BetweenPolarization and Statism- Effects of the Crisis on Collective Bargaining Processes and Outcomes in Hungary
Seconddraft, TRANSFER Special issue (2013)
Imre Szabó
Central European University, Budapest, Hungary
Summary:
In Hungary, collective bargaining processes and outcomes were thoroughly restructured since the outbreak of the economic crisis. This article presents two channels through which the crisis affected collective bargaining in the country: direct economic challenges and political change. Economic challengesintensified processes that had started already before 2008 –they led to further polarization of the labour force in the private sector and further austerity in the public sector. The shift in the political environment on the other hand had a more fundamental transformative impact, shaking the institutional underpinnings of collective bargaining. The findings presented heresuggest that thenew Orbán government has been pursuinga contradictory agenda in labour relations, combining elements of radical neo-liberal reform and state interventionism. Following Bohle and Greskovits’s (2012) framework, these developments are interpreted in the context of broaderpolitical-economic contradictions that embedded neoliberal regimes have to struggle with.
Key words: embedded neoliberalism, political change, polarization, state intervention
word count:5054 (including references)
Introduction
This articlepresents the effects of the current crisis on the processes and outcomes of collective bargaining in Hungary. It is arguedthat apart from the direct economicimpact, the political changes that were triggered by the crisis had an even more important role inshaping industrial relationsprocesses and outcomes.The direct economic challenges arising from the crisis led to a polarization of labour, meaning that partly with the help of concession bargaining,the core workforce in high-end multinationals avoided massunemployment, while unskilled workers in more precarious positions rapidly lost their jobs. By crisis-related political changeI refer to the landslide victory of the FIDESZ in the 2010 general elections. The new government initiated fundamental changesin the legal and institutional environment of collective bargaining, bringing further decentralization, degradation of union as well as employee rights. At the same time, these moves towards decentralization and liberalization wereto an extent counterbalanced by direct government intervention in wage setting.
The structure of the paper will reflect this duality of direct economic impact and government-induced changes.The first part will deal with the directeconomic impact and focus on the automotive industry as a best practice case of negotiated crisis responses. Nevertheless, this industry is a positive outlier, and its bargaining processes and outcomes should be interpreted in the context of a much more labour-hostile general environment. The second part of the article will more explicitly focus on the government-induced restructuring of industrial relationsafter 2010.The Orbán- government continued austerity and embarked on restructuring the institutional background of collective bargaining. Besides the employer-friendly provisions of the new Labour Code and the curtailment of union rights, the government directly intervened in wage setting even in the face of employer protest.The effects of continuing austerity and ambiguous political reformswill be more closely demonstrated through the example of the hospital sector.Based on the presented general processes and the two sectoral cases,the articleestablishes that the direct economic effects of the crisis were limited in the sense that they only strengthened already existing trendsof polarization and austerity– they produced more of the same. On the other hand, the current government’s proactive stance on labour issueshas a transformativeimpact on the nature of collective bargaining. At this point,the radical neoliberal agenda is more pronounced than the statist “noise”, but the long-term balance between these two opposing sets of policies is hard to assess.
The findings of this article support Bohle and Greskovits’s (2012) propositions about the contradictory nature of industrial relations in an embedded neoliberal country such as Hungary. Embedded neoliberal regimes established formal tripartite institutions in the early 1990s, one feature that set them apart from the pure neoliberal Baltic countries. But in contrast to Slovenia, they were incapable of using these institutions to hammer out corporatist solutions answering the major challenges of transition. Subsequently, formal central level bargaining was hollowed out by the rapid structural transformation of the economy and the resulting dramatic decline in trade union and employer organization power. In the face of international competition, governments in embedded neoliberal countries embarked on further liberalization of the labour market. However, as Bohle and Greskovits’s (2012) general framework and also Meardi’s (2007) interpretation of post EU-accession labour politics suggest, excesses of the neoliberal project can propel nationalist and populist forces into government that re-install stricter state control on the labour market.
This paper contends that the peculiarityof the Hungarian case arises from the fact that the Orbán-government unites the two oppositepole of neoliberal reform and the interventionist countermovement. The government accelerates the neoliberal project by attacking the remnants of labour incorporation and by flexibilizing employment relations, but it partly compensates for the effects of liberalization by intervening in wage setting. Therefore, current developments in the Hungarian bargaining system represent the contradictions of the embedded neoliberal model pushed to the extremes. This paper explores these contradictions, treating them as part of the broader political-economic regime.
Direct economic effects of the crisis on private sector bargaining – more of the same
The global financial crisis arrived to Hungary in October 2008 in the form of sudden current account imbalances.The government had to turn tothe IMF and the EU for a bailout package and introduced austerity measuresin return. Itis worth addingthatHungary was struggling to bring its public finances under control already since 2006. Financial troubles were quickly followed by a slump in the export-oriented real economy. As Table 1 demonstrates, industrial output dropped by 17.8 percent from 2008 to 2009, and despite record-breaking export performance since then, it did not recover completely. The GDP exhibits similar trends, with an even more modest recovery since 2010. It is not only a modest but also a jobless growth, an alarming fact in the Hungarian context. With only 55.4% of the 15-64 population in employment, Hungary hasone of the lowest employment rateswithin the entire EU. (Eurostat).Wages show more ambiguous developments, with the government sector bearing the brunt of wage moderation, while net wages in the private sectorincreasing slightly above theinflation every year since 2008.
Table 1: Main trends in the Hungarian economy and labour market
2008-2011 (percentage change from previous year)
GDP / 0.9% / -6.8% / 1.3% / 1.7%
Industrial output / 0.0% / -17.8% / 10.6% / 5.4%
Employment / -1.2% / -2.5% / -0.03% / 0.7%
Net wages / 7% / 1.8% / 6.8% / 6.4%
Net wages in the private sector / 7.7% / 4.4% / 7.6% / 8%
Net wages in the government sector / 5.9% / -4.5% / 5.3% / 2%
Real wages / 0.8% / -2.3% / 1.8% / 2.4%
Source:KSH
This part of thearticlewill analyzecollective bargaining within the above described macro-economic context. At this stage, the processes in the private economy will be treated separately from the public sector and from the central-levelchanges in the institutional and legal background of bargaining.Focusing onthe decisions of company-level actors, we found that rather than producing an overall decrease in the importance of collective bargaining, the crisis magnified already existing differences. Already before the crisis, the Hungarian industrial relations system was characterized by fragmented, company level, single-employer bargaining, with limited bargaining coverage.
Continuity in bargaining processes iscapturedthroughthe stability of bargaining coverage rates.According to the collective agreementdatabase of the Ministry for National Economy (MKIR),bargaining coverage remained low, but exhibited remarkable stability throughout the whole period. In 2007, collective agreements covered 35.8 percent of the workforce in the private sector. While this number dropped to 32 percent in 2008, it quickly rebounded to 34.8 percent in 2009, climbed to 37.6 percent in 2010 and stayed at the same level in 2011.These numbers imply that the majority of employers did not use the crisis as a pretext to withdraw from collective agreements. At the same time, this stability represents a low-level equilibrium, where the majority of the workforce is left out of collective bargaining altogether. These outsiders were also those who most likely lost their jobs in the wake of the crisis.
In a crisis situation, collective bargaining ideally aims at a compromise between unions and management to preserve employment while doing the least possible damage to wages and working conditions. Bargaining outcomes are to be judged by these standards. Hungarian unions recognized very early on that they have to change strategy and concentrate on saving jobs instead of demanding higher wages:they were willing to engage in some form of concession bargaining. (Neumann and Boda 2011) Given the very low collective action capacities of Hungarian unions, the presence of negotiated responses depended entirely on management’s discretion. Luckily for unions, employers had a clear interest in keeping the core, highly skilled workforce. Companies tried to weather the first waves of the crisis by not hiring new employees (Köllő 2011: 57). If later on, layoffs became unavoidable, they usually targeted agency workers and employees on temporary work contracts, who were not covered by collective agreements in the first place. As a result, the crisis led to a growing gap between skilled, unionized insiders with employment stability and unskilled outsiders losing their job.
However, the core workforce also had to endure concession in the form of more flexible working time rules and wage losses. For working time rules, the crisis served as an accelerator for processes that started already before 2008. For example, working time accounts were introduced in most of the larger Hungarian firms alreadybefore the onset of the crisis. (Neumann and Boda 2011: 84)In terms of remuneration, direct wage cutswere very rare, but the new working time rules allowed a drastic cut in the amount of paid overtime.
Crisis responses in the car industry –best practices?
The case of the car industry demonstrates that a core, high-skilled workforce emerged as a “winner” from the crisis. The automotive industry was the only segment of the Hungarian economy where negotiated responses played a visible role in protecting employment. At the same time, it is also evidentthat practices variedwidely even within the sector, depending on management attitudes towards collective bargaining - as there is no sectoral agreement in place.To understand why the car industry is an exception rather than the rule in terms of negotiated crisis responses through collective bargaining, we have to take into consideration that legally, the management is not obliged to negotiatewith unions on special measures with regard to work time rescheduling. According to the Labour Code (also to the former one) even the most typical corporate adjustment strategy, working time reduction, requires only individual work contract amendments. (Neumann and Boda 2011:92)
Despite the lack of legal obligations to do so, several automobile companies signed agreements with unions on crisis relief measures. Audi’s management cooperated on the whole spectrum of employment-related decisions with unions, striking a deal of safe jobs at a price of working time and variable pay rescheduling. At the end of 2008, after a series of negotiations, an agreement was reached that contained the extension of the Christmas shutdown, introduced 10 days of compulsory paid holiday and a wage freeze. The management maintained the right to specify the date of the extra holidays but it had to comply with certain provisions, e.g. a 30 days’ notice period. A second deal was also agreed which limited the end-of-year bonus to one month’s pay and gave 12days off in return. The exact timing of these holidays was entirely at the management’s discretion with no obligation of advance notice. Finally, the working time account’s reference period was extended until 2011. (Neumann and Boda 2011: 94) Apart from these long-term arrangements, a day-to-day connection was established between employers and employee representatives as three managers and three unionists meet “every Monday to evaluate the company’s position and discuss the necessary actions.” Even more importantly, regular negotiations took place between Hungarian and German unions. (Neumann and Boda 2011: 95) Audi’s example was followed by other German-owned companies in high value-added sectors. Mercedes, which launched its Hungarian branch in 2012, also shows a welcoming attitude towards unions. (Komiljovics 2011a)
While Audi providesa bestpractice example in terms of crisis management through collective bargaining, the biggest car manufacturer in Hungary, Suzuki adds a strong negative case to the overall picture. Suzuki has a long history of trying to preclude trade unions from organizing its factory workers. (Komiljovics 2011a) Suzuki – partly also due to its size – relied also more heavily on agency workers than Audi. At the onset ofthe crisis, Suzuki dismissed 1200 from its 5900 employees.
Changing rules of the game – the restructuring of bargaining institutions by the Orbán-government
The crisis also triggered fundamental political changesin Hungary that had clear repercussions on bargaining processes.Socialist premier Ferenc Gyurcsány,who was in office since 2004 and who started to take the first anti-crisis measures,resigned in early 2009. The succeeding caretaker government pushed on with austerity and some liberalization of the labour market but it also held onto the institutional status quo, consulting with social partners and making some concessions. For example, the 13 month wages of public sector workers were phased out in a way that tried to minimize the damage done to public servants with the lowest salaries.(Tóth, Edelényi and Neumann 2009)The elections in 2012 gaveconservative FIDESZ a two-third majority in the parliament, allowing the legislative to reshape fundamental institutions –in the area of labour relations as well.By abandoning tripartitism, changing the strike law and introducing a new Labour Code, the new government has rewritten therules of the game, making it more difficult for unions to stand up for employee interests. The government also caused conflict in wage settingby introducing a flat tax system favouring high earners.Subsequent measures aiming to offset the new system’s negative effects forlow income groups on the other hand were unfavourable to employers.
Concerning the process of bargaining, the most important government-initiated changewas the abolition of the tripartite National Interest Reconciliation Council (OÉT) and its replacement by the powerless National Economic and Social Council (NGTT). OÉT had an important role as the only peak-level institution where labour policy issues could be discussed and where recommendations on yearly wage increases could be agreed. Besides, between 2002 and 2010, the government was obliged to reach an agreement with bargaining partners represented in the OÉT on annual minimum wage levels(Komiljovics 2011b).The new forum (NGTT) does not have a tripartite structure -it does not include government representatives, but it features various “non-economic” civil society organizations – and it has only an advisory instead of a consultative function. The institutional setting of wage bargaining and the power balance between unions and employers was also altered by the amendment of the strike law. The modified legislation stipulates that in case of a dispute on the minimum service requirements, industrial actioncan only be launched with the prior consent of a labour court. The new terms seriously curtail the right to strike in public services where strikes were most frequent (Rindt 2012).
While the abolition of OKÉT and the new strike law alter the bargaining process by decreasing the bargaining power of unions, the new Labour Code has direct effects onindividual employees as well.Already during its drafting, the new law received heavy criticism not only from national unions but also from the ILO (2011). The government was eventually willing to consult with unions and abandoned the most radical changes from the new law, whichcame into fulleffecton 1 January2013. The new Labour Code seriously undermines employee rights byreconceptualisingthe labour contract as a civil law relationship, assuming equal power relations between employers and employees(Tóth 2012: 9).According to the new legislation, individual work contracts and collective agreements can now set lower (“more flexible”) standards than the Labour Code. For example, employers and employees can now agree on basically any distribution of paid holidays in individual contracts and collective agreements.Annual overtime of 250 hours will be allowed in the future, up from the current 200 hours. In addition, the number can reach even 300 hours, if the employer and employees agree on it in the collective agreement or individual contracts (Komiljovics 2012a).There are several areas where employers can lower work standards even without the rubberstamp of individual work contracts or collective agreement modifications. For example, the new legislation clearly stipulates less favourable overtime compensation for employees and employers nowcan terminate work contracts while the employee is on sick leave (Tóth 2012: 5).