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This book offers a labour perspective on wage-setting institutions, collective bargaining and economic development. Sixteen country chapters, eight on Asia and eight on Europe, focus in particular on the role and effectiveness of minimum wages in the context of national trends in income inequality, economic development, and social security.



1. Asia: A Comparative Perspective

In this chapter, we set out the characteristics of the eight Asian countries (China, India, Indonesia, Japan, Korea, Pakistan, Thailand and Vietnam) scrutinized in the following chapters. The focus is on minimum wages (MWs), collective bargaining and economic development. We start by positioning the countries according to their gross domestic product (GDP) per capita ranking and growth rates since 2000. In section 1.2, we explore the patterns and differences in inequality and informality. In particular, we focus on the development of the wage or labour share and the personal income distribution coming through in the last decade. Section 1.3 covers MWs and collective bargaining, as well as the linkage with social security systems.

Maarten van Klaveren

2. China

With a population of 1,362 million in 2013, China has achieved impressive progress in its economic development since the adoption of market-oriented reform in the late 1970s. Over the past three decades, China’s real GDP grew at an average annual rate of 10 per cent — the fastest economic growth in history (ILO 2014, 55). Reaching a GDP of USD 9.2 trillion in 2013, China became the second largest economy in the world, though its scale was still considerably smaller than that of the US economy (USD 16.8 trillion). As China’s economy has relied heavily on foreign trade, it is not surprising that currently the country is the world’s largest manufacturer and exporter of goods and the second largest importer. Although these facts and figures may be breathtaking, it is still an upper-middle-ranked country measured in terms of income per capita. In 2013, China’s GDP per capita of USD 6,807 ranked 90th in the world, although in 2012, 128 million of its people still lived below the national poverty line of RMB 2,300 per year (about USD 1.80 a day), which meant that after India, China had the second largest number of poor people in the world (see World Bank country data/China website1).

Yongjian Hu

3. Vietnam

Since the ‘Doi Moi’ reforms of 1986 which steered a path to a market-oriented economy, Vietnam has achieved considerable economic growth and improved standards of living. In 2013, GDP per capita reached USD 1,911, a 2.7 times increase over 2005 (USD 699) and over 19 times more than 1988 (USD 98). According to World Bank data, Vietnam’s total GDP in 2013 was 56th in the world and 6th among the Association of Southeast Asian Nations (ASEAN) countries. Since 2010, Vietnam has shifted from a low-income country towards the group of lower middle-income countries. From 1991 onwards, the country showed average five-yearly GDP growth rates of over 5.5 per cent per annum. In 2011–13, in spite of the slump of the world economy, GDP per capita growth averaged 4.5 per cent (Statistical Appendix, Table A.2).

Dang Quang Dieu, Hien Thi Thuong Dong

4. Korea

From the mid-1960s to the end of the 1980s, (South) Korea gained worldwide attention for its rapid growth in gross domestic product (GDP) and exports and became one of the group of so-called Asian Tiger countries. With major government support, the large chaebol conglomerates such as Samsung, Hyundai and LG expanded to become world-famous brands. Korea’s GDP per capita at USD 25,977 in 2013 was higher for instance, than the comparable figures for the Central and Eastern European countries. Less well-known is that this growth miracle has been grounded on low wages and the oppression of labour. For three decades in Korea an independent trade union movement was not allowed and workers were denied the right to strike. Thus, wage bargaining was virtually impossible. Yet, after 1987 a democratic union movement arose that by the 1990s had achieved considerable gains. A minimum wage (MW), for example, was established with effect from January 1, 1988. At the time the Korean economy seemed to be on the way to leaving its low-wage base behind and heading towards an upgrade of its economic structure.

Maarten van Klaveren, Tae-Hyun Kim

5. Japan

The role of labour market institutions, wage determination and economic development in Japan is an interesting case. After World War II, as the very first of the ‘Asian miracle’ countries, Japan rapidly caught up with the living standard of the most developed countries in the world. However, since the early 1990s the country has suffered from a less dynamic economy, with stagnation and even deflation. The ‘Japanese disease’, as this deflationary development over the last decades has been called, depends very much on wage developments and the failure to prevent falling wage costs. In this contribution, labour market institutions and wage development in Japan and their negative effects on economic performance are at the centre of the analysis.

Hansjörg Herr

6. Pakistan

In Pakistan, wage trends have been characterized by the widening of wage differentials. The gap between wages of low-income and high-income groups has widened in recent years, due more to national socio-economic structural anomalies and failures than global factors. The country has a statutory minimum wage (MW) fixing system, but it does not function effectively mostly because MW setting is not carried out institutionally but is arbitrarily based on political expediency. Wage setting through collective bargaining is rare as trade unions have diminished in number, size and power due to neoliberal economic policies, repressive labour legislation and informalization. A disconnect between the labour movement and academia and the disinterest of economists in labour issues have all contributed to the absence of a meaningful debate on MWs.

Karamat Ali, Zeenat Hisam, Sohail Javed

7. India

India has a long tradition of having a statutory framework for minimum wages (MW) designed to cover its large, working population distributed between the formal and informal sectors. The Minimum Wages Act 1948 enacted soon after India gained independence on August 15, 1947, which meant that the country was the first among the developing countries to introduce a statutory MW. Both internal (rising industrialization, labour unrest and strikes) and external forces (International Labour Organization (ILO) conventions and political developments) contributed to the enactment of this legislation (John 1997; Rani and Belser 2012). Even today this MW legislation is considered as a landmark law, though it is extremely complex from an administration perspective. It is through this piece of legislation (and for many years the only major one) that workers in the informal or unorganized sectors and agricultural occupations have received protection against low wages. Given the complexities of the Indian labour market, the legislation has been an achievement. MW rates have been declared for more than 1,500 occupational categories, for the centre and 30 states/7 union territories (UTs, administered by the central government), bifurcated further by geography and skill levels (Varkkey and Korde 2012).

Biju Varkkey

8. Indonesia

In August 1945, two days after the surrender of the Japanese occupiers, Sukarno and Hatta declared Indonesian independence. At this point, Sukarno, the country’s first president, laid down the Pancasila or five principles of the Constitution, namely: nationalism, internationalism, representative democracy, social justice and theism. A four-and-a half year guerrilla war followed as the Dutch tried to re-establish their colony. In December 1949, the Netherlands formally recognized Indonesian sovereignty. A military coup in October 1965 meant the beginning of the end of the Sukarno era. The economic policies of Suharto’s New Order fiercely encouraged foreign direct investment (FDI). Also, the Suharto regime restored and maintained tight political control over the archipelago. Economically there were massive ups and downs. The boom in oil prices and the related increase in Indonesia’s oil exports resulted in strong growth of GDP per capita between 1970 and 1980. However, with oil prices trending downwards, GDP shrank 20 per cent from 1980 to 1990, followed by a 13 per cent decline from 1990 to 2000. FDI aiming at the integration of Indonesia’s cheap labour in global production chains in textile, clothing, sport shoes and electronics could not take over the role of mining as growth motor. Moreover, economic growth was hampered by pervasive corruption, with immense wealth accumulated by the Suharto family and their business cronies.

Surya Tjandra, Maarten van Klaveren

9. Thailand

This chapter focuses on the conflicts fought in and around the institutions of wage-setting, trade union formation and collective bargaining in Thailand. It argues that over the past three decades, institutionalized processes of wage formation and bargaining in Thailand have been dominated by the interests of capital and the state to support a strategy of export-oriented industrialization based on the mobilization of cheap, unskilled and disorganized wage labour. However, this strategy may now be in transition as sections of business and state managers have recognized its limitations and the need to shift to a growth model with greater emphasis on domestic markets, productivity growth and higher wages. A key source of conflict is now focused on the institutional architecture that might underpin such a model.

Sakdina Chatrakul Na Ayudhya

10. Europe: A Comparative Perspective

An analysis of European developments from a comparative perspective has to consider at least two important features. First, there are the different economic development models and different wage-setting regimes in the countries to be compared. Accordingly, to carry out a comparative analysis it makes sense to cluster groups of countries which represent similar ‘varieties of capitalism’. Thus, we have drawn a rough distinction between five different types of European capitalism, namely, the Nordic, Central, Western, Southern and Eastern European models. Within each type, countries show substantial similarities in both the dominant national economic development model as well as the national wage-setting regime (Table 10.1).

Maarten van Klaveren, Thorsten Schulten

11. France

The wage determination process in France is affected by two institutional forces. The first is the statutory minimum wage (SMW) set unilaterally by the government, and the second is a decentralized system of collective bargaining. The linkages between the two benefitted workers for three decades in a row but have changed significantly since the mid-1990s. In the aftermath of World War II, the minimum wage (MW) was a powerful tool to level social inequalities, while the social benefits collectively bargained in large companies spread to similar branches of activity and, to some extent, from one sector to another. Since the 1990s, however, this mechanism no longer functioned well due to the changing economic environment. On the one hand, the casualization of labour has undermined the benefits of lifting the MW. On the other hand, collective bargaining has been gradually reshaped through a decentralization process whereby plant-level settlements have become the standard. Accordingly, the key question for us concerns the extent to which this fundamental change in French industrial relations has affected both the wage distribution over time and the long-term dynamics of wage development.

Michel Husson, Estelle Sommeiller, Catherine Vincent

12. Italy

The Italian system of industrial relations has been undergoing a prolonged phase of transition. The numerous events which have hit it in recent times have rapidly and profoundly changed the traits that marked the Italian model. Reasons and causes are both exogenous and endogenous, economic as well as institutional. The main exogenous factors are globalization, the financial crisis and the economic downturn, as well as the role of the international and European institutions, with their interventions in national policies. This scenario is partially shared with other deficit countries and is currently exerting pressure on historically divergent models of industrial relations (Katz and Darbishire 2000) to converge with those dominated by neoliberal policies (Baccaro and Howell 2011). Among the endogenous factors, we include the structural weakness of the Italian economy, with its territorial and social dualisms, macroeconomic imbalances, stagnating productivity and declining competitiveness, inadequate development of human capital and segmented labour markets. Last but not least, there is the uncertainty attached to a model of industrial relations created by a degree of voluntarism and legal abstention unknown in other developed economies.

Salvo Leonardi, Riccardo Sanna

13. Germany

Until the 1990s, German capitalism was widely regarded as a successful synthesis of a highly competitive economy with high wage performance and relatively equal distribution of income. The economic backbone of the German political economy was a strong manufacturing sector specializing in high-quality production in sectors such as automobiles, electronics, chemicals, engineering and machine building, which promoted an export-oriented development model. On the other hand, relatively strong trade unions and a comprehensive collective bargaining system ensured the majority of German workers participated in the overall economic development. Notable too, was the fact that the domestic sector did not lag too far behind the export industries. During the last decades, however, German capitalism has undergone some fundamental transformations which have questioned the efficiency and equality achieved by the former social contract (Streeck 2009). Faced by new external challenges combining the unification of Germany in 1990 with European integration and growing internationalization, Germany entered a period of neoliberal restructuring of its traditional welfare state and labour market institutions. Among other things, this had a major impact on the development of wage policy in Germany leading to a partial erosion and fragmentation of collective bargaining (sections 13.2 and 13.3) as well — and more fundamentally — to a significant change in power relations and the weakening of trade unions (section 13.4).

Thorsten Schulten, Reinhard Bispinck

14. The Netherlands

The Netherlands is a densely populated country with a small, open economy, heavily dependent on services and trade. For example, in 2014 some 86 per cent of its 16.8 million inhabitants lived in urban areas. With a GDP per capita of USD 47,617 in 2013, it is a relatively rich country. Though the country is home to industrial multinational enterprises like Philips, Shell, Unilever, Akzo Nobel and Heineken, manufacturing has remained comparatively limited. In 2012, the share of employment in the services sector was at 81.7 per cent, the second highest in the EU (Statistical Appendix, Table A.3B). Four trade-related clusters have latterly developed into economic powerhouses: commercial services; chemicals; food industry (agri-business) and the ‘gateways’ to Europe where Rotterdam seaport and Schiphol airport connect with the important transport and logistics sector. The country is dependent on exports. The share of its value added created through production for exports grew slowly during the period 1995–2011 and reached 38 per cent in 2011 which, except for Belgium, was considerably higher than that of other EU countries (CBS 2013, 56).

Maarten van Klaveren, Kea Tijdens

15. The Nordic Countries

Denmark, Finland, Iceland, Norway and Sweden are commonly grouped together as the Nordic countries. This is not only due to their geographic proximity but also because they share important characteristics, such as being small and relatively prosperous economies with highly organized labour markets and well-developed welfare states. Three of these countries — Denmark, Finland and Sweden — are members of the European Union (EU), while Iceland and Norway have opted for a ‘quasi-membership’ through the agreement on the European Economic Area (EEA). In practice, this means they are part of the EU common market and obliged to implement EU regulations. At first glance, the similarities between the five countries are more striking than the differences. When observed more closely, however, considerable differences show up concerning the organization and regulation of their labour markets.

Line Eldring, Kristin Alsos

16. Central and Eastern Europe

This chapter provides an overview of wage developments and their drivers during the first two decades of the transformation process in Central and Eastern Europe (CEE). It puts the experience of CEE countries in the context of the current European situation and draws some lessons for Asia.

Bela Galgoczi

17. The United Kingdom

As one of the first countries to both industrialize and de-industrialize, the United Kingdom provides a good case study of the labour market consequences of such a change. Moreover, many of the characteristics attendant on the shift towards an economy where the service sector provides the dominant share of both GDP and employment have subsequently also shown up in other mature industrial nations. The impact of the Great Recession on the UK economy was, it seems, exacerbated by the disproportionate size and influence of the banking and financial services sector which accounted for around a fifth of GDP in 2012. Recently, this has called into question the viability of the de-industrialization policy followed by successive governments over the last 40 or so years. Moreover, as we will show, from the standpoint of securing a fairer distribution of income and wealth, the macroeconomic policy changes introduced since the late 1970s have had the opposite effect.

Rupert Griffin, Denis Gregory

18. The Russian Federation

After the collapse of the Soviet Union in 1990, the transition of the Russian Federation was marked by a profound crisis leading to industrial collapse and hyperinflation in 1992, followed by a financial crisis in 1998. Eight years later, the scenario had changed. In 2006 and 2007, Russia showed its highest economic growth for 20 years, with GDP per capita increases of 8.6 and 8.8 per cent, respectively. Subsequently, wages were also increased substantially (Federal State Statistics Service [Rosstat] 2014). However, the country’s economy remains very vulnerable in that overall economic growth continues to be highly dependent on factors in the global economy.

Elena Gerasimova, Anna Bolsheva


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