The Adoption of the Euro: Its effects on the Labour Market - Saviour Rizzo

Zminijietna Harga Jannar – Marzu 2008


With the adoption of the euro, the adjustment of the wages may be one of the main challenges which policy maker will have to face.  Although the economic market tends to give a market value to the skills, competencies and knowledge demanded by the labour market, the price of labour is not completely governed by market forces. There is a political overtone invoked in the determination of wages. Indeed collective bargaining has acted as the principal mechanism for the determination of pay rates.

At a time when  government showed a disposition to overspend, either to buy industrial peace or because of its belief in Keynesian principles of raising consumption level to give a boost to the economy, trade unions in their negotiations were able to obtain wage increases, ensuring the maintenance, or indeed enhancement, of the purchasing power of their members’ pay packet. The Stability and Growth Pact to which eurozone members are bound to adhere does not give this wide range of options to the state. In being forced to adopt a deflationary policy and reduce public spending, the state will have much less room to manoeuvre in its monetary policy.  

The loss of this adjustment policy by the state is not seen very favourably by trade unions, as they feel that the new mechanism for adjustment will be targeted at moderation of wages. The fundamentalism of the market has always been based on the belief that the most effective means to control inflation is the discipline of pay. The statements of financial advisers and lobby groups representing the employers are often couched in terms that increase in wages has to correspond to increase in the level of productivity.

To certain extent wages policy has always been related to productivity trends because the difference in unit wage tends to have an impact on profit levels and medium term prospects for development. By and large, a sense of moderation always prevailed during the bargaining process of wages. However the new discourse about wage policy seems to call for a much higher level of moderation than has hitherto been the case. During the last three years (2004-2006),  annual wage growth in Malta derived from collective agreements  has shown a deceleration of 1.1 - it was 3.8 in 2004 and 2.7 in 2006 (Central Bank of Malta Annual Report 2006, page 40). This moderation in wage increase must have been in line with the policy to reduce the inflation rate in order to converge to the Maastricht criteria.
 Thus the fear of trade unions that the adjustment of wages in the new political and economic scenario is being determined by forces alien to labour is not completely unfounded. This may be interpreted to mean that the trade unions have less leverage during the negotiation process than has been the case when the state could be more flexible in its monetary policy. In this predicament the image of a trade union as a social movement, rather than a mere pressure group, is coming more to the fore.

Through their continuous presence in all areas of political life, trade unions have always acted as social movements by raising the social question, thereby giving a social dimension to the economic market. They have also been active players in the negotiated compromise between capital and labour, which proved to be crucial to the survival of capitalism in the western world. The neo liberals, who in their zeal to deregulate the labour market, lobby for more laissez-faire polices should bear this in mind. Capitalism did not survive on the fundamentalism of the market. It was the negotiated compromise between labour and capital that gave it the seal of legitimacy and at the same time insulated it from a serious threat to its overthrow. Championing the supremacy of the market with ideological fervour may in the long run be counterproductive. The owners of capital and their lobbyists would be wiser if they were to foster a corporate culture of openness and accountability to all stakeholders.

The Maltese government has given an example of this culture. The pre-budget discussion among the social partners with the Minister of Finance by giving the social partners an opportunity to exert influence at a prior stage has enhanced the consultation process of social dialogue. To legitimize its restraint in monetary policy in order to conform to the rules set by the European Central Bank in Frankfurt, the state is being forced to adopt a policy of openness and accountability and be more consultative in its approach

Being open and accountable means giving a voice to all stakeholders. Involving workers in decision making can go a long way towards creating this stakeholder model in the enterprises operating in the Maltese labour market. Unfortunately the present Government has not set a good example towards this ideal as it seemed more set at dismantling the existent mechanism of workers’ participation at the workplace rather than enhancing it. Malta, along with UK, is one of the few European countries where there are little if any statutory provisions for the practice of workers involvement in decision making. It looks as if our policy of Europeanization is restricted to certain quarters.

What the foregoing implies is that the adoption of the euro has set in a new social and economic landscape requiring a new form of social compromise. The social partners will have to change the tools of their trade.

Saviour Rizzo is the Acting Director of the Centre for Labour Studies at the University of Malta.

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