23 May 2016

By Dr Aurora Trif, Lecturer in Human Resources Management, Dublin City University

In the second of our series of blogs detailing how the Troika has helped to spread the neoliberalist agenda across the EU, including in its diminishing of trade union powers, Dr Aurora Trif takes a detailed look at how the decentralisation of collective bargaining has affected wages and employment rights in Romania.

Introduction

The 2008 crisis led to different levels of change in industrial relations in the EU member states, with Romania being an extreme case of decentralisation of collective bargaining. Although labour market regulation was not considered a cause of the crisis in Romania, the increase of labour market flexibility was a precondition for receiving financial assistance from the Troika, from which Romania borrowed approximately €20 billion in 2010 to deal with the budget deficit. This international agreement gave legitimacy to the center-right government to unilaterally introduce two main sets of austerity measures that affected collective bargaining, namely (a) substantive measures aiming at reducing public debt in 2009 and 2010, and (b) procedural measures seeking to increase labour market flexibility in 2011. These measures led to the dismantling of the multi-layered collective bargaining mechanism, which in turn, worsened the terms and conditions of employment for most employees.

Decentralisation and massive reduction of collective bargaining coverage

The main procedural reforms consisted of downgrading individual and collective employment rights to increase the flexibility of the labour market. Individual employee rights were reduced by the new provisions of the Labour Code adopted in 2011. First, the new provisions make it easier for employers to hire and fire employees and to utilise flexible forms of employment contracts. Second, they increase employers’ prerogatives to unilaterally modify working time, including the right to reduce the working week (and the corresponding wages) from five to four days. Finally, the new provisions allow employers to unilaterally set employees’ workload, while previously employers had to consult unions. Thus, the downgrading of individual rights have undermined the role and influence of trade unions at company level, while increasing the prerogatives of employers to unilaterally set employment conditions.

Moreover, the collective rights were slashed by the Social Dialogue Act (SDA) adopted in 2011, which diminished fundamental collective rights of employees to organise, strike and bargain collectively. First, the SDA forbids cross-sectoral collective bargaining, which considerably diminished the role and influence of unions and employers’ confederations. Second, the provisions of the SDA made it very difficult to negotiate sectoral collective agreements and their number dropped by 60%. Furthermore, the lack of higher level collective agreements and the increase in representativeness criteria from 33% to 51% for company-level unions to be eligible to negotiate collective agreements made it far more difficult to negotiate company level collective agreements. Apart from a 20% reduction in the number of company level collective agreements between 2008 and 2014, there was a massive decline in the number of collective agreements negotiated by representative unions while non-representative unions and elected representatives of employees have negotiated more than 85% of collective agreements since 2011. Overall, collective bargaining coverage declined from 98% in 2010 to 35% in 2014.

Austerity measures led to worsening terms and conditions of employment

The Romanian center-right government introduced some of the most restrictive substantive measures in the EU as part of the conditions required to get international financial assistance. In 2009, a new public wage law was introduced by the Government which reduced public salaries funds. Apart from changing the salary grids by tying all public sector employees to a wage scale defined in terms of multiples of a base salary of 600RON (€142), the provisions of the new law obligated the management of public institutions to reduce personnel expenses by 15% in 2009. Additionally, in 2010, the Government decreased salaries of public sector employees by 25% and cut other benefits. These measures reduced the budget deficit from 9% of GDP in 2009 to 3% of GDP in 2012, helping to achieve financial consolidation, but the budget savings were made at the expense of living standards. Although the 25% salary cuts were gradually restored since 2012, approximately one in four public sector employees were getting the minimum wage in 2015.

Moreover, the annual real compensation per employee (private consumption deflator) for the entire labour force (including both public and private sectors employees) has declined by 7.4% in 2009, by 4% in 2010 and 9% in 2011; there was a 5.8% increase in 2012, while it remained relatively unchanged in 2013 and 2014. With an average monthly income of less than €340 between 2009 and 2014, low wages are the main concern of Romanian employees.

A qualitative study conducted in 2014 in six large manufacturing companies operating in the metal and food sectors indicated that the downgrading of employment rights has led to worsening employment conditions even in companies where unions have a strong hold. Four out of the six companies were recommended by the sectoral unions as ‘best case scenarios’, as they had representative unions (over 50% union density) which negotiated collective agreements at the company level and unions had rather cooperative relations with the management team. In three of these four case studies, the employers did not utilise the provisions of the SDA to reduce collective employment rights but they used the new provisions of the Labour Code to alter the terms and conditions of employment. Despite no changes in collective bargaining procedures, in one case, unions have been unable to defend against a 40% labour force cut; and in another case, the reduction of the working week from five to four days during the summer months. Often, management used the new provisions of the Labour Code to employ new workers on fixed-term contracts. The qualitative findings indicate that employers are able to use the new legal provisions to downgrade employment conditions but there is variation across companies depending on the attitude of employers towards employees, developments in collective bargaining in other large companies in the area, and unions’ capacity to mobilise.

Limited success in reviving collective bargaining

There have been two sets of responses to address these issues, namely to modify the legislation and to organise and mobilise workers at company level. The most significant attempt to modify labour laws was a proposal by the central-left government to amend the SDA (Law 62/2011) to comply with ILO Conventions in 2012. This proposal was supported by the trade unions and the four largest employers’ confederations but it was opposed by the Troika. In their joint comments, the EC and the IMF stated:

[…] we strongly urge the authorities to limit any amendments to Law 62/2011 to revisions necessary to bring the law into compliance with core ILO conventions.”

The EC and the IMF opposed proposed changes concerning the extension of national and sectoral collective agreements. They were against changes that would make it easier for employees to take industrial action and also asked for further reduction in unions’ influence by limiting the legal protection of local employee representatives involved in collective bargaining. However, they agreed with the proposed changes of the local union representativeness criteria from over 50% to 35% and a reduction in the number of members required to form a union from 15 to five. Nevertheless, none of the proposed amendments were introduced by the Government. There was a minor change in the legislation in 2015 to allow representative sectoral union federations to sign a company level collective agreement if there is no representative company-level union. Previously, federations could negotiate collective agreements together with employee representatives, but only employee representatives could sign the negotiated agreement. Thus, there has been very limited success in restoring fundamental union rights, which is a precondition for genuine collective bargaining.

In order to fight against the deterioration of terms and conditions of employment, some unions managed to organise workers. In a recent investigation of six large manufacturing companies, the worst deterioration of employment conditions was in a case which was not unionised and where the hostile attitude of the senior managers towards middle managers and employees led to the creation of a new trade union. In other cases, unions in the retail and information technology sectors managed to unionise workers after 2008 in the Romanian subsidiaries of some multinational companies, such as Carrefour, Selgros, Alcatel-Lucent and WiPro, demonstrating that unionisation is possible in an unfavourable context. While this study confirms that the stronger the unions are the more likely they are to maintain (or improve) the terms and conditions of employment, the findings suggest that to be able to do so, unions have to prove their capacity for mobilisation during the recession. The union at the Dacia Renault Pitesti factory has increased the annual wage by 350 RON (€80), following a 16-day strike in 2008. Also, in another case, unions managed to resist the deterioration of employment conditions after proving their capacity to mobilise their members. That case has also shown that union involvement in the International and European Works Councils played a crucial role in preserving their strength, emphasising the importance of the international institutions for employees’ representation.

Conclusion

The Troika’s request to increase labour market flexibility as a precondition for getting financial assistance contributed to the dismantling of the multi-layered collective bargaining mechanism in Romania. The procedural measures led to a transformation of the regulatory framework from a statutory system that supported collective bargaining at the national, sectoral and company levels to a so-called ‘voluntary’ system, which has greatly increased the prerogatives of employers and managers to unilaterally set the terms and conditions of employment. Despite labour shortages due to massive emigration since 2007 and trade unions’ resistance in some large companies, the downgrading of individual and collective employment rights has led to a massive decline in collective bargaining coverage and to the worsening of employment conditions for most employees.