## 1. Extensions: Conditions and Exemptions ## Source details **Canonical URL:** [1. Extensions: Conditions and Exemptions](https://www.imf.org/-/media/files/publications/wp/2017/wp17275.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2017/wp17275.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2017/wp17275.pdf.json) --- ### Introduction: role and tensions of collective bargaining - Collective bargaining is an important feature of labor markets, especially in Continental Europe where collective agreements (CAs) typically cover more than three quarters of the workforce. - Potential benefits: - Provides voice to workers. - Can enhance working conditions, increase productivity, reduce inequality and help minimize industrial conflict. - Potential downsides: - Associated with wage drift or wage rigidity, with adverse consequences for employment. - Downward nominal wage rigidity is a particular concern for countries without their own monetary policy faced with adverse demand shocks in a low inflation environment. - Structural pressures on collective bargaining: - Declining membership of both employer and employee organizations – partly driven by the expansion of the service sector, individualization, immigration, deregulation, globalization, and the emergence of new forms of work (e.g., Uber). ### Comparative focus: Netherlands and Portugal - Purpose: increase understanding of collective bargaining systems via an in-depth comparison of the Netherlands and Portugal. - Reasons for comparison: - On the face of it, Dutch and Portuguese systems are fairly similar. - Their labor market performance is rather different. - Industrial relations systems differ markedly in maturity and operational practices, with potential implications for labor market resilience. ### Shared institutional features - Sector-level bargaining is dominant. - Collective bargaining coverage is very high, over 80%. - Trade union density is rather low, representing around or less than 20% of the workforce, and declining. - Administrative extensions of collective agreements—which extend applicability beyond the membership of social partners in the sector—are fairly important. ### Divergent histories and adaptive capacity - Netherlands: - After the Wassenaar agreement of 1982 ended a wage spiral, the system entered an era of consensual labor relations. - The system has gradually adapted to challenges (monetary unification, globalization, population ageing) in incremental steps without changing its fundamental features. - Portugal: - Emerged from a long-lasting conservative dictatorship a little more than 40 years ago. - High-inflation environment of the 1970s and 1980s helped achieve real wage adjustments historically. - The collective bargaining system in a low-inflation environment had not been fully tested until the global crisis of 2008. - During an adjustment program, Portugal implemented abrupt and often controversial labor market reforms, including in collective bargaining. - Implication: contrasting experiences allow speculation on the role of reforms induced by gradual, concerted social dialogue versus reforms driven by crisis and external pressure. ### Labor market performance comparisons (selected statistics) - Employment rate (age 15-64), 2007: - Netherlands: 76% - Portugal: 68% - Unemployment rate (age 15-64), 2007: - Netherlands: 3.2% - Portugal: 8,5% - Unemployment rate (age 15-64), 2012: - Netherlands: 5,9% - Portugal: 16,3% - Unemployment rate (age 15-64), (later year cited): - Netherlands: 5,0% - Portugal: 9,2% ### Analytical framing and implications - Differences in industrial relations, institutional rules, and operational practices between countries with superficially similar bargaining structures can have important implications for labor market performance and resilience. - Beyond the degree of centralization, specific rules and institutional practices (including how extensions and representativeness are determined and operationalized) matter for outcomes such as employment, wage flexibility, and the system’s ability to adapt to shocks. ### Four elements of collective bargaining examined - The analysis focuses on: i) decentralization, ii) administrative extensions, iii) the application of agreements after expiration or retrospectively (ultra- and retro-activity), and iv) coordination and cooperation between social partners. - Key sector-level features likely important for labor market performance: - Scope for flexibility at worker and firm levels within sector-level agreements. - Representativeness criteria and transparent exemption frameworks for coverage extensions. - Risks posed by retro-activity and ultra-activity reinforcing obstacles to downward wage adjustment in deep recessions (particularly in periods of very low inflation). - Effective coordination between bargaining units and high-quality labor relations. ### Decentralization (Section II) - Netherlands: - Sector-level bargaining predominant, but scope for customization within sector agreements has gradually increased since the early 1980s. - The 1982 “Wassenaar agreement” and the 1993 bipartite agreement (“Een Nieuwe Koers”) emphasized customization and decentralization. - Decentralization mainly increased worker- and firm-level flexibility within sectoral agreements rather than creating a full two-tier bargaining system. - As of 2014: - 78% of employees were covered by a sectoral-level agreement. - 8% of workers were covered by a firm-level agreement. - The share of employees covered by any collective agreement was around 85%. - Forms of decentralization included: - Shift from narrow pay/working-condition bounds to minimum standards; majority of pay clauses are minimum standards. - “À la carte” provisions allowing trade-offs (e.g., part of gross salary financing additional leave or higher pension entitlements). - Characterized as “organized decentralization.” - Portugal: - Decentralization is more recent and abrupt, largely imposed during the 2011 adjustment program. - Historical absence of firm-level bargaining due to: - Strict application of the favorability principle. - Strong legalistic tradition and state regulation in labor matters. - Strong competition between two main unions, low membership, and lack of trust. - Reforms: - 2009: work councils in firms with more than 500 employees given right to bargain if authorized by unions. - Firm-size thresholds lowered to 250 in 2011 and 150 in 2012, but sectoral union approval remains required. - Impact of reforms on firm-level bargaining unclear; number of firm-level agreements largely constant up to 2015. - Options going forward: - Allow work councils to conclude formal firm-level agreements without sector-union consent (constitutional/clash considerations noted). - Follow the Dutch route of maintaining sectoral agreements with more firm/worker flexibility (e.g., à-la-carte provisions). ### Administrative extensions (Section III) - Extensions in both countries lead coverage to exceed union/employer association membership. - Netherlands: presence of erga omnes provisions; collective agreements automatically apply to all workers in firms that sign or belong to signing employer associations. - Portugal: no erga omnes provisions of the Dutch type. - Administrative extensions are used to create a level playing field, reduce competition on poor working conditions, enhance inclusiveness, and reduce wage inequality. - Concerns with extensions: - Signatory parties may not be representative of all firms/workers in a sector; risk of wage floors too high for smaller, non-organized firms, potentially reducing employment of low-productivity firms and workers. - Non-representative employer associations might use extensions anti-competitively to reduce competition from low-wage firms. ### Representativeness criteria and public-interest tests - Netherlands: - Administrative extensions require a super-majority check: 60% of workers in the sector must be employed by firms that are members of the signatory employer association(s). - Additional scrutiny when share is between 55% and 60%. - Employer organization rate cited as 85% (Visser’s ICTWSS database). - Dutch law includes a public-interest test (rarely called upon explicitly). - Since 2007, dispensation from the social partners is the main route for exemption; since 2014 sectoral agreements must include a transparent exemption framework to qualify for extension. - Ministry dispensation: between 2007 and 2015, the Ministry granted dispensation in 58 cases in response to 191 requests and rejected 77 of them. - Portugal: - No representativeness criteria until the 2012 reform; extensions were quasi-automatic pre-2012. - 2012 reform: extensions allowed only if employer organization represented firms covering at least 50% of the workforce of the sector. - Employer association density estimated at 40% by the authors (based on Quadros de Pessoal (2010) data); alternative estimates cited (Visser ICTWSS 2008: 65%; Traxler 1995: 34). - July 2014 (effective January 2015): added alternative clause allowing extensions if at least 30% of employer association members (in terms of number of firms) had no more than 250 employees—this made extensions effectively like pre-2012. - June 2017: representativeness criteria were fully abandoned (de jure and de facto return to pre-2011 period); requirement that extensions be issued no later than seven weeks after request by subscribing partners was introduced. - Formal opposition to extensions by firms/unions is rare; non-application requests have typically concerned unions not subscribing to the extended agreement. ### Exemptions and dispensation - Exemptions can mitigate mismatches between sectoral agreements and firm-specific needs and provide incentives to adapt sectoral agreements. - Netherlands exemption routes: - Dispensation by social partners (main route since 2007). - Dispensation from the Ministry when firms/subsectors can make a compelling case and have agreement with an independent union. - Portugal exemption practice: - Rare use of opposition requests; firms often do not apply due to low expectations of success, reputational concerns, and costs. - Alternatives to automatic extensions: - Voluntary “opt-in” or “orientation” (e.g., Germany): firms voluntarily follow sectoral agreements without being bound by extension, reducing risk of excessive pay conditions for low-productivity firms but possibly lowering labor standards/higher inequality. - Netherlands: some firms voluntarily follow collective agreements (“incorporatiebeding”), but explicit reference makes the agreement legally binding. ### Evidence and debated effects - Netherlands: - Surveys show broad support for extensions, including from firms bound by extension. - Empirical findings: - Hartog et al. (2002) did not find a significant wage effect of extensions in the Netherlands. - De Ridder and Euwals (2016) find wages higher in sectors with extensions, but only in boom years 2006 and 2007; effect absent in subsequent crisis years. - Concerns exist about whether current extension and dispensation rules allow sufficient customization or harm outsiders; suggestions include stronger material appraisal of dispensation requests and delegation to an independent authority. - Portugal: - Representativeness criteria remain contentious; most social partners advocate extensions and reject strict representativeness rules. - The 2012 strict representativeness requirement may have contributed to bringing sector-level bargaining to a standstill. - The 2015 and 2017 reversals reduced and then eliminated representativeness requirements, raising concerns of reintroducing problems associated with non-representative extensions. - Policy options proposed: - Fix a timeline to gradually increase representativeness stringency to eliminate non-representative extensions while giving employer associations time to increase membership. - Adopt a double-criterion approach similar to the Dutch practice (e.g., a 50% threshold plus a 30–50% range where extensions granted only if additional conditions are met). - Require a clear dispensation framework as a condition for granting extensions. ### Coordination, trust, ultra-/retro-activity, and adaptability - Risks: - Retro-activity and ultra-activity applied to non-signatory parties risk obstructing downward wage adjustment during deep recessions, especially in very low inflation periods. - Coordination and quality of labor relations: - Effective coordination between bargaining units and high-quality labor relations are crucial for high-performance collective bargaining systems. - The Dutch experience suggests a combination of “carrots” (e.g., tax concessions, greater involvement in training activities) and “sticks” (including possibility of restricting extensions) can help enhance coordination and the quality of labor relations. - Institutional adaptability: - The Dutch tradition’s key element is its ability to adapt to emerging challenges (monetary unification, globalization, population ageing). - The Portuguese system has been slower to adapt; the financial and sovereign debt crises exposed rigidity and prompted abrupt, politically controversial labor market reforms. - As Portugal’s economy recovers, it faces the challenge of adopting a long-term perspective while promoting constructive social dialogue and reforms that enhance labor market resilience and the quality of labor relations. ### Box 1. No Extension Without Representation? New Evidence on the Role of Extensions in Portugal - Study design and context: - Hijzen and Martins (2016) analyses the causal impact of extensions on employment growth in Portugal. - Natural experiment: immediate suspension of extensions by the government that took office in June 2011. - Identification strategy: regression discontinuity design exploiting administrative delay in issuing extensions combined with their suspension in June 2011. - Key design feature: the suspension caused a sharp decline in the probability that an extension was issued several months prior to the change in government and was unanticipated by social partners. - Main empirical findings: - Extensions tended to reduce employment growth and likely amplified the unemployment response to the global financial crisis. - The effects on employment growth are estimated to be large; this may partly reflect the specific macroeconomic context—need for aggregate wage adjustment against the backdrop of falling output and a balance-of-payments crisis—under which the natural experiment took place. - Adverse employment effects of extensions are concentrated among firms not affiliated with an employer association (i.e., not directly involved in the bargaining process), suggesting lack of representativeness of employer associations is an important factor. - Retro-activity combined with administrative time lags meant non-affiliated firms had to back pay wage increases over the whole period between the date the original agreement was signed and the date a decision on its extension was finally made, significantly increasing the cost of extensions for non-affiliated firms—many of which were SMEs facing solvency and liquidity issues—with adverse effects on employment. - Extensions tend to boost wages of low-productivity workers and reduce wage inequality; thus adverse employment effects should be weighed against beneficial effects on low-wage workers and wage inequality. - Mechanisms highlighted: - Representativeness: non-affiliated firms bear full costs of extended agreements without participation in bargaining, amplifying negative employment responses. - Retro-activity and administrative delays: typical delay for extensions entering into force relative to the relevant collective agreement was about 6 months in 2010-2011; large retroactive payments can create liquidity and solvency pressures leading to layoffs. - Macro context: need for aggregate wage adjustment during falling output and balance-of-payments crisis magnified the labor-market impact of extensions. - Policy-relevant implications: - Reconsider application of extensions where employer associations lack representativeness to avoid imposing disproportionate costs on non-affiliated firms. - Address retro-activity and administrative delays for extensions to reduce unexpected retroactive wage liabilities that can trigger layoffs, especially during macroeconomic shocks. - Balance trade-offs: policy reforms should weigh the negative employment effects of extensions against their role in boosting wages of low-productivity workers and reducing wage inequality. - Coordination and bargaining institutional design matter: improved representativeness, reduced retro-activity, and smoother administrative processes can mitigate adverse employment outcomes from extensions. ### Coordination, cooperation, and trust in collective bargaining - Wage coordination and national pacts: - The Wassenaar agreement of 1982 broke the wage-price spiral and supported a prolonged period of price stability and strong economic growth. - National-level bi- and tripartite agreements can shape expectations and establish norms without imposing formal rigidity on firms’ pay policies; they require inclusive and representative employer and union confederations and institutional support (examples: Social and Economic Council; Bureau for Economic Policy Analysis (CPB) in the Netherlands). - In the Netherlands: - Confederations typically have an annual discussion round with their members to set guidelines for wage increases and other bargaining priorities. - Sectoral unions may agree on a maximal wage demand and can team up with employers against dissident unions. - Central recommendations on wages (late 1990s and early 2000s) served as an important input for collective bargaining. - In Portugal: - Active wage coordination across bargaining units has been traditionally limited. - Several pacts in the 1990s aimed to bring wage inflation down; EMU membership prospect acted as a catalyst. - The tripartite agreement of 2012 brought together main employer and the smaller union confederations and included many measures towards greater labor cost flexibility; it played an important role in garnering social partner support for reform measures in Portugal’s adjustment program. - Entry wages, minimum wage, and targeted coordination: - Netherlands outcomes: - 1994: the difference between the minimum wage in collective agreements (CAs) and the national minimum wage (NMW) was on average 12%. - 2004: this difference came down to 2,2%. - 2014: this difference was 1.7%. - Minimum wage in Portugal is relatively high by European standards, set by the government in consultation with social partners in a discretionary manner and can act as an instrument of wage indexation. - In the Netherlands the minimum wage has no strong coordinating role: it is considerably below the median and is set through a fixed formula based on collectively negotiated wages. - Cooperation, trust, and institutional design: - Quality of labor relations and trust: - The Netherlands: quality of labor relations typically considered very high and was the highest among 18 countries in a World Economic Forum survey of managers. - Portugal: quality is rather low, as in other Southern European countries. - System features that can contribute to building trust: - Inclusiveness of bargaining parties and collective bargaining system generally enhances trust; fragmentation and weak confederations undermine inclusiveness. - Representativeness criteria in extensions can make the system fairer and enhance trust. - Objective procedures for opt out and extension, availability of accurate and verifiable information, presence of an independent body in the case of extensions. - Built-in incentives for regular renegotiation (e.g., time-limited agreements or restricting ultra-activity to certain non-wage conditions). - Mechanisms to make social partners accountable for effective implementation (e.g., transparent information on key CA elements; independent labor inspectorates). - Path-dependence of trust and labor relations: - The Wassenaar pact helped demonstrate mutual benefits of compromise and supported consensus-building in the decade after 1982. - In Portugal, adversarial relations have been more persistent; lack of trust contributed to the breakdown of sectoral collective bargaining during the recent crisis. - Economic implications: - Trust enables intertemporal efficiency-enhancing deals (e.g., risk sharing where firms insure workers against shocks in return for lower overall wages). - The post-Wassenaar improvement in economic performance—the so-called “Dutch miracle”—has been partly attributed to trust and quality of labor relations. - In Portugal, greater trust between bargaining parties might have facilitated faster simultaneous adjustments in prices and salaries during the 2011-13 recession, potentially restoring external competitiveness more quickly at lower cost to employment and living standards. ### Box 2. Providing Reliable and Transparent Information to Assess Representativeness - Criteria and risks: - Membership figures of both trade unions and employer associations can be sensitive and social partners may have incentives to inflate figures in the absence of official statistics. - Representativeness criteria in practice can refer to an employer density threshold that petitioning parties must estimate when requesting an extension of a sectoral agreement. - The Netherlands: data practices, controversies, and safeguards: - Employer density figures are only registered by employer organizations themselves; trade union density is estimated by the Statistical office (including by sector and by subgroup: gender, age). - When parties submit an extension request to the Ministry they must produce their own estimates of the share of workers covered by organized firms; these figures have sometimes been controversial. - In 1999, a third-party investigation confirmed that the contested membership figures were not calculated correctly. - Following controversies the Ministry introduced new guidelines on data sources, calculation method and reference date to calculate representativeness figures; rules were further strengthened in 2007. - In case of doubts, the extension request has to be accompanied by an audit. - Portugal: administrative data enabling official statistics: - Portugal has official statistics on membership rates from “Quadros de Pessoal” (Personnel Records), a compulsory survey of all firms conducted annually (in October). - “Quadros de Pessoal” requires each firm to indicate, for each worker, salaries paid during the reference month, hours worked, the applicable collective agreement (in its original form or via extension), the employer association membership of the firm (if any), and the number of workers that are members of unions. - More recently, “Quadros de Pessoal” has also enquired about worker churning, use of service provision contracts, health and safety, strikes and training. - For assessing representativeness of each collective bargaining agreement, the Ministry of Labor used the employer association membership data by sector. - These data were only made available to researchers in 2011. - On the basis of these data, the authors’ estimate is that around 40% of workers are employed by a firm that is organized. - Policy findings and recommendations on representativeness and extensions: - Coverage extensions can help promote inclusiveness, but need to be subjected to representativeness or public interest criteria. - Representativeness criteria are seen as necessary to legitimise extensions to non-signatory parties, but can preclude extensions in some sectors. - Suggested approaches: - Set a time-line for gradually increasing the stringency of representativeness criteria, giving employer associations time to increase membership levels, especially among smaller firms. - Follow the Dutch practice of a double criterion: e.g., in addition to the current threshold of 50%, introduce an additional range – e.g., between 30 and 50% – where the government would grant extensions only when certain conditions are met. - Ensure a clear dispensation framework as required to qualify for extensions (as practiced in the Netherlands). - Procedural safeguards: - Introduce guidelines on data sources, calculation methods and reference dates (as done by the Netherlands Ministry after 1999). - Require audits to accompany extension requests in case of doubts about submitted figures. - Broader institutional implications: - Reliable administrative datasets (as in Portugal’s “Quadros de Pessoal”) enable official statistics on membership and facilitate high-quality microeconometric research that supports evidence-based policy. - The availability and use of similar datasets in the Netherlands and other countries could improve understanding of the effects of different labor market institutions, including collective bargaining, and lead to better policy making. *Source: wp17275 - 1. Extensions: Conditions and Exemptions (PDF chapter) from the provided content.* ### 1. Extensions: Conditions and Exemptions .............................................................................20 ### 1. Extensions: Conditions and Exemptions ### Introduction: role and tensions of collective bargaining - Collective bargaining is an important feature of labor markets, especially in Continental Europe where collective agreements (CAs) typically cover more than three quarters of the workforce. - Potential benefits cited: - Provides voice to workers. - Can enhance working conditions, increase productivity, reduce inequality and help minimize industrial conflict. - Potential downsides cited: - Associated with wage drift or wage rigidity, with adverse consequences for employment. - Downward nominal wage rigidity is a particular concern for countries without their own monetary policy faced with adverse demand shocks in a low inflation environment. - Structural pressures on collective bargaining: - Declining membership of both employer and employee organizations – partly driven by the expansion of the service sector, individualization, immigration, deregulation, globalization, and the emergence of new forms of work (e.g., Uber). ### Comparative focus: Netherlands and Portugal - Purpose: increase understanding of collective bargaining systems via an in-depth comparison of the Netherlands and Portugal. - Reasons for comparison: - On the face of it, Dutch and Portuguese systems are fairly similar. - Their labor market performance is rather different. - Industrial relations systems differ markedly in maturity and operational practices, with potential implications for labor market resilience. ### Shared institutional features - Enumerated commonalities: - Sector-level bargaining is dominant. - Collective bargaining coverage is very high, over 80%. - Trade union density is rather low, representing around or less than 20% of the workforce, and declining. - Administrative extensions of collective agreements—which extend applicability beyond the membership of social partners in the sector—are fairly important. ### Divergent histories and adaptive capacity - Netherlands: - After the Wassenaar agreement of 1982 ended a wage spiral, the system entered an era of consensual labor relations. - The system has gradually adapted to challenges (monetary unification, globalization, population ageing) in incremental steps without changing its fundamental features. - Portugal: - Emerged from a long-lasting conservative dictatorship a little more than 40 years ago. - High-inflation environment of the 1970s and 1980s helped achieve real wage adjustments historically. - The collective bargaining system in a low-inflation environment had not been fully tested until the global crisis of 2008. - During an adjustment program, Portugal implemented abrupt and often controversial labor market reforms, including in collective bargaining. - Implication: contrasting experiences allow speculation on the role of reforms induced by gradual, concerted social dialogue versus reforms driven by crisis and external pressure. ### Labor market performance comparisons (selected statistics) - Employment rate (age 15-64), 2007: - Netherlands: 76% - Portugal: 68% - Unemployment rate (age 15-64), 2007: - Netherlands: 3.2% - Portugal: 8,5% - Unemployment rate (age 15-64), 2012: - Netherlands: 5,9% - Portugal: 16,3% - Unemployment rate (age 15-64), (later year cited): - Netherlands: 5,0% - Portugal: 9,2% ### Analytical framing and implications - The paper argues that differences in industrial relations, institutional rules, and operational practices between countries with superficially similar bargaining structures can have important implications for labor market performance and resilience. - It suggests that beyond the degree of centralization, specific rules and institutional practices (including how extensions and representativeness are determined and operationalized) matter for outcomes such as employment, wage flexibility, and the system’s ability to adapt to shocks. *Source: wp17275 - 1. Extensions: Conditions and Exemptions (PDF chapter) from the provided content.* ### 2017. This paper does not attempt to identify the specific role these differences in industrial ### wp17275 - 2017. This paper does not attempt to identify the specific role these differences in industrial ### Comparative findings and summary - The paper does not identify the specific role of differences in industrial relations and operational practices versus other factors in accounting for observed differences in labor market performance after the global financial crisis. - Important non-institutional differences between the Netherlands and Portugal likely accounted for much of the divergence in employment performance, including: - the depth and nature of shocks hitting both countries, - the educational level of the workforce, - firm profitability, - employment protection legislation, - active labor market programs, - short-time work. - Given the different nature of the crisis, the need for wage adjustment in the Netherlands was much less pronounced than in Portugal, putting less pressure on the collective bargaining system in the Netherlands. ### Four elements of collective bargaining examined - The analysis focuses on: i) decentralization, ii) administrative extensions, iii) the application of agreements after expiration or retrospectively (ultra- and retro-activity), and iv) coordination and cooperation between social partners. - Key sector-level features likely important for labor market performance: - Scope for flexibility at worker and firm levels within sector-level agreements. - Representativeness criteria and transparent exemption frameworks for coverage extensions. - Risks posed by retro-activity and ultra-activity reinforcing obstacles to downward wage adjustment in deep recessions (particularly in periods of very low inflation). - Effective coordination between bargaining units and high-quality labor relations. ### Decentralization (Section II) - Netherlands: - Sector-level bargaining predominant, but scope for customization within sector agreements has gradually increased since the early 1980s. - The 1982 “Wassenaar agreement” and the 1993 bipartite agreement (“Een Nieuwe Koers”) emphasized customization and decentralization. - Decentralization mainly increased worker- and firm-level flexibility within sectoral agreements rather than creating a full two-tier bargaining system. - As of 2014: - 78% of employees were covered by a sectoral-level agreement. - 8% of workers were covered by a firm-level agreement. - The share of employees covered by any collective agreement was around 85%. - Forms of decentralization included: - Shift from narrow pay/working-condition bounds to minimum standards; majority of pay clauses are minimum standards. - “À la carte” provisions allowing trade-offs (e.g., part of gross salary financing additional leave or higher pension entitlements). - Characterized as “organized decentralization.” - Portugal: - Decentralization is more recent and abrupt, largely imposed during the 2011 adjustment program. - Historical absence of firm-level bargaining due to: - Strict application of the favorability principle. - Strong legalistic tradition and state regulation in labor matters. - Strong competition between two main unions, low membership, and lack of trust. - Reforms: - 2009: work councils in firms with more than 500 employees given right to bargain if authorized by unions. - Firm-size thresholds lowered to 250 in 2011 and 150 in 2012, but sectoral union approval remains required. - Impact of reforms on firm-level bargaining unclear; number of firm-level agreements largely constant up to 2015. - Options going forward: - Allow work councils to conclude formal firm-level agreements without sector-union consent (constitutional/clash considerations noted). - Follow the Dutch route of maintaining sectoral agreements with more firm/worker flexibility (e.g., à-la-carte provisions). ### Administrative extensions (Section III) - Extensions in both countries lead coverage to exceed union/employer association membership. - Netherlands: presence of erga omnes provisions; collective agreements automatically apply to all workers in firms that sign or belong to signing employer associations. - Portugal: no erga omnes provisions of the Dutch type. - Administrative extensions are used to create a level playing field, reduce competition on poor working conditions, enhance inclusiveness, and reduce wage inequality. - Concerns with extensions: - Signatory parties may not be representative of all firms/workers in a sector; risk of wage floors too high for smaller, non-organized firms, potentially reducing employment of low-productivity firms and workers. - Non-representative employer associations might use extensions anti-competitively to reduce competition from low-wage firms. - Representativeness criteria and public-interest tests: - Netherlands: - Administrative extensions require a super-majority check: 60% of workers in the sector must be employed by firms that are members of the signatory employer association(s). - Additional scrutiny when share is between 55% and 60%. - Employer organization rate cited as 85% (Visser’s ICTWSS database). - Dutch law includes a public-interest test (rarely called upon explicitly). - Since 2007, dispensation from the social partners is the main route for exemption; since 2014 sectoral agreements must include a transparent exemption framework to qualify for extension. - Ministry dispensation: between 2007 and 2015, the Ministry granted dispensation in 58 cases in response to 191 requests and rejected 77 of them. - Portugal: - No representativeness criteria until the 2012 reform; extensions were quasi-automatic pre-2012. - 2012 reform: extensions allowed only if employer organization represented firms covering at least 50% of the workforce of the sector. - Employer association density estimated at 40% by the authors (based on Quadros de Pessoal (2010) data); alternative estimates cited (Visser ICTWSS 2008: 65%; Traxler 1995: 34). - July 2014 (effective January 2015): added alternative clause allowing extensions if at least 30% of employer association members (in terms of number of firms) had no more than 250 employees—this made extensions effectively like pre-2012. - June 2017: representativeness criteria were fully abandoned (de jure and de facto return to pre-2011 period); requirement that extensions be issued no later than seven weeks after request by subscribing partners was introduced. - Formal opposition to extensions by firms/unions is rare; non-application requests have typically concerned unions not subscribing to the extended agreement. - Exemptions and dispensation: - Exemptions can mitigate mismatches between sectoral agreements and firm-specific needs and provide incentives to adapt sectoral agreements. - Netherlands exemption routes: - Dispensation by social partners (main route since 2007). - Dispensation from the Ministry when firms/subsectors can make a compelling case and have agreement with an independent union. - Portugal exemption practice: - Rare use of opposition requests; firms often do not apply due to low expectations of success, reputational concerns, and costs. - Alternatives to automatic extensions: - Voluntary “opt-in” or “orientation” (e.g., Germany): firms voluntarily follow sectoral agreements without being bound by extension, reducing risk of excessive pay conditions for low-productivity firms but possibly lowering labor standards/higher inequality. - Netherlands: some firms voluntarily follow collective agreements (“incorporatiebeding”), but explicit reference makes the agreement legally binding. ### Evidence and debated effects - Netherlands: - Surveys show broad support for extensions, including from firms bound by extension. - Empirical findings: - Hartog et al. (2002) did not find a significant wage effect of extensions in the Netherlands. - De Ridder and Euwals (2016) find wages higher in sectors with extensions, but only in boom years 2006 and 2007; effect absent in subsequent crisis years. - Concerns exist about whether current extension and dispensation rules allow sufficient customization or harm outsiders; suggestions include stronger material appraisal of dispensation requests and delegation to an independent authority. - Portugal: - Representativeness criteria remain contentious; most social partners advocate extensions and reject strict representativeness rules. - The 2012 strict representativeness requirement may have contributed to bringing sector-level bargaining to a standstill. - The 2015 and 2017 reversals reduced and then eliminated representativeness requirements, raising concerns of reintroducing problems associated with non-representative extensions. - Policy options proposed: - Fix a timeline to gradually increase representativeness stringency to eliminate non-representative extensions while giving employer associations time to increase membership. - Adopt a double-criterion approach similar to the Dutch practice (e.g., a 50% threshold plus a 30–50% range where extensions granted only if additional conditions are met). - Require a clear dispensation framework as a condition for granting extensions. ### Coordination, trust, ultra-/retro-activity, and adaptability - Risks: - Retro-activity and ultra-activity applied to non-signatory parties risk obstructing downward wage adjustment during deep recessions, especially in very low inflation periods. - Coordination and quality of labor relations: - Effective coordination between bargaining units and high-quality labor relations are crucial for high-performance collective bargaining systems. - The Dutch experience suggests a combination of “carrots” (e.g., tax concessions, greater involvement in training activities) and “sticks” (including possibility of restricting extensions) can help enhance coordination and the quality of labor relations. - Institutional adaptability: - The Dutch tradition’s key element is its ability to adapt to emerging challenges (monetary unification, globalization, population ageing). - The Portuguese system has been slower to adapt; the financial and sovereign debt crises exposed rigidity and prompted abrupt, politically controversial labor market reforms. - As Portugal’s economy recovers, it faces the challenge of adopting a long-term perspective while promoting constructive social dialogue and reforms that enhance labor market resilience and the quality of labor relations. *Source: wp17275 - 2017.* ### Box 1. No Extension Without Representation? New Evidence on the Role of Extensions in Portugal ### Box 1. No Extension Without Representation? New Evidence on the Role of Extensions in Portugal ### Study design and context - Study: Hijzen and Martins (2016) analyses the causal impact of extensions on employment growth in Portugal. - Natural experiment: immediate suspension of extensions by the government that took office in June 2011. - Identification strategy: regression discontinuity design exploiting administrative delay in issuing extensions combined with their suspension in June 2011. - Key design feature: the suspension caused a sharp decline in the probability that an extension was issued several months prior to the change in government and was unanticipated by social partners. ### Main empirical findings - Extensions tended to reduce employment growth and likely amplified the unemployment response to the global financial crisis. - The effects on employment growth are estimated to be large; this may partly reflect the specific macroeconomic context—need for aggregate wage adjustment against the backdrop of falling output and a balance-of-payments crisis—under which the natural experiment took place. - Adverse employment effects of extensions are concentrated among firms not affiliated with an employer association (i.e., not directly involved in the bargaining process), suggesting lack of representativeness of employer associations is an important factor. - Retro-activity combined with administrative time lags meant non-affiliated firms had to back pay wage increases over the whole period between the date the original agreement was signed and the date a decision on its extension was finally made, significantly increasing the cost of extensions for non-affiliated firms—many of which were SMEs facing solvency and liquidity issues—with adverse effects on employment. - Extensions tend to boost wages of low-productivity workers and reduce wage inequality; thus adverse employment effects should be weighed against beneficial effects on low-wage workers and wage inequality. ### Mechanisms highlighted - Representativeness: non-affiliated firms bear full costs of extended agreements without participation in bargaining, amplifying negative employment responses. - Retro-activity and administrative delays: typical delay for extensions entering into force relative to the relevant collective agreement was about 6 months in 2010-2011; large retroactive payments can create liquidity and solvency pressures leading to layoffs. - Macro context: need for aggregate wage adjustment during falling output and balance-of-payments crisis magnified the labor-market impact of extensions. ### Policy-relevant implications - Reconsider application of extensions where employer associations lack representativeness to avoid imposing disproportionate costs on non-affiliated firms. - Address retro-activity and administrative delays for extensions to reduce unexpected retroactive wage liabilities that can trigger layoffs, especially during macroeconomic shocks. - Balance trade-offs: policy reforms should weigh the negative employment effects of extensions against their role in boosting wages of low-productivity workers and reducing wage inequality. - Coordination and bargaining institutional design matter: improved representativeness, reduced retro-activity, and smoother administrative processes can mitigate adverse employment outcomes from extensions. *Source: Box 1. No Extension Without Representation? New Evidence on the Role of Extensions in Portugal (from wp17275).* ### 1982. Such agreements can shape expectations and establish norms in relation to collective ### Coordination, cooperation, and trust in collective bargaining (Netherlands and Portugal) ### Wage coordination and national pacts - The Wassenaar agreement of 1982: - Effectively broke the wage-price spiral that was paralyzing the economy at the time. - Heralded a prolonged period of price stability and strong economic growth. - Reached between employer and employee organizations and supported by the government (e.g., with tax concessions that dampened the adverse effect of wage moderation on net incomes). - National-level bi- and tripartite agreements: - Can shape expectations and establish norms in relation to collective bargaining and macro-economic policy without imposing formal rigidity on firms’ pay policies. - Require inclusive and representative employer and union confederations. - Are fragile in practice and benefit from institutional arrangements that provide stable support for social dialogue (examples: Social and Economic Council; Bureau for Economic Policy Analysis (CPB) in the Netherlands). - In the Netherlands: - Confederations typically have an annual discussion round with their members to set guidelines for wage increases and other bargaining priorities. - Sectoral unions may agree on a maximal wage demand and can team up with employers against dissident unions. - Central recommendations on wages (late 1990s and early 2000s) served as an important input for collective bargaining. - In Portugal: - Active wage coordination across bargaining units has been traditionally limited. - Several pacts in the 1990s aimed to bring wage inflation down; EMU membership prospect acted as a catalyst. - The tripartite agreement of 2012 brought together main employer and the smaller union confederations and included many measures towards greater labor cost flexibility; it played an important role in garnering social partner support for reform measures in Portugal’s adjustment program. ### Entry wages, minimum wage, and targeted coordination - Entry wages in collective agreements: - Early 1990s: government concerned about declining employment of lower-skilled workers and an increasing gap between statutory minimum wage and entry scales in collective agreements. - Central parties issued a recommendation to bring minimum wage scales in collective agreements down to the level of the national minimum wage in response to government pressure. - Outcomes for the Netherlands: - 1994: the difference between the minimum wage in collective agreements (CAs) and the national minimum wage (NMW) was on average 12%. - 2004: this difference came down to 2,2%. - 2014: this difference was 1.7%. - Similar approaches used to allow special entry scales to support participation of (partially) handicapped persons (“Participatiewet”). - Other facilitated measures include temporary and part-time work, employability of older workers, and inclusion of exemption procedures in collective agreements—likely contributing to strong structural performance of disadvantaged groups in the Dutch labor market. - Minimum wage as a coordination device in Portugal: - Minimum wage is relatively high by European standards, following a push during the period 2007-2011. - It is set by the government in consultation with social partners in a discretionary manner. - Under such circumstances, the minimum wage has the potential to act as an instrument of wage indexation by setting a benchmark for collectively negotiated wages. - Minimum wage role in the Netherlands: - The minimum wage has no strong coordinating role: it is considerably below the median and is set through a fixed formula based on collectively negotiated wages; consequently it has a more limited impact on bargaining. ### Cooperation, trust, and institutional design - Quality of labor relations and trust: - Striking differences exist: quality of labor relations in the Netherlands is typically considered very high and was the highest among 18 countries in a World Economic Forum survey of managers; in Portugal quality is rather low, as in other Southern European countries. - Degree of trust in others or trust in institutions mirrors differences in labor relations quality. - Quality of labor relations likely depends on broader societal and cultural factors, not just on the main actors and institutional architecture. - System features that can contribute to building trust: - Inclusiveness of bargaining parties and collective bargaining system generally enhances trust; fragmentation and weak confederations undermine inclusiveness. - Representativeness criteria in extensions can make the system fairer and enhance trust. - Nature of procedures for opt out and extension: - Use of objective criteria for processing requests. - Availability of accurate and verifiable information (e.g., representativeness assessment). - Presence of an independent body in the case of extensions. - Built-in incentives for regular renegotiation: - Time-limited agreements or restricting ultra-activity to certain non-wage conditions can strengthen incentives to renew collective agreements, especially in difficult times. - Rules that impose collective bargaining may be counter-productive if there is no shared willingness to reach agreements. - Mechanisms to make social partners accountable for effective implementation: - Providing transparent, objective and accessible information on key elements of collective agreements (e.g., a coded database). - Relying on independent labor inspectorates to monitor effective implementation. - Path-dependence of trust and labor relations: - The success of past experiences influences current trust; the Wassenaar pact helped demonstrate the mutual benefits of compromise and supported consensus-building in the decade after 1982. - In Portugal, adversarial relations have been more persistent; lack of trust contributed to the breakdown of sectoral collective bargaining during the recent crisis. - Economic implications of trust and coordination: - Trust enables intertemporal efficiency-enhancing deals (e.g., risk sharing where firms insure workers against shocks in return for lower overall wages). - In the Netherlands, the post-Wassenaar improvement in economic performance—the so-called “Dutch miracle”—has been partly attributed to trust and quality of labor relations. - In Portugal, greater trust between bargaining parties might have facilitated faster simultaneous adjustments in prices and salaries during the 2011-13 recession, potentially restoring external competitiveness more quickly at lower cost to employment and living standards. *Source: Excerpt from IMF working paper wp17275 (PDF chapter/section).* ### Box 2. Providing Reliable and Transparent Information to Assess Representativeness ### Box 2. Providing Reliable and Transparent Information to Assess Representativeness ### Criteria and risks - Membership figures of both trade unions and employer associations can be sensitive as they may influence the relative power of bargaining parties and determine the application of certain government policies. - In the absence of official statistics, social partners may have incentives to inflate their membership figures. - Representativeness criteria in practice can refer to an employer density threshold that petitioning parties must estimate when requesting an extension of a sectoral agreement. ### The Netherlands: data practices, controversies, and safeguards - Employer density figures are only registered by employer organizations themselves; trade union density is estimated by the Statistical office (including by sector and by subgroup: gender, age). - Only raw estimates exist of the share of the workforce working for organized firms (the 85% mentioned above). - When parties submit an extension request to the Ministry they must produce their own estimates of the share of workers covered by organized firms; these figures have sometimes been controversial (example: hotel and catering industry dispute in the late 1990s). - In 1999, a third-party investigation confirmed that the contested membership figures were not calculated correctly. - Following controversies the Ministry introduced new guidelines on data sources, calculation method and reference date to calculate representativeness figures; rules were further strengthened in 2007 (Research voor beleid, 2009). - In case of doubts, the extension request has to be accompanied by an audit. ### Portugal: administrative data enabling official statistics - Portugal has official statistics on membership rates stemming from detailed data sources, in particular “Quadros de Pessoal” (Personnel Records). - “Quadros de Pessoal” is a compulsory survey of all firms, conducted annually (in October), for monitoring compliance with labor law (and collective bargaining) provisions. - “Quadros de Pessoal” requires each firm to indicate, for each worker, salaries paid during the reference month, hours worked, the applicable collective agreement (in its original form or via extension), the employer association membership of the firm (if any), and the number of workers that are members of unions. - More recently, “Quadros de Pessoal” has also enquired about worker churning, use of service provision contracts, health and safety, strikes and training. - For assessing representativeness of each collective bargaining agreement, the Ministry of Labor used the employer association membership data by sector. - These data were only made available to researchers in 2011. - On the basis of these data, the authors’ estimate is that around 40% of workers are employed by a firm that is organized. ### Policy findings and recommendations on representativeness and extensions - Coverage extensions can help promote inclusiveness, but need to be subjected to representativeness or public interest criteria. - Representativeness criteria are seen as necessary to legitimise extensions to non-signatory parties, but can preclude extensions in some sectors. - In contexts where representativeness is typically low (as in Portugal), it is difficult to specify criteria that are both sufficiently strict to be meaningful and sufficiently easy to satisfy to allow effective extensions. - Suggested approaches to resolve this conundrum: - Set a time-line for gradually increasing the stringency of representativeness criteria, giving employer associations time to increase membership levels, especially among smaller firms. - Follow the Dutch practice of a double criterion: for instance, in addition to the current threshold of 50%, introduce an additional range – e.g., between 30 and 50% – where the government would grant extensions only when certain conditions are met (e.g., efforts to improve the representativeness of bargaining parties). - Ensure a clear dispensation framework as required to qualify for extensions (as practiced in the Netherlands). - Procedural safeguards to improve transparency and reliability: - Introduce guidelines on data sources, calculation methods and reference dates (as done by the Netherlands Ministry after 1999). - Require audits to accompany extension requests in case of doubts about submitted figures. ### Broader institutional implications related to data and bargaining - Reliable administrative datasets (as in Portugal’s “Quadros de Pessoal”) enable official statistics on membership and facilitate high-quality microeconometric research that supports evidence-based policy. - The availability and use of similar datasets in the Netherlands and other countries could improve understanding of the effects of different labor market institutions, including collective bargaining, and lead to better policy making. _Italic: IMF Working Paper — Box 2. Providing Reliable and Transparent Information to Assess Representativeness (extracted from the source content)._ --- _Source: https://www.imf.org/-/media/files/publications/wp/2017/wp17275.pdf_