Bob Hancké

EMU and Labor Market Institutions in Europe - the Rise and Fall of National Social Pacts

During the 1990s, wage setting increasingly became coordinated in many Member States of the European Union (EU), often through new arrangements involving broad encompassing social pacts between employers, trade unions, and governments striking deals across policy areas from wages to social and employment policies. We argue that the different forms of institutional innovation in wage setting found in the EU depended on the combination of the character of external pressures and preexisting protoinstitutional structures in the labor market. The shifts in the institutions of wage-setting and macro-level labor market governance were directly related to shifts in macro-economic policy regimes, especially political-economic pressures associated with the advent of Economic and Monetary Union (EMU). Because these pressures were not symmetrically distributed across the different EMU candidates, both the urgency of the problems and responses they produced differed. Micro institutions conditioned the ability of countries to “embed’these new arrangements in stable rule-based governance structures.

Unions, Central Banks, and EMU: Labour Market Institutions and Monetary Integration in Europe

This book examines the crisis of EMU through the lenses of comparative political economy. It retraces the development of wage-setting systems in the core and peripheral EMU member states, and how these contributed to the increasing divergence between creditor and debtor states in the late 2000s. Starting with the construction of the Deutschmark bloc, through the Maastricht process of the 1990s, and into the first decade of EMU, this book analyzes how labour unions and wage determination systems adjusted in response to monetary integration and, in turn, influenced the shape that monetary union would eventually take. Before the introduction of the Euro, labour unions were disciplined by central banks and governments, after social conflict in the north of the continent and with the use of social pacts in the others. Since controlling inflation had become the main goal of macro-economic policy, national central banks acted as a backstop to keep militant unions and profligate governments under control. Public sector wages thus were subordinated to manufacturing wages, a set-up policed by export sector unions, aided by the central bank. With the introduction of the single currency, the European Central Bank replaced the national central banks and, as a result, their capacity to control labour unions disappeared. The strong links between wages in the public sector unions and wages in the manufacturing export sector weakened dramatically in many countries, wage inflation re-emerged, and the stage was set for the current account divergences at the basis of the crisis of EMU.

Comparative Institutional Advantage in the European Sovereign Debt Crisis

Excessive fiscal spending is commonly cited as a root of the current European debt crisis. This article suggests, like others, that the rise of competitiveness imbalances contributing to national imbalances in total borrowing is a better explanation for systemic differences toward Economic and Monetary Union (EMU) countries’ exposure to market speculation. We identify one driver of this divergence: a country’s capacity to limit sheltered sector wage growth, relative to wage growth in the manufacturing sector. Corporatist institutions that linked sectoral wage developments together in the surplus countries provided those with a comparative wage advantage vis-à-vis EMU’s debtor nations, which helps explain why the EMU core has emerged relatively unscathed from market speculation during the crisis despite the poor fiscal performance of some of the core countries during EMU’s early years. Using a panel regression analysis, we demonstrate that rising differentials between public and manufacturing sector wage growth, and wage-governance institutions that weakly coordinate exposed and sheltered sectors, are significantly correlated with export decline. We also find that weak-governance institutions are significantly associated with more prominent export decline inside as opposed to outside a monetary union.

Wage inflation and labour unions in EMU

This paper examines different levels of wage moderation in EMU member states since the introduction of the euro. Most arguments examining wage restraint have done so relying on the assumptions that relations between EMU member states are symmetric and that wage-setting systems are similar across sectors within one country. We introduce one innovation to these approaches and develop a second existing one. The paper adopts a dual-sector approach, where exposed sector unions are still tied to a competitiveness constraint on wages, while sheltered sector unions neither face a hard monetary constraint imposed by the central bank nor are subject to a competitive one. Wage moderation is higher in countries with wage-bargaining institutions which tie wage-setters in the sheltered sector to the exposed sector through a co-ordination mechanism. The second innovation is that of asymmetries between Germany and other EMU member states.

INNOVATION AND INDUSTRIAL RENEWAL IN FRANCE IN COMPARATIVE PERSPECTIVE

Conventional images of the French political economy portray a country stuck in a regressive dynamic, which hinders the construction of competitive industries. Recent developments question this interpretation of the French production regime: labour productivity and corporate profitability are high, the country has known an export boom, and has become the largest recipient of foreign direct investment on the continent. This paper attempts to analyse and explain these successes in French economic performance. It argues that the reorganization of the French economy owes much to a shift in the operation of the state-centred corporate governance system. While the state withdrew from direct involvement in the economy, it utilized its influence directly to pressure large firms to restructure internally, giving them the space to do so. The paper examines shifts in patterns of work organization, skills formation and firm-supplier networks as sources of increased competitiveness, along with shifts towards regional production networks within metropolitan France that have given new forms to the national innovation system.

The missing link. Labour unions, central banks and monetary integration in Europe1

This article examines the problems of the single currency in light of the organization of labour relations in the Member States and their interaction with monetary policies. Continental (western) Europe consists of two very different systems of employment and labour relations, roughly coinciding with ‘coordinated market economies’ in the north-west of the continent, and ‘Mixed Market Economies’ in the south. These differences in employment relations and wage-setting systems implied that, against the background of a relatively restrictive one-size-fits-all monetary policy in place since 1999, the north-west of the continent systematically improved its competitiveness, while the south lost competitiveness in parallel. Small differences between the two groups of countries at the start of EMU thus were accentuated and, against the background of low growth and an almost closed E(M)U economy, the northern coordinated market economies accumulated current account surpluses while the GIIPS (Greece, Italy, Ireland, Portugal and Spain) ran into severe balance of payments problems in 2010 and 2011.

Wage Bargaining, Labour Markets and Macroeconomic Performance in Germany and the Netherlands

Dutch economic performance in the 1990s has drawn envious attention from Germany: unemployment is low (6% in 1997 and falling), economic growth is strong, and its combination of low inflation and small budget deficit should allow it painlessly to meet Maastricht criteria for European Economic and Monetary Union. While similar economic results have also been achieved in the United States, the extent of deregulation implied by this approach has made it unpalatable to important actors in the Federal Republic of Germany including trade unions, Chancellor Helmut Kohl, and the management of many large firms. Hence, as Germany looks abroad for solutions to its own economic woes, the Dutch experience increasingly appears to offer a third way between business-as-usual and wholesale deregulation on the Anglo-Saxon model.

A Bonfire of the Regulations, Or Business as Usual? The UK Labour Market and the Political Economy of Brexit

Employment and labour market regulation initially appeared as one of the solid red lines in the UKs renegotiation of the countrys place in the EU. The basic argument is that the UKs more deregulated labour market would sit uneasily in the more organised models, based on statutory instruments or collective bargaining, found on the continent. While there is a legitimate problem here, EU employment regulations appear manageable from the point of view of business, while unions see them as important tools for socially responsible economic restructuring. Most of UK employment case law is now deeply entangled with EU law; labour market regulations have, on the whole, become part of the way of doing business in the Single Market; and a simple cost–benefit analysis appears impossible because some costs are not quantifiable and the costs of others are reduced when taken as a bundle. Labour unions agree that transposition of European law needs to be done taking into account local sensitivities, while internationally oriented companies do not see EU regulations on the whole as detrimental to business. Importantly, though, the costs and benefits of EU employment regulations are not symmetrically distributed across different companies: large companies are better able to reap the rewards and accommodate the costs of operating in the Single Market than smaller companies.

Endogenous Coordination: Multinational Companies and the Production of Collective Goods in Central and Eastern Europe

Most accounts of business coordination assume historically given conditions for this to emerge. Business coordination is therefore difficult, perhaps impossible, to construct endogenously. This paper examines a process of ‘endogenous coordination’ through an analysis of reindustrialization and industrial upgrading in Central Europe during the 2000s. Because of its recent post-communist history, during which existing institutions of economic governance were dismantled wholesale, Central Europe is a particularly unlikely place for complex forms of business coordination to emerge. Demonstrating the empirical possibility of endogenous coordination, and identifying conditions under which it has emerged thus shifts the debate from pessimistic fatalism to a more optimistic world of possibility. The paper identifies three conditions for business coordination to emerge. One, a pattern of industrialization that combines sophisticated skills and capital goods, leading to higher asset specificity and fixed costs; two, bottlenecks in the production of collective goods associated with these assets against the background of potentially high returns in investment; and, three, the existence of a third party, which provides a forum for deliberation and strategic coordination while holding effective sanctioning capacity.

Labour History symposium: Roland Erne, European unions

In this erudite and cautiously optimistic book, Roland Erne, a leading authority on contemporary trade union developments in Europe, challenges the widely held view that there is no realistic prospect for overcoming the European Union’s democratic deficit. Based on a series of important case studies of corporate mergers and wage bargaining, European Unions is both highly original and compelling. Erne’s intent is to assess the conditions under which trade unions combine to adopt and implement strategies that have a democratizing effect on EU governance. A must-read for all interested in the fate of European trade unionism, European Unions is here discussed by some of the foremost scholars of that subject.