Economic discussion paper 2011/05
THE BELGIAN LAW ON COMPETITIVENESS: A POOR EXCUSE FOR A
EUROPEAN LAW ON WAGES
To pursue cost competitiveness, Europe is in the process of setting up
mechanisms and regulations that intervene in wages and wage setting
institutions at national level. In this context, a rather peculiar argument is
being made. This argument claims that trade unions across Europe should
learn from the 1987 Belgian law on competitiveness, which forces private
sector wage dynamics in Belgium to stay closely in line with wage
developments in Germany, France and the Netherlands. The argument
continues that if Belgian trade unions have managed to cope with such a
law for more than two decades, why shouldn’t trade unions across the rest
of Europe be able to do so now?
This is a very disingenuous argument. The comparison between the
Belgian law on competitiveness on the one hand and the proposals for a
Competitiveness Pact and European Economic Governance on the other
hand is deeply flawed, and this because of two reasons.
I. The social ‘checks and balances’ from the Belgian system are
totally missing in the European proposals.
The Belgian arrangement is not simply about ‘streamlining’ collective
bargaining. Its underlying logic is very much to strike a deal on wage
growth in exchange for progress on the social side of things.

Maintaining the system of wage indexation. Belgium is one of the
relatively few countries in Europe, indeed in the world, which has a
more or less generalized system of automatically indexing wages – with
some corrections - to past inflation. This is a major social feat that, for
Belgian trade unions, cannot be stressed enough. It means that the
purchasing power of workers is protected from real wage cuts. It
means that all workers are guaranteed nominal wage increases,
irrespective of the willingness of employers to engage (or not) in new
collective bargaining agreements. It means improving the bargaining
position of trade unions since all bargaining already starts from
increased nominal wages. Essentially, wage indexation provides a good
basis for all workers to share in the benefits of economic growth and
explains, together with the existence of a decent social security
system, why inequality in Belgium is relatively limited.
Returning to the core of the matter, there’s an implicit but strong
understanding in the Belgian system of collective bargaining that the
process of streamlining Belgian wages with developments abroad goes
hand in hand with the principle that wage indexation as a basic
instrument for social cohesion is to be maintained. Both are like
Siamese twins: Wage indexation and the law on competitiveness cannot
be separated from each other.

It’s about competitiveness and jobs and social benefits. A second
social balance was added in 1996, when the initial competitiveness law
from 1987 was substantially reformed. At that time, trade unions
insisted on the point that simply focusing on wages provided for an
incomplete and false picture. In those cases where trade unions from
neighboring countries did agree to some form of wage restraint, this
was usually done in exchange for something else such as business
and/or government commitments on social benefits (pensions, early
retirement, unemployment benefits), on jobs (hiring workers in
disadvantaged positions), on training and/or on investment programs
for economic recovery. This was recognized by transforming the 1987
law on competitiveness into a law ‘on maintaining competitiveness and
jobs’. From 1996 on, comparisons between Belgium and neighboring
countries are no longer limited to wages but also involve the issues of
employment, investment, social, and research and innovation policy.
This provides Belgian trade unions with a platform to discuss the policy
engagement that employers and governments should make in return
for the potential commitments on wages. In the past, this enabled
trade unions to negotiate on improvements of unemployment benefits,
pension benefits, and minimum wages as well as on commitments to
keep early retirement systems.
In short, the Belgian system rests on major social –economic balances. In
this respect, the European approach could not be more different. Any
positive or social counterpart for workers and trade unions is totally
lacking:

Neither the Competitiveness Pact nor the Economic Governance
proposals are about coordinating wage dynamics in exchange for
maintaining and building strong and representative systems of
collective bargaining. On the contrary, they are about imposing a tough
discipline on wages by dismantling and weakening collective bargaining
systems (decentralization, squeezing public sector wages, questioning
wage indexation mechanism). This will lead to even higher inequalities
since the deregulation of wage formation systems will mainly impact on
those workers who are the most vulnerable and are already the lowest
paid.

The European proposals also bar social deals by which wage dynamics
are put in the balance with social expenditure or investment in
employment policies. The intention is not only to block wages but also
to weaken everything else from unemployment benefits systems, over
early retirement systems, to cuts in public services and investment
budgets. Trade unions, when trying to obtain some counter
commitment, will find governments and employers refusing by
referring to the ‘iron discipline’ of European economic governance.
All of this also implies that the European proposals will unbalance the
institutional arrangements now existing in Belgium. Business would be
given a huge advantage. Their negotiating position would go through the
roof: European wage comparisons and recommendations will be used to
lecture trade unions that new wage agreements are not affordable while
at the same time demanding to abolish wage indexation systems, early
retirement and everything else that provided a social counterweight for
wage coordination.
II. Belgium is not Europe.
Belgium is a very open economy, highly dependent on exports and highly
integrated in the production chain supplying German and French industry.
Belgium is also a rather small economy. The latter implies that aligning
domestic wage dynamics with wage developments in the three
surrounding neighbors does not pose much of a systematic risk for the
stability of wage dynamics in the entire sub region. Belgium is too small
an economy for German or French wages to react and “retaliate” to a
Belgian strategy of wage moderation.
However, imposing the type of wage comparisons made in Belgium on a
European level is an entirely different matter. It’s not only the fact that a
wage moderation strategy that is initiated by one or two big Euro zone
members would most likely be copied by others. A European wide system
of wage comparisons would actually force member states to follow other
member states in shifting to a strategy of wage moderation and wage
cuts. This is because the trade weights that are used in these wage
comparisons reflect the fact that Europe is an integrated marketplace,
with members mainly trading with each other: Any improvement in the
wage cost position by one member state will immediately and
automatically be reflected in a worsening of the relative wage cost position
of other member states. Such a generalized system of competitive wage
comparisons at the European level will organize the race to the bottom in
a structural and systematic way.
III. Conclusions
Trade unions around Europe should categorically refuse the argument that
the Belgian law on competitiveness may serve as a reference for a
European ‘Competitiveness Pact’. The social balances that are part and
parcel of the Belgian system are totally lacking in the European level
arrangement.
Moreover, Europe is quite a different league than Belgium. It is perverse
to copy wage comparisons towards the European level: Such a European
law on competitiveness will systematically set up wages and workers
across Europe against each other. Europe is supposed to prevent member
states from undercutting each other not to promote this sort of behavior.
RJ/ETUC/18th March 2011, Brussels