From the TUC

Spanish unions agree to tie pay to GDP

13 Feb 2012, By

The historic deal between Spanish union confederations CCOO and UGT and employers’ organisations CEOE and CEPYME that I reported on Touchstone a couple of weeks ago has some interesting features which may show the way for bargainers across Europe (and, if the UK still had significant collective bargaining, here too). In particular, the agreement ties wage increases to overall GDP growth in a way which unions hope will increase employment in a country where youth joblessness has now reached 5 million and youth unemployment is near 50%.

Wage increases have, of course, been decoupled from price increases and productivity over the last ten to thirty years (depending which part of the developed world you live in), which is one reason why inequality has increased, fuelling both the supply and demand side of the ruinous easy credit bubble that led to the global financial and economic crisis. The agreement also exhorts companies to use profits to invest in jobs rather than inflate executive pay or dividends, which has been the other reason for growing inequality.

The deal is therefore a crucial element of getting the Spanish economy – which before the financial crisis had one of the lowest public sector debt to GDP ratios, so was hardly a model of imprudence – back to health. However, the efforts of employers and unions are being undermined by Spanish and external political forces wedded to austerity, rather than growth, as the solution to Spain’s economic woes. While the unions and employers are agreeing flexible responses to the crisis company by company, and strengthening collective bargaining, the right-wing Spanish Government and the European Commission (egged on by German Chancellor Merkel) are demanding widespread labour market deregulation and undermining the social partnership that could get Spain back on track.

CCOO General Secretary Ignacio Fernando Toxo (who as President of the ETUC is playing an increasingly influential role in the development of a new trade union strategy) said of the deal:

“We owed this to society and especially to the more than five million unemployed who demand an effort to achieve growth in economic activity and job creation.”

The agreement moderates both wages and profits distributed by companies, as well as remuneration for senior management. It mandates that age rises should not exceed 0.5% in 2012 or 0.6% in 2013, although at the end of each financial year, wage revision clauses may be adopted taking into account rises in the consumer price index. Then, in 2014, wages should be adjusted so that if growth in GDP in 2013 is lower than 1%, then the wage increase may not exceed 0.6%. If GDP is between 1 and 2%, the wage rise may not be more than 1%, and if GDP in 2013 grows by 2% or more, the wage increase may not exceed 1.5%. Moreover, agreements shall include additional wage revision clauses based on  movements in economic markers associated with companies’ progress.

It’s worth reading the detail of the agreement, which could serve as a model for European social dialogue, although the Spanish unions are open that huge levels of unemployment mean that they are negotiating from a position of weakness.

3 Responses to Spanish unions agree to tie pay to GDP

  1. Gareth
    Feb 13th 2012, 1:28 pm

    Intriguing.

    Are we talking nominal wage rises and real GDP there? There is a throwaway comment about links to CPI in the TUC piece.

    “Wage increases have, of course, been decoupled from price increases and productivity”

    Hmmm, you make that sound bad. UK average wages went up 40% 2000->2008 wherease real GDP went up 20%. I suspect the China numbers look even better on the wages front. Isn’t that good?

  2. Owen Tudor

    Owen Tudor
    Feb 13th 2012, 5:18 pm

    Fair points, Gareth – I agree much more with this comment than your other one today!

    I agree that where real wages increase more than real GDP, that is probably good for working people (although it depends what goes down to compensate – it’s not necessarily good for working people, their families or their communities – ie the country as a whole – if the wage rises reduce investment, spending on skills and public services like health and education, although higher tax income would often compensate for that, and it is of course a dynamic not static system). But if the real wages increase by more than real GDP as a result of falling or relatively declining dividends, CEO bonuses and fatcat salaries, or other forms of rent, then it is indeed ‘good’ decoupling.

    If only that was happening. Real wages in the UK economy have stagnated (and latterly fallen) compared with real GDP growth since about 2005, and in the USA since much earlier than that, and have been falling behind the income growth of the very rich for even longer (these figures overlap with your time series, so I’m not saying you’re wrong, and I think you’re definitely right about the beginning of your time period, although it depends whether you’re talking about the mean or the median because mean wage growth will be distorted by the performance of high incomes.)

    China is different from that, although there too, while real wages have been increasing, they have barely kept pace with GDP growth (again, the time period makes a difference: they have caught up a bit since tighter labour markets and new collective bargaining laws forced wages up a bit faster), and inequality is growing there too, suggesting that, again, the rich are getting a disproportionate share of increasing GDP.

  3. mostafa rostom
    Feb 14th 2012, 8:15 am

    Daer Brother

    It is interesting General Trdae Union of Textile workers have opened an account in National bank to collect money from the workers to help national budget. Independent unions like petrol chemical lso shared the sme idea