fernandez Rodriguez et al., 2016a, p. 270). Unlike in
Italy, no reform of the wage-setting structure was implemented before the Eurozone crisis. It was only
after the burst of the housing bubble and the consequent involvement of Spain in the Eurozone crisis,
and amid pressure from the ECB and the bond markets, that the PSOE government reformed the
collective bargaining structure (Meardi, 2012).
In 2010, the PSOE passed a first reform of the collective bargaining system allowing more flexibility
for firm-level agreements to opt out from sectoral agreements. The following year the PSOE again
intervened in the collective bargaining structure providing “for the priority of decentralized
agreements on a number of key issues, such as basic wages and supplements, overtime and shift
bonuses, working time and job classification systems...balanced by the possibility of sectoral
agreements to establish coordination rules and exclude certain topics from the negotiation entitlements
of decentralized bargaining.” (Pedersini & Leonardi, 2018, p. 18). Hence, although weakening the
favorability principle, the reform preserved the hierarchy between firm-level and sectoral agreements.
The unilateral reforms implemented by the PSOE did not disrupt bipartite dialogue between the trade
unions and the CEOE. On the contrary, in sectors like metalworking, construction and chemicals,
employers and trade unions rushed to conclude national sectoral agreements in order not to have to
resort to firm-level bargaining as imposed by the reform (Cioffi & Dubin, 2016). In addition, in
January 2012 the CEOE and the two main unions signed the second intersectoral agreement on
collective bargaining (AENC II) in which they defined the main guidelines for collective negotiations
for the period 2012-2014. Concerning the articulation between bargaining levels, the AENC II
specifies more clearly the conditions under which firm-level agreements could deviate from higher
level agreements and confirms the importance of provincial agreements as a decisive reference point
for small firms (Cruz Villalon 2015).
In early 2012 the new PP government implemented another radical reform of the labor market and
collective bargaining framework without prior negotiations with the social partners and largely
ignoring the AENC II agreement (Molina 2014). On the issue of collective bargaining the 2012 reform
gave absolute priority to firm-level over industry-wide bargaining (Molina, 2014, p. 414; Cruz
Villalon, 2015; Rocha, 2018, p. 231). Hence, the reform effectively reverses the hierarchy between
firm-level and higher-level agreements, thereby aiming at a radical vertical liberalization of the wage-
bargaining system (Molina, 2014, pp. 409-10; Cruz Villalon, 2015). In the words of a Spanish
Constitutional Judge:
“The objective is not an articulated decentralization of collective bargaining but rather,
more crudely, a disaggregated and atomized decentralization.” (Quoted in Cioffi &
Dubin, 2016, p. 437).
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The reform gives employers the possibility to deviate from sectoral agreements on salaries, working
hours, tasks and job categories (Cioffi & Dubin, 2016, 433-4). The reform also led to a horizontal
liberalization by limiting the ultraactividad of sectoral agreements to a maximum of 12 months (Cruz
Villalon, 2015). The 2012 reform is similar in content and scope to those implemented in Portugal and
Greece, and went further than that implemented with Article 8 in Italy (Marginson 2015, p. 103-4;
Pedersini and Leonardi, 2018). Strong exogenous pressure from the EU authorities and fear of an
intervention by the Troika led the PP to unilaterally implement the most radical reform of the
collective bargaining framework since democratization (Interview 7; Interview 8). This unilateralism
caught trade unions and employers by surprise, both groups only learning the details of the reform
from the press (Interview 5).
The CEOE’s overall reaction to the labor market reform, and in particular to the drastic reduction of
workers’ dismissal costs, was overwhelmingly positive. However, over time employers developed
divergent views on the impact on the wage-setting framework (Interview 5; Interview 6; Interview 7;
Interview 9). In particular, the radical liberalization imposed by the government created a cleavage
between small firms supporting the maintenance of higher-level agreements and (some) large firms
pushing instead for firm-level negotiations. The bone of contention was the superiority of firm-level
agreements over sectoral ones (Interview 6). Many firms opposed the absolute prevalence of firm-
level agreements as they rely on higher-level bargaining to keep the levels of industrial conflict low
(Interview 6). In the words of an industrial relations expert:
“Employers are very happy if there is a strong regulation of collective bargaining because
that helps them to keep conflict levels low… That’s for the employers the red line. That
was the only tricky issue with the reform. As soon as that change in the law gave trade
unions an opportunity to mobilize workers... that’s when the employers would say no”
(Interview 5)
This is a concern shared both by large and small firms. In fact, despite the fact that small firms lack
workers’ representation on-site, trade unions still have the capacity to mobilize at the provincial level,
thus potentially threatening firms of all sizes within a territorial unit (Interview 5).
Similar to Italy, small firms also oppose collective bargaining liberalization because they rely on
higher level agreements to externalize wage-bargaining transaction costs (Cruz Villalon, 2015; Rocha,
2018; Interview 7). In the words of an industrial relations expert:
“For small companies it is not very easy to establish their firm-level agreement. They
don’t have the know-how, they are very traditional and conservative in managing human
resources and labor relations. Basically, they rely on the collective agreement provided
by their sector. … It’s the same structure of paternalistic relations we had here in Spain
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forty years ago.” (Interview 8)
Small firms additionally use sectoral agreements as wage floors to prevent unfair wage competition
and social dumping (Rocha 2018, p. 258). In the words of a representative of CEOE’s metalworking
sectoral association, Confemetal:
“A big issue was emerging, in the end tremendous new unfair competition between
companies was arising in the sector.… The legal attack on provincial agreements has
therefore not led anywhere, because these agreements play a role, a very important role
because you can’t manage an SME unless you have such an agreement.” (Fernandez
Rodriguez, 2016b, pp. 544-545).
Firms’ preferences are also influenced by the structure of their sector of activity. Employers welcomed
the strengthening of firm-level bargaining in low added-value services like tourism and hospitality,
whereas most manufacturing sectors -including metalworking, chemicals, wood, furniture and food
processing, but also banking, retail and construction - prefer to preserve an important role for higher-
level bargaining (Interviews 6, 7, 8 and 9; Martin-Artiles & Alos, 2016, p. 147). Manufacturing
sectors in general support sectoral agreements because they are characterized by a prevalence of small
firms and have a long tradition of social dialogue (Interview 6; Fernandez Rodriguez 2016b). As in
Italy, in capital-intensive sectors like chemicals and pharmaceuticals sectoral agreements are very
detailed and deviations at firm-level rare (Interview 8; Interview 9). In the words of an industrial
relations expert:
In the chemical industry employers act as if the reform didn’t exist because they think the
sectoral agreement they have is a great agreement, the process of negotiation is complex
but there always is an outcome.... there is still unlimited ultraactivity and a rich content in
those agreements. Employers don’t want strikes, they want stability. (Interview 7)
In construction both large and small employers favor collective agreements at national and provincial
level to avoid conflict and establish common wage floors because sectoral unions are very strong
(Interview 7). Since they often work through public procurement, construction firms can then pass
additional costs on to the municipality (Interview 6). This preference led to an open clash between
construction employers and the government. In fact, in early 2012 the construction umbrella
organization signed a bipartite wage agreement with the unions that would take precedence over firm-
level agreements. Although the agreement was signed 20 days before the new labor law was passed, it
was not registered by the Ministry of Labor until after the law was enacted. The Ministry of Labor
challenged the bipartite agreement in court, arguing that the autonomy of social partners was not
absolute, and that the agreement violated the 2012 reform (Ministerio del Empleo, 2012).
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The employers that took advantage of the 2012 reform to downgrade conditions at firm-level operate
in low value-added service sectors with weak unions such as tourism and hospitality (Interview 7).
Firm-level bargaining in pejus with workers’ representatives unconnected with the unions is also
widespread in the platform economy and among the so-called multi-service companies, subcontractors
providing services like gardening, cleaning and security to hotels and public buildings (Interview 7, 8
and 9). While large foreign car-makers also engage in firm-level bargaining, this is a tradition that
dates back to the 1980s. Consequently, the 2012 reform had a limited impact on the wage-setting
structure (Interview 8; Interview 9). Overall, despite, these sectoral differences, the large majority of
Spanish firms are satisfied with the two-level bargaining framework. This is confirmed by a 2014
survey from the Spanish Ministry of Labor according to which 80% of Spanish employers are satisfied
with the relevant collective agreement at provincial or higher level (Martin-Artiles & Alos, 2016, pp.
140-1).
Many employers reacted to the vertical liberalization unilaterally imposed by the government signing
higher-level agreements that extended the ultraactividad beyond the 12 months established by the
2012 reform. According to a 2014 study by the CEOE, only 5% of collective agreements signed after
the 2012 reform abide by the 12-month limit (Cruz Villalon 2015). Also, the third intersectoral
agreement on collective bargaining (AENC III) signed in 2015 confirmed employers’ preference for a
two-level bargaining framework in which some issues should be reserved for negotiation at the
provincial and sectoral level.
The available data confirms that firm-level bargaining failed to take-off despite the 2012 reform. In
fact, while between 2010 and 2015 the number of firm-level agreements rose by 39%, the share of
workers covered decreased from 9.2 to 6.1% of the labor force (Lopez-Andreu, 2018, p. 12). This
means that the new firm-level agreements are signed prevalently in very small firms, often multi-
service companies, while multi-employer agreements (sectoral, provincial or regional) remain the
dominant bargaining level covering 65% of the labor force (Pedersini & Leonardi, 2018, p. 24).
Hence, the reform has not brought about the expected disarticulation of the collective bargaining
architecture (Fernando Rocha, 2018, p. 236; Interview 8). Instead the reform coupled with the crisis
had an impact on salaries: between 2010 and 2015 they rose only 1.4% compared to a 5% rate of
inflation (Andreu, 2016, p. 191). The prevalent bargaining level seems to have an impact on wage
dynamics. In fact, while manufacturing witnessed a 5.2% increase and construction a 2.5% increase,
wages in hospitality and other low-end services salaries declined in nominal terms, thus aggravating
income inequality (Ibidem., pp. 193-4).
The fact that Spanish employers still engage in centralized bargaining means that it serves their
purposes. It is highly likely that collective bargaining now takes place on advantageous terms for the
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employers, as trade unions are ready to accept worse labor conditions in order to reach an agreement
(Fernandez Rodriguez et al., 2016a; Cioffi & Dubin, 2016). Nevertheless, it should be noted that, since
2015, bargaining conditions seem to have somewhat improved as unions successfully challenged
many firm-level agreements signed in plants with weak workers’ representation, rendering them
invalid (Interview 8).
Like in Italy, Spanish small firms rely on national sectoral or provincial agreements to avoid social
conflict (a concern shared also by large firms), to externalize the cost of wage negotiations and to
prevent uncontrolled downward wage competition. Additionally, the CEOE sees the preservation of
centralized bargaining as a way to defend its prerogatives as the legitimate representative of Spanish
employers. In fact, the internal organization of the regional, provincial and sectoral branches of the
CEOE is still decisively shaped by the structure of the wage bargaining system (Interview 7, 8 and 9).
In the words of a representative of the metalworkers association CONFEMETAL:
“The fear of losing the agreement involves the fear of deconstructing the organization: if
I lose the agreement what kind of service do I provide to companies because everything
revolves around that; on the union side this is just the same. Nobody is interested in the
decline of the agreement.” (Fernandez Rodriguez, 2016b, p. 543).
In the Spanish case, CEOE and the territorial organization are not only interested in safeguarding their
legitimacy vis-a-vis the member firms but also vis-a-vis state actors, as they rely on public subsidies
for their funding (Interview 6).
6. Portugal
The Portuguese industrial relations system shared a number of similarities with the Spanish system: a
two-tier structure favoring sector agreements and a much smaller role for company agreements
(covering about 10% of the workforce), mostly in a few large firms offering better employment terms.
Unlike in Italy and Spain, the focus of reform efforts was on the horizontal dimension of liberalization
(coverage) rather than the vertical one (the hierarchy of bargaining levels). This allows an exploration
of a slightly different set of rationales for employer opposition: because the Portuguese reform agenda
derived from the Memorandum of Understanding signed between the government and the “Troika” of
international lenders, the political processes in which employer resistance was inscribed were also
slightly different.
Sectoral bargaining in Portugal is fragmented because of the dispersion of authority across different
organizations and the competition between them (Tavora & Gonzalez, 2016a, p. 254). On the union
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side, there is a split between the militant CGTP (traditionally close to the Communist Party) and the
more moderate UGT, which leans closer to the Socialists. Employer bodies are more fragmented than
in Spain, with a division of labor along sectoral lines. Four employer organizations are represented in
official concertation bodies: the CIP – Confederação Empresarial de Portugal (industry and large
employers); CCP – Confederação do Comércio e Serviços de Portugal (services and retail); CAP –
Confederação dos Agricultores de Portugal (agriculture); and CTP – Confederação do Turismo
Português (tourism).
As in Spain, the state plays an important supporting role in collective bargaining and in constraining
sheer market forces in employee relations. First, sectoral agreements would routinely be extended to
whole economic sectors and made enforceable by the Ministry of Labor; that is, beyond the parties
who had initially negotiated them. Extension orders align the wage and employment terms of the
whole sector (even of non-organized firms) with those negotiated by the members of business
organizations, meaning that a subsection of firms would have to pay higher salaries than they would
without state intervention. Extension orders could also be issued at the request of employer
associations and unions in the sector, with a veto right granted to the parties concerned. Extension
orders largely explain the high levels of coverage of collective agreements (above 80%) despite low
employer density (38% in 2011) and trade union density (18% in 2012). This practice applied to
almost all collective agreements: Martins (2014, p.3) found that 90% of collective agreements
negotiated between 2007 and 2011 had been extended by the Ministry of Labor.
Another important regulation – also present in Spain – was the provision for agreements to continue to
apply even beyond their date of expiry (sobrevigência) (Ramalho, 2013: 2). These two mechanisms of
regulation were criticized on a number of counts by public authorities and the Troika. Regarding
extension orders, one problem was that, given the low organization rate of employers, a relatively
small share of employers who would normally offer above-average wages ended up imposing
extension orders on a majority of the sector in which wages would have otherwise been set at lower
rates. The second issue was that the lack of an effective expiry date for collective labor agreements
empowered unions, especially the CGTP, to veto a downward revision of wage and employment terms
despite a deteriorating labor market situation, as refusal to negotiate would simply leave existing terms
in place.
Reforms to this framework started before the crisis. The revision of the labor code adopted in 2003
under the conservative government of José Manuel Durao Barroso allowed for firm-level bargaining
in peius, thus departing from the favorability principle that guided the hierarchy between the law,
agreements and individual contracts up to then. It also changed rules to allow for agreements to cease
to apply if a number of conditions were met (art. 556 & 557 Labor Code). While the previous rules
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preserved the status quo in the absence of new agreements, the new rules provided incentives for
employers to pressure unions to accept worse wage terms or let the agreements expire, leaving
workers uncovered (Tavora & Gonzalez, 2016b, p. 326). This led to a stalemate in bargaining and a
decline in the number of agreements concluded until the rules were clarified and bargaining resumed.
The favorability principle was partly reinstated in the 2009 revision of the labor code under a Socialist
government. This revision also introduced measures to allow companies with more than 500
employees to negotiate company agreements with unions of worker representatives, as long as they
had a union mandate (INE, 2013, 23).
Once the crisis hit, government, trade unions and employers committed to a renewed emphasis on
partnership in spite of dire economic conditions and a great amount of external pressure, even after the
2011 election of a conservative government. The social pact signed in 2011 between all the employer
organizations and the UGT – but not the CGTP – increased the scope of firm-level bargaining.
However, the conditions and modalities of firm-level bargaining were still set at the sectoral level. The
pact also lowered the threshold for firms to negotiate company agreements down to 250 employees,
potentially opening more scope for company agreements (Campos Lima, 2015, p. 12). Despite the
many elements of flexibility introduced, unions and employers remained generally supportive of
sectoral bargaining (Tavora & Gonzalez, 2016b, p. 325). In fact, employers have shown little interest
in delegating wage-bargaining issues at the firm level. Besides, because workers’ committees at the
firm level still need a union mandate to negotiate agreements, unions can block this possibility by
withholding their mandate.
While we turn to the substantive rationales later, in terms of the political process, limiting industrial
conflict was an important factor behind the reluctance of employers to push for deregulation, as
outlined by a representative of employers in services and retail:
“We of course have proposals in the domain of fixed-term contracts and in other areas to
change labor legislation. But what we have told the government is that, in this phase, we
considered that the more balanced approach was not to change it. [...] It is clear that if (the
government) put forward initiatives to reform it, we’ll have proposals that go in a different
direction than those of trade unions, but we were ready, within our association, to keep them
in standby. We preferred not to enter in this conflict. We preferred to ensure stability for
companies and security in relation to foreign investment, not to create great convulsions
around labor legislation” (Interview 10).
“From the point of view of employers, there was an effort not to be ‘maximalist’. This, by the
way, wasn’t well understood by the Troika itself, which, a number of times, said it couldn’t
understand a country with so many points of agreement between unions and employers [...]
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One of the questions that puzzled the Troika was that we were all defenders (of market
regulations) while (they thought that) there shouldn’t be so many restrictions on the domestic
market” (Interview 10).
This approach would clash with the demands of international lenders, relayed by the government, who
supported a more radical approach to liberalize collective bargaining, even against the will of
employers. In effect, in the MoU the Portuguese government had committed to “define clear criteria to
be followed for the extension of collective agreements and commit to them. The representativeness of
the negotiating organizations and the implications of the extension for the competitive position of non-
affiliated firms will have to be among these criteria” (European Commission, 2011, p. 25).
In 2012, a revision of the labor code established a threshold of employer representation for these
extensions, namely that collective agreements could only be extended to a whole sector if the
employers negotiating the agreement represented more than 50% of employment in the sector. This
measure was introduced unilaterally after consulting but not gaining support from social partners.
Given the low membership in organizations and the small size of firms, this was perceived as a very
restrictive criterion. The rationale for making it more difficult to issue extension orders was that the
higher wage terms imposed by extension orders on non-organized firms reduced employment; they
destroyed jobs with employment conditions below the standard set by extended agreements (Martins
2014). By restricting these extensions, the government could preserve jobs and enable a greater degree
of wage adjustment, which was an overarching objective of the reform program.
In principle, these new rules would provide more freedom for firms to determine their own wage and
employment conditions without having rules negotiated by third parties imposed on them. Shrinking
collective bargaining coverage would also allow for wages to fall. However, both trade unions and
employer organizations opposed these changes. For trade unions, the reasons were obvious: in the
context of high unemployment, a lack of coverage would lead to wage decreases, which was the
explicit goal of the measures. The opposition of employers was strong as well, especially from the
CCP (services) and CIP (industry), and motivated by a number of reasons. As a CCP official argued,
“The Troika was very astonished that there was an almost unanimous position between
employers and trade unions [in support of extension orders]. From the perspective of employer
associations, so to say, extension orders are a factor of equilibrium in the market. [...] in the
case of the CCP in particular, besides commerce, we have services, many services to
companies, including cleaning and so on, that compete for public tenders. And then, extension
orders, for these companies, are a factor of equilibrium, of fair competition between
companies. Without these extension orders, we have a labor market that is a little wild, really
wild [...]. We have many companies that are in this market for tenders to other companies and
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the state. Mass catering, canteens, cleaning, security services, contact centers. There is a
whole range of sectors that are within our membership where extension orders limit the
parameters within which companies can offer prices below the market” (Interview 10).
A connected rationale was tied to organizational survival, namely that
“Extension orders create conditions for fair competition. Without this instrument, firms will
tend to disaffiliate themselves from the organizations that subscribe to the agreements in order
to escape rules that are less favorable from their point of view than those provided in the labor
code. If this happens, there may also be an incentive to resort to illegal work. The elimination
of extension orders will lead to the disappearance of collective bargaining altogether” (Official
CIP, cited in Diario Economico, 2012, February 2).
In effect, the introduction of these more restrictive rules led to a dramatic decrease in the number of
collective agreements being renewed and renegotiated, from 146 agreements covering 1.4 million
workers in 2010 to only 46 agreements covering 241,000 workers in 2013 (Campos Lima, 2015, p.
14). This decrease was partially due to negotiating parties not meeting the requirements for extension,
but above all to employers simply not engaging in wage negotiations, as they knew that non-member
firms would not have to comply. By providing an exit option for firms, the new rules lowered
incentives to negotiate and belong to employer organizations altogether. In turn, employer
organizations refused to engage in negotiations and risk losing their members.
After the introduction of these new rules, the main employer organizations (CIP, CCP, CTP and CAP)
sent a letter to the IMF criticizing the reform for having led to a blockade of collective bargaining;
they argued that the criteria of 50% of employees in a sector was too restrictive (Diario Economico,
2012, October 8). Instead, they proposed that the threshold should be lowered to 30% if these firms
are small. Hence, similarly to their Italian and Spanish counterparts, Portuguese employers pushed for
some level of ‘re-coordination’ of the collective bargaining framework. In 2014, in the face of the
blockade of collective bargaining that the new rules had created, the government gave in to trade
unions and employers demands, lowering the threshold necessary for extension to 30% of employees
in the sector for small firms (Diario da Republica, 2014, p. 3520; Jornal de Negocios, 2014, February
28).
Based on our interview material, employers in services and retail were the most agreeable to this
coordination movement. These are sectors with small firms, labor-intensive market strategies and
perhaps a greater need to ‘discipline’ the market. Even if all major employer confederations signed the
letter to the IMF asking to loosen the rules for extension, some sectors had more reservations. This
was notably the case for agriculture, which includes micro-companies and relatively large export-
oriented employers. Most importantly, employers in this sector do not face a well-organized
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workforce.
“I sometimes asked my colleagues in other employer organizations if it really made sense [that
a minority of employers would dictate wage terms to the whole sector] but they wouldn’t
follow me. When the threshold of 50% of employers was adopted, we didn’t oppose it like the
other organizations; our signing the letter was an act of solidarity with the other employer
confederations, because our perspective was slightly different [...] We have agricultural firms
with just a few workers, but also companies like [x], which has 800 workers, and [x], which
has 4800 workers” (Interview 13).
Considering sectoral differences in preferences, the fact that the export sector in Portugal is small also
helps explain the general skepticism of employers vis-à-vis a rapid process of internal wage
devaluation in a demand-led growth model:
“In Portugal, there are more or less 400,000 companies; 370,000 to 380,000 ... There are only
about 22,000 to 25,000 who export, and there was an idea that – from many of the
confederations – that if there was an excessive contraction of the internal market, this would
provoke a rather large crisis in terms of employment and consequent social and economic
costs. And even among the 22 or 25,000 companies that export, a significant part, in order to
operate, have to sell part of their production on the Portuguese market. Therefore, in terms of
purely exporting companies, the number was relatively low. And the employed population in
these companies was also relatively low. Therefore, this defined a relational picture of the
confederations with the Troika that was rather tense” (Interview 10).
7. Conclusions
In this article we have shown how employers in Italy, Portugal and Spain opposed the vertical and
horizontal liberalization of the wage-setting framework unilaterally imposed by their respective
governments. In all countries, peak employers’ organizations responded to the liberalizing push by
implementing agreements leading to a ‘re-coordination’ of the wage-setting framework. In Italy,
Confindustria signed a bilateral agreement with the main unions to limit the scope of the
decentralization of collective bargaining, while in Spain employers used both sectoral and inter-
confederal agreements to limit the horizontal and vertical liberalization caused by the 2012 labor
market reform. In the construction sector, employers’ opposition to collective bargaining even led to a
judicial confrontation between the government and the main sectoral employer organizations. In
Portugal, employers sent a letter to the government (and the Troika) explicitly seeking to prevent a
drastic decline in collective bargaining coverage caused by the disengagement of the state from its
supporting role in collective bargaining.
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We have shown how this opposition to collective bargaining liberalization is primarily motivated by
the prevalence of small firms in the economies of Italy, Portugal and Spain. Small firms support
centralized bargaining because it allows them to achieve three goals vital to their production strategy:
reduce the level of industrial conflict; prevent cutthroat wage competition among member firms by
setting collectively agreed wage floors; and limit the transaction costs associated with wage
bargaining, which are particularly burdensome for small firms. Defending centralized bargaining also
responds to the organizational self-interest of peak employers’ associations, as centralized wage
negotiation is the main source of legitimacy vis-à-vis their members. Although employer associations
and the large majority of small firms in Portugal, Italy and Spain opposed collective bargaining
decentralization, there was cross-country variation in the relative weight of the three factors here
identified. In Italy and Spain, where unions are still relatively strong, employers were particularly
concerned about industrial conflict. The desire to reduce transaction costs associated with wage
bargaining, which are particularly onerous for small firms, was mentioned as an important factor in all
our country case studies. In Portugal, where the large majority of small firms compete in labor-
intensive low-value-added industries, sectoral agreements are vital to prevent cutthroat wage
competition. This latter factor is more marginal in Spain, and only important in some low value-added
sectors like retail in Italy. Finally, in all our country case studies employers’ associations expressed
concern for their organizational survival in case of a radical decentralization of the collective
bargaining framework. Employers’ opposition to collective bargaining liberalization runs counter to
the idea that they should always favor firm-level bargaining in order to gain further discretion vis-à-
vis their employees (Baccaro & Howell, 2011; 2017). It is instead in line with the view that different
types of employers have heterogeneous wage-bargaining preferences (Hall & Soskice, 2001; Swenson
& Pontusson, 1996; Swenson, 2002). In accord with Pontusson and Swenson (1996) and Swenson
(2002), we find this heterogeneity to be motivated by different short-term production strategies rather
than by an economy-wide functionalist logic (as in VoC). However, while Pontusson and Swenson
find that the decisive factor in determining employers’ collective bargaining preferences is their sector
of activity, we find a firm’s size to be an even more important indicator. Because of their internal
structure and production strategy, most small firms still consider industry-wide centralized bargaining
a vital point of reference.
This last observation allows us to situate the present analysis within the debate on the drivers of
collective bargaining deregulation in industrialized countries. The existing literature identifies a trend
towards greater liberalization of collective bargaining dating back to the early 1980s (Baccaro &
Howell, 2017; Howell, 2016; Marginson, 2015; Marginson & Welz, 2015). However, this
liberalization took different forms in Northern and Southern Europe. In northern European countries
trade unions and employer associations initiated a process of vertical and horizontal liberalization of
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the wage-setting framework well before the onset of the crisis (Marginson, 2015). While the state
favored this decentralizing dynamic, playing an ever more active role in the disarticulation of the
wage-setting framework, state intervention nevertheless came as a response to employers’ demands
for more collective bargaining flexibility (Howell, 2016; Baccaro & Howell, 2017). Hence, in northern
European countries (large) employers were the decisive drivers of change. Whereas, in the pre-crisis
period there were few relevant reforms of the collective bargaining framework in Southern Europe.
While post-crisis northern European employers continued to push for some form of organized
decentralization, sometimes accompanied by measures reinforcing the reach of multi-employer
agreements on issues like minimum wage standards, in southern Europe governments embarked in a
unilateral effort of radical liberalization of the wage-setting framework that was opposed by small
employers. Future research should explore the nature of the preferences of small employers in
northern European countries, assessing whether they align with those of their southern counterparts.
Our work relates as well to the recent debate on the disappearance of social pacts and tripartite
dialogue in the EU periphery. The 1990s saw an unexpected diffusion of tripartite multi-policy social
pacts between governments, trade unions and employers across Southern Europe. According to the
literature, these encompassing pacts covering issues like incomes, employment, wage-setting and
social security were signed by parliamentary weak governments eager to gain support from strong
unions in an effort to meet the Maastricht budgetary criteria (Avdagic, 2010; Baccaro & Lim, 2007;
Hancké & Rhodes, 2003). During the Eurozone crisis, Southern states found themselves in a similar
situation, with weak – grand coalition or technocratic – governments called upon to implement
unpopular austerity measures (Armingeon & Baccaro, 2012). However, unlike in the 1990s,
governments did not rely on tripartite dialogue to get these reforms through, instead consulting social
partners in a non-binding manner when not acting unilaterally (Regini & Regalia, 2018; Culpepper &
Regan, 2014). According to Culpepper and Regan, this rejection of tripartite social dialogue is
ultimately due to the fact that governments no longer consider trade unions as credible partners due to
their loss of membership and legitimacy. Although we also find evidence of growing state
unilateralism in the regulation of the wage-setting framework, we would like to add two caveats to
Culpepper and Regan’s argument. First, in each of our country case studies, governments only once
intervened unilaterally in the wage-setting realm. And these reforms were always implemented by
conservative governments acting under strong market pressure (Sacchi, 2015). After these episodes
Southern European governments abstained from any other form of unilateral intervention in the wage-
setting realm. This corroborates the view that the urgent need to ease pressure on bond markets,
coupled with a partisan preference for decentralization by conservative parties, might be more decisive
than unions’ weakness in explaining government’s unilateralism (Cioffi & Dubin, 2016; Picot &
Tassinari, 2017; Regini & Regalia, 2018). Second, and related, employers’ associations tried to limit
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the impact of these unilateral reforms by engaging in bipartite dialogue with the unions (Colombo &
Regalia, 2016a). Hence, while it might be true that at the peak of the crisis trade unions had nothing to
offer to help governments in implementing unpopular austerity measures (Culpepper & Regan, 2014,
p. 725), they still had much to offer to employer associations to help them in preserving sectoral wage-
coordination.
The findings presented here are relevant as well to the debate on the EMU crisis and the
incompatibility between heterogeneous growth models within a monetary union. Within this literature,
scholars usually distinguish between countries relying more on exports or domestic demand to achieve
economic growth (Baccaro and Pontusson, 2016). Export-led models based on wage moderation and
skills-based export competitiveness are found in Germany and in other Northern member states. In
contrast, until the crisis, low interest rates and capital inflows from the North led to the development
of a credit-financed demand-led growth model centering on domestic consumption and construction in
Southern Europe. Although this demand-led model enabled the achievement of solid growth rates in
some cases, this came at the cost of worsening export competitiveness (Hall, 2018; Scharpf, 2011).
The crisis and the consequent sudden stop of the capital inflows from Northern member states called
into question the foundations of the Southern demand-led model (Johnston & Regan, 2018). Faced
with severe recessions and rising unemployment at home, the governments of Southern Europe are
struggling to replace the demand-led model with a new growth model more compatible with the EMU
constraints. In this context, the liberalization of the wage-setting framework unilaterally implemented
by Southern governments, under pressure from EU authorities, should be seen as part of an effort to
increase wage flexibility and lower labor costs (Afonso, 2019). Lower labor costs would in turn allow
Southern member states to attract more foreign investment thus shifting towards an FDI-dependent
export-led growth model similar to those found in Ireland and the Visegrad countries (Bohle, 2018;
Brazys & Regan, 2017). While this wage compression is bearing some fruits, since Spain and Portugal
are attracting record levels of FDI and Italian manufacturing is recording strong export performance
(Baccaro & Howell, 2017, p. 217)2, the state-led effort of wage-bargaining liberalization is
exacerbating the divisions between large foreign-oriented multinationals like FIAT and small firms
that rely on sectoral agreements (Meardi, 2012; Marginson, 2015). An interesting avenue for future
research would be to study the role wage-bargaining institutions play in the transition from one growth
regime to another. If centralized bargaining is a key element of wage-led growth we would expect
resistance to collective bargaining decentralization to come from those inward-looking firms that
suffered the most from the exogenously induced shift towards export-led growth. Evidence in this
regard is inconclusive at this stage: while Portuguese inward-looking firms seem indeed to support
2 In the Italian case FDI investment is less important as the strong export performance is realised by domestic
manufacturing firms.
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centralized bargaining, in Italy and Spain export-led firms active in sectors like chemicals defend an
important role for sectoral agreements, while inward-looking retail firms are pushing for an
atomization of wage negotiations. This calls for a more systematic analysis of the determinants of
firms’ collective bargaining (and growth regimes) preferences.
Finally, although we find the preferences of most southern European employers to be inconsistent with
the model presented by Baccaro and Howell (2011; 2017), the behavior of the only global
manufacturing multinational in the region, FIAT, is perfectly aligned with Baccaro and Howell’s
expectations. It is also aligned with the preferences, production strategies and managerial choices of
most global players in car-making and other sectors. Hence, Baccaro and Howell’s work helps in
identifying an important dynamic: the growing homogeneity in the preferences of global
multinationals across different countries (and ’models’ of capitalism). The fact that FIAT’s breakup
with Confindustria, and the establishment of a new firm-level contract, was contemporary to the
negotiations leading to the acquisition of Chrysler, which made FIAT a truly global player, might
corroborate the claim that once a firm reaches a particularly large size, it will opt for unilateral firm-
level wage bargaining. However, this unilateralism might create tensions between large multinationals
and small (and medium) firms. To account for this divergence, along with sectors and countries,
industrial relations scholars should also focus on firms’ size as a potential determinant of their
collective bargaining preferences. Future research should explore the nature of these emerging
tensions within the employers’ camp looking at the behavior of large multinationals and small firms,
as well as mid-sized companies across countries and industrial sectors.
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