Unions and Competitiveness in Belgium
An AmCham Belgium Policy Debate
A policy debate, sponsored by the National Labor Council (NLC), took place on May 5 between leaders of the two largest Unions in Belgium (the Socialist FGTB/AWB and the Christian CSC/ACV), the Federation of Enterprises (FEB/VBO), and AmCham Belgium member companies.
Agreeing on Wages: A Complicated Process
Luc Denayer, Secretary General of the Central Council of the Economy (CCE), set the scene by explaining how wages are determined in Belgium. This is a complex exercise, strictly regulated by a law dating from July 26, 1996, which all social partners need to abide by.
Who are the social partners? They are representatives of various employers' organizations and trade unions. Every two years they negotiate work conditions, wages and on-going training on behalf of their members in order to reach collective agreements. There are a total of 11 partners, often referred to as the Group of Ten (G10) (see boxed text).
Wage negotiations in Belgium are based on two things: a Technical Report prepared by the CCE and a benchmark of three neighboring countries (Germany, France and The Netherlands). The Technical Report provides the facts and figures social partners use in their biennial negotiations and comprise data on the macro-economic environment, labor and employment market, wages, structural competitiveness and on-going training. It also forecasts labor cost changes in the benchmark countries and inflation changes in Belgium. This Report helps the social partners to establish a salary standard, which is used in subsequent negotiations. The benchmark then assist in comparing the evolution of labor costs in Belgium.
There are three levels of negotiation:
1. Cross-industry negotiations that take place every two years
2. Joint committee (sectoral) negotiations: 90% of sectors are covered by these negotiations
3. Company negotiations: these discussions take into account the salary standard set by the social partners and what has been negotiated at the company’s sectoral (joint committee) level.
Increased Labor Costs
The CCE graph shows that, since 2005, labor costs in Belgium have increased by 3.6 percent compared to the benchmark – a substantial increase. Rudy De Leeuw (Socialist Union) and Marc Leemans (Christian Union) argued that the increase wasn’t so great, as 1.6 percent worth of fiscal wage subsidies could be deducted. Geert Van Croonenburg, Economic Expert of FEB/VBO, disagreed, arguing that in this case other wage support measures in the benchmark countries should also be taken into account.
Automatic Wage Indexation: A Stumbling-Block
Ninety-eight percent of wages in Belgium are linked to the health index – an index based on a series of household products excluding tobacco, alcohol and fuel.
Unions see this as necessary to protect employees’ purchasing power and maintain what Leemans, Head of the Christian Union, referred to as the 3 Cs: Content of working people’s wallets, Confidence in the economy and Consumption of goods and services. Leemans said: “Our indexation system allowed Belgium to absorb the crisis and income shocks better than the US and the rest of the EU.”
Employers present noted that indexation hinders companies’ competitiveness as it adds an additional toll to the already high labor costs. As Lisa Salas of DHL, said: “Our revenues were down 20 percent as a result of the crisis, while our labor costs still increased automatically, which is not a concern in surrounding countries. This hampers our business dramatically.”
Pieter Timmermans, Director General of FEB/FVO, added that indexation was simply not affordable for companies, especially in difficult times – and it is not even appreciated by employees who see it as a “right” and not a wage increase.
Innovation is Key to All
Unions and businesses agree that innovation is essential for economic growth. With 1.92 percent of GDP in 2008, Belgium lags behind the EU target of three percent by 2020.
Several points were mentioned during the debate:
• Innovation policy is a regional competence, whereas tax is a federal matter that makes measures more complicated to put together
• Belgian manufacturing is essentially an assembly industry, so it was argued that innovation was not part of the process in many sectors
• Belgian governments need to increase their budgets for R&D
• Businesses should also step up their R&D and innovation activities
• Belgium should focus on key innovation sectors such as aviation, healthcare and the automotive industry
• There is a brain drain in Belgium. Because of the internationally renowned quality of Belgian universities and schools, Belgian talents are sometimes offered better paid and more exciting jobs abroad. We should keep them here.
• Capitalize on Belgium’s ability to come up with creative solutions
Leemans mentioned that innovation measures were too fragmented. Denayer said: “It is really important that social partners come up with a long term strategic vision to boost innovation.”
Tackling Rising Unemployment
With over 700,000 unemployed people in Belgium, measures to increase employment need to be taken. Crisis measures like the crisis-time credit, temporary collective reductions of time and temporary unemployment schemes for white-collar employees helped control the situation, although it was noted that only 15,000 white collar workers benefited from the temporary unemployment measure – compared to about 250,000 temporarily unemployed blue collar workers.
There is a lack of employment creation in Belgium. Timmermans pointed out there is little entrepreneurship in Belgium: “We need to actively encourage a more entrepreneurial spirit in this country. We need a long-term vision that takes into account all groups, not only the younger and older workers, and a stable environment that boosts the creation of jobs.” One solution mentioned was to make temporary unemployment for white collar workers permanent and less bureaucratic.
Some of the other points discussed were:
• The need to come to one status for blue-collar and white-collar employees
• What happens to measures aimed at stimulating employment in the aftermath of the economic crisis?
• How to control the increasing costs of (temporary) unemployment benefits?
• How to retain more people over 55 working? Only 34 percent of workers aged 55-64 work in Belgium (compared to the 70 percent in Sweden), making the country the second lowest in EU19 (EU15 plus the four eastern European member countries of the OECD).
Political Stability
Unions and employers agreed on the need for political stability in Belgium. All feel that there is a lack of clarity and leadership in this country that hinders the economy. They also believed it would take some time before a new government is formed, which might result in a long period of political instability.
The debate was followed by a reception where issues, challenges, concerns and solutions were discussed and appreciated by all. Later in the evening, we had a policy dinner with the speakers and a number of CEOs of our Patron and Strategic Sponsor companies. If you missed this event, make sure you attend next time as AmCham Belgium plans to hold similar debates with the unions in the future.
The PowerPoint presentation can be found on the website here.