Romania: Collective Bargaining Institutions Under the Hammer

Romania: Collective Bargaining Institutions under the Hammer

Aurora Trif

Abstract

This paper examines the impact of the recession on collective bargaining in Romania. It focuses on the legal changes and developments in the public healthcare and construction sectors. Romania used to have a legal system that supported the dialogue between trade unions, employers and the government, which resulted in widespread collective bargaining at all levels. In 2011, the government abolished all collective agreements and changed, without parliamentary debate, the main labour laws; it made it impossible to have cross- sectoral collective agreements and far more difficult to negotiate collective agreements at lower levels. The recession was used as a pretext by the centre-right government to reform the industrial relations system.

Keywords: Collective bargaining, Romania, trade union, healthcare, construction, recession

1 Introduction

Bohle and Greskovits (2012) argue that Romania has a special type of neo-liberal capitalism with weak state institutions, high centralisation and coverage of collective bargaining and relatively high mobilisation power of trade unions. Before 2010, Romania had a comprehensive system of industrial relations with widespread collective bargaining at national, sectoral and establishment levels; the legal system supported the development of bi-partite and tripartite consultation and negotiation between trade unions, employers and the government (Trif, 2010). However, this system was radically altered by the government1 since 2010, despite opposition from trade unions and several employers’ associations (Ciutacu, 2012). The legal changes led to a forced decentralization of collective bargaining and made it more difficult for unions to bargain collectively. In contrast to Bohle and Greskovits (2012) argument that Romania has a weak state that lacks capacity to implement reforms due to unions’ resistance, the recent changes in collective bargaining reveal a rather strong state and weak unions.

After a brief analysis of the economic and political consequences of the financial crisis, the paper discusses the main statutory changes concerning collective bargaining. Then, developments in collective bargaining in two sectors are discussed; the healthcare sector is broadly representative of the public sector which was severely affected by the austerity measures introduced in 2009 and 2010, while the construction sector is a critical case from the private sector; it was the worst hit in the economic crisis, while it had the most developed collective bargaining institutions in the private sector (Ciutacu, 2011). The study of two sectors severely affected by the crisis, though in different ways, aims at analysing how the recent economic developments and political factors have influenced change in collective bargaining institutions. The paper concludes with a broader discussion of the findings. The empirical data is based on in-depth interviews conducted in 2012 with ten union officials and two industrial relations experts.

The financial crisis and its economic and political consequences

The international financial crisis has severely affected the economic and social developments in Romania after 2008. There was a reduction of the gross domestic product (GDP) by 6.6 percent in 2009 followed by a further reduction by 1.6 percent in 2010 indicating a more severe economic downturn than in Bulgaria (which had a similar level of economic growth before the crisis) and the EU average (Figure 1). The construction sector was the worst affected by dropping 14 percent of its value added to GDP in 2009, followed by agriculture (-7.8 percent) and services (Zaman and Georgescu, 2009). Total employment has declined only by 1.2 percent since 2008, but there is variation across sectors; the labour force shrank by nine percent in the construction sector, while it has slightly increased in the healthcare sector (Table 1). The unemployment level is around seven percent and has not changed much since 2008 reflecting the limited contraction of the total labour force. The average wage increases were below the level of inflation rate after 2008 (Figure 2), which indicates the trade unions did not manage to safeguard employee’s purchasing power.

1The government was led by the Prime Minister Emil Boc from December 2004 to February 2012. Boc’s first government fell in October 2009, after losing a motion of no confidence in Parliament. Boc was reinstated by the president and formed a new government which collapsed in February 2012, following social protests due to austerity measures.

2 Figure 1

Source: Eurostat (2012)

Figure 2

Source: Eurostat (2012)

Table 1. Employment by economic activity

Annual Percentage Changes between 2008 and 2011 (2008 = 100 percent) in Romania 2011- 2008 2009 2010 2011

3 Total - All NACE activities 98.3 99.0 98.8 -1.2

Construction 98.0 95.2 91.0 -9.0 Healthcare and social work 108.2 108.7 106.5 6.5 Source: Eurostat (2012)

There are three sets of interrelated causes of the economic downturn in Romania. First, despite the limited proportion of toxic assets in its banking system, Romania has been exposed to the adverse effects of the global financial crisis primarily due to its openness to foreign capital (foreign stakeholders account for over 85 percent of the total banking assets) (Zaman and Georgescu, 2009). Additionally, there was a drop in foreign direct investment by almost 50 percent in 2009 compared to 2008 (Constantin et al, 2011). Second, there was a decline of the external and internal demand for goods and services. The Romanian exports to the EU (the main trading partner) shrank by 25 percent in 2009 (European Commission, 2010). Additionally, the reduction of wages for many workers and the decline of the remittances from abroad reduced private consumption by nine percent (Constantin et al, 2011). The third set of factors refers to the economic weaknesses that existed before 2008 and the lack proactive measures to stimulate economic growth. The economic growth before 2008 was primarily based on the consumption of imported goods and real-estate sales. In spite of economic growth between 2000 and 2008, the budget deficit continuously increased (Constantin et al, 2011). In order to deal with the budget deficit, Romania borrowed 20 billion euro from IMF, EU and World Bank in 2010. The government had to adopt austerity measures as a condition to receive this financial assistance.

The austerity measures and the arbitrary way of pushing the reforms through without social dialogue have led to a substantial decline in the popularity of the centre-right coalition in power between 2008 and 2012 (Daborowski, 2012). This coalition introduced one of the most restrictive austerity measures in the EU, by decreasing salaries in the public sector by 25 percent and reducing numerous social benefits in 2010 (Trif, 2010). This reduced the budget deficit from nine percent of GDP in 2009 to 4.9 percent of GDP in 2011, but those budget savings were made at the expense of living standards (Daborowski, 2012). The controversial privatisation of companies that extract natural resources and the attempt to privatise the healthcare system led to growing social resistance and contributed to the collapse of the government in February 2012. A new government led by Ungureanu was put in place by the centre-right political coalition, but it collapsed after less than three months.

In May 2012, a centre-left coalition came to power. Ponta’s new government decided to take measures to enhance its social support, such as the increase of salaries in the public sector by eight percent from June 2012 and an increase in taxes for the richest people (Financial Magazine, 2012). However, wage increases were not negotiated with the unions. Furthermore, all the main changes in the labour laws since 2008 have been introduced unilaterally by the governments through emergency ordinances. Both the centre-right and centre–left governments used so-called ‘emergency ordinances’ extensively, to pass laws without public or parliamentary debate, which indicates a return to authoritarian decision- making practices similar to those used before 1990.

4 Government attack on collective bargaining institutions

The centre-right government introduced in 2011 the most radical statutory changes of collective bargaining since the collapse of the communist regime (Ciutacu, 2011). In addition to the unilateral amendment of the Labour Code (which makes it easier for employers to hire and fire employees), the government abolished the laws governing collective bargaining since 1991 and introduced a new Social Dialogue Act (SDA) that changed collective bargaining process at all levels.

At the cross-sectoral level, there was a national unique collective agreement until 2011, which stipulated minimum rights and obligations for the entire labour force in Romania. The representative unions’ and employers’ confederations used to set the minimum standards, in terms of the minimum wage (equal or above the level set by government), working time and working conditions. The new legislation does not allow the social partners to negotiate cross- sectoral collective agreements. This led to a decentralisation of collective bargaining and weakened bargaining coordination, as the national unique collective agreement used to be the minimum reference point for collective bargaining at the lower levels. In 2012, the minimum wage was established by the government at 162 euro per month (4.5 percent annual increase which is slightly below the inflation rate). The SDA makes it easier for employers to change the declared wages for highly qualified employees to the minimum wage and provide their employees additional cash in hand to avoid paying taxes. Previously, the national collective agreement specified a pay ratio linked to the level of training and education, which meant that highly qualified employees, could not be paid the minimum wage. The Labour Inspectorate reported that over 630,000 full time employees were paid the minimum wage in 2012, showing an increase by around 200,000 since the previous year.

The legal changes and difficulties faced by social partners to get a representative status, made it impossible to negotiate collective agreements at the sectoral level until May 2012. Previously, the social partners which fulfilled the representativeness criteria could negotiate collective agreements at branch level that covered all employees and employers in a specific branch. In 2011, the social partners agreed to have 32 branches eligible for collective bargaining, out of which 20 had collective agreements. All those collective agreements were abolished by the government at the end of 2011. The SDA stipulates that branch agreements will be replaced by sectoral agreements that can be conducted in 29 economic sectors. The social partners have to re-register with the local court and prove that they are representative at the sectoral level. Trade unions and employers can also negotiate collective agreements for a group of companies from the same sector. The new collective agreements generally apply only to employers who are members of the employers’ organisations signatories of the collective agreement. There is no legal extension of the collective agreements. Consequently, there is less coordination within the economic sectors.

The SDA makes it more difficult for trade unions to negotiate agreements at the company level for two main reasons. First, there is further downward pressure on employment standards due to a lack of collective agreements settling minimum conditions at higher levels. Second, there are major procedural changes regarding collective bargaining. The local unions have to re-register with the local court to be entitled to negotiate collective agreements. Many local unions lost their representative status, as the new law stipulates that union density needs to be at least 51 percent of the total labour force compared to one third under the old law. If the union density is lower or there is no union representation in a company, elected representatives of employees are allowed to negotiate collective agreements. Previously, local union officials could get up to five days off per month for union activities paid by the employer, while under the current law the employer is not obliged to pay any time off. Also, the new law makes it far more difficult to organise workers in small and medium sized enterprises. It requires a minimum of 15 workers from the same company

5 to form a union, while previously 15 employees working in the same profession or branch could form a union. The SDA makes is impossible for unions to bargain collectively in over 90 percent of Romanian companies that have less than 15 employees (Barbuceanu, 2012).

Three main methods were used to reduce union influence and role in collective bargaining at all levels. First, there were the legislative changes which made it far more difficult for unions to bargain collectively, as discussed above. Additionally, the government outlawed the collection of union fees by the employers on the payroll, which made it more difficult for unions to collect fees. Second, the respondents suggested that there was an organised campaign to intimidate and discredit union leaders of the five main confederations; the most notorious case was the arrest in 2011 of Marius Petcu, the leader of largest union confederation, CNSRL Fratia and the Sanitas Federation, following an argument with the President Basescu about the budget for the healthcare sector (Senior union official, Sanitas). Another senior union official reported that he was accused of tax evasion after an argument with the president and had the police send to his house, but the judicial process demonstrated that he had no liabilities. Nevertheless, many commentators argue that some union leaders are corrupt; Petcu was arrested due to allegedly accepting a bribe from a business man who was supposed to do construction work at a union centre (Barbuceanu, 2012).

Finally, the legitimacy of the unions was affected by the fact that the government ignored virtually all their recommendations. A special tripartite commission consisting of representatives of unions, employers and the government was formed to deal with the economic crisis. They agreed to implement over 400 measures, but the government applied only three of them (Trif, 2010). One of these provisions stipulated that employees were entitled to receive 75 percent of their wages for a limited period of unemployment when companies had low demand for their products or services and both the employer and employees did not have to pay taxes for wages. This measure was implemented in 2010 for three months, but the government outlawed it in 2011. The legitimacy of the unions was also damaged by the fact that the mass demonstrations organised by unions against the new labour laws and wage reductions had no impact on government policies (Ciutacu, 2011). The government used the recession to curb union power, as demonstrated also by developments in collective bargaining in the healthcare and construction sectors.

Sectoral developments in the healthcare sector

Developments in the healthcare sector illustrate the issues faced by the public sector employees during the recent economic recession. The Romanian healthcare sector employs around 400,000 employees out of which approximately 85 percent work in the public healthcare sector (Chivu, 2011). Public healthcare spending was around four percent of the GDP in 2011, which is far lower than the EU average (Gensior, 2012). In order to make better use of the limited resources, the health sector has been subject to successive reforms over the last 20 years seeking primarily its decentralisation and liberalisation. The centre- right government planned to introduce extensive privatization of public hospitals and clinics aiming to reduce state spending, but the draft bill was withdrawn after the reform plan came under heavy criticism from doctors, general public and social partners as well as the Deputy Ministry of Health (Gensior, 2012). It was argued that the privatisation of the public hospitals would make medical treatment unaffordable for a large segment of the population. The healthcare reforms are likely to continue under the new government, as there is still a lack of resources.

The austerity measures imposed by the government had a significant impact on collective bargaining in the healthcare sector. Before the recession, the five union federations 6 representing healthcare workers managed to increase wages for their members through branch level collective bargaining from 89 percent the national average salary in 2004 to 98 percent in 2008, due to the economic boom and staff shortages (Chivu, 2011). A study conducted by Rotila and Celmare (2007), showed that 58 percent of managers of the public healthcare organisations indicated a shortage of staff (doctors and nurses) due to emigration and over 90 percent of managers considered that higher wages and better conditions are required to retain staff. In spite of staff shortages, the government unilaterally cut wages of the healthcare employees wages by 25 percent in 2010, part of the public sector wage cuts. Additionally, despite the provisions of the branch collective agreement for 2008-2010, employees did not receive the so-called ‘13th salary’ (a supplementary month’s wage), bonuses linked to seniority and overtime payment. Union officials indicated that healthcare workers’ wages had been reduced by around 40 percent in 2010, while there was work intensification and unpaid overtime required to make sure that patients were safe in hospitals. They indicated that most hospitals could not afford to employ new staff due to budget constraints. Despite having a valid collective agreement, the terms and conditions of employment stipulated in the agreement have been downgraded unilaterally by the government. A union official reported that:

“ There have been many protests in 2010 and 2011 organized by Sanitas and CNSRL Fratia against legal changes and the major reduction in salaries, with no positive results for the union members; these protests were very expensive for the union and difficult to organise; as a result, Sanitas found it very difficult to organise national level protests in 2012” (Senior union official, Sanitas).

The costs of organising unsuccessful protests in a context of declining membership and the arrest of the union leader of the largest confederation considerably reduced the capacity of unions to mobilise their members.

The unions managed to conclude a collective agreement in 2011, valid between August and December 2011. The 2011 collective agreement was similar to the previous one, except there were no provisions regarding the length of the annual holiday, paid overtime, precarious conditions and no meal vouchers. According to the two local union officials, the provisions of the 2011 collective agreement are still applied in their organisations in 2012, but they cannot be legally enforced if there are any issues. It was very difficult to start the collective negotiations in 2012 due to the provisions of the new labour laws as well as the fragmentation of the healthcare administration.2 The new administrators did not form an employers’ association at the sectoral level, and therefore, unions have no partner to start the process of collective bargaining. Furthermore, it took few months for unions to re-register with the local court. The largest union, Sanitas, has become representative at the end of April 2012, while the other unions are not (yet) representative. In June 2012, the regional office of Sanitas concluded a collective agreement with a group of 19 hospitals in Bucharest. This was one the first collective agreements concluded in 2012 for a group of companies.

In order to assist their members and deal with the reduction of union funds due to a decline by 50 percent in union membership, the Sanitas managed to get EU Structural Funds for five sectoral projects which allowed them to provide training to around 10,000 members; they got new skills which enabled some of them to get additional income by working extra hours as carers. Those who successfully completed the training were eligible to apply for a training grant, which was the equivalent of one month’s wage. Although healthcare unions mobilised their members to protest against the new laws and austerity measures, they had limited

2Around 25 percent of hospitals are still governed by the Ministry of Health, while others are administe red by the local councils or have another type of ownership; also, many hospitals have been closed d own. 7 success and influence on collective agreements since 2009 (Chivu, 2011). Nevertheless, they adapted to the new conditions and regulations and made an effort to help their members in other ways.

Sectoral developments in the construction sector

The construction sector illustrates developments in the private sector that was the worst affected by the recent recession. There was a drop in investments and demands for construction works, primarily due to a lack of bank loans offered to companies and individuals (Mocanu, 2009) and limited state investment in the infrastructure. Nevertheless, the availability of the EU Structural Funds for thermal insulation of state owned buildings since 2009 made the effects of the recession less severe. The construction sector was one of the first affected by the recession in 2009, while its recovery began only in 2012.

The union officials revealed that there is a chain of subcontracting in the construction sector that contributes to the exploitation of workers. Generally, multinational companies get major construction contracts and they subcontract most of the work to several other companies that also subcontract work to very small companies which cannot be unionised; over 90 percent of construction firms do not have the minimum number of employees required to form a union (Ciutacu, 2009). Although multinational firms generally provide good conditions for their employees to protect their image, the other firms in this chain of subcontracting often exploit workers. Before 2011, all construction firms were covered by the branch collective agreement. However, many workers did not have an employment contract before the recession. It was estimated that around one third of the labour force in the construction sector was involved in undeclared work in 2006 (Ciutacu, 2009).

In order to deal with specific sectoral issues, the social partners have developed several bi- partite institutions since 1997. The construction sector is unique in terms of having a network of bi-partite institutions and joint committees that regulate workers’ social protection, training, health and safety, deal with migrant workers and undeclared work and provide private pensions and holiday funds (Ciutacu, 2009). Their development started with the establishment in 1998 of the Builders’ Social Fund which manages a social protections fund for employees (to which employers, employees and customers contribute) providing compensation for periods of inactivity due to bad weather. Over 300,000 employees benefited from winter allowance since 1998; the number of employees receiving winter allowance increased by 20 percent between 2008 and 2011, due to less work available since the recession (Raport anual 2011, 2012). The social partners used the existing bi-partite institutions to get EU Structural Funds for training and to provide support for employees during the temporary interruption of work.

Unlike other sectors, there is limited fragmentation of the social partners in the construction sector; there is one employer association, namely the Romanian Association of Building Entrepreneurs (ARACO) and one trade union; the two largest unions merged in 2009 and formed Familia ‘Angel Saligny’ General Union Federation (FGS), which is affiliated to CNS Cartel Alfa. This merger process was not linked to the recession. A senior union official reported that it was an organic merger, as the two unions worked toghether with ARACO to develop the bi-partite self-regulation institutions. In 2006, the social partners signed the first Romanian sectoral social agreement (for 2007-2009), which covered a broader range of issues than sectoral collective agreements (Ciutacu, 2007). It included issues such as the regulatory framework for complying with the EU regulations as well as ensuring that there is

8 no ‘race to the bottom’ concerning employees’ wages, which might enable employers providing the lowest wages to win tenders.

In contrast to the healthcare sector, the social partners in the construction sector have set the terms and conditions of employment through collective bargaining during the recession. They concluded collective agreements that covered all employees from the construction sector until 2011, when the legislation changed. Although over 65,000 employees lost their jobs since 2008, the minimum wage for construction workers has increased since 2008. In 2012, it is seven percent higher than the national minimum wage. It was set by the social partners who negotiated an agreement for 2012-2013, but it covers only employers and employees who are members of ARACO and FGS respectively. The existence of consolidated bi-partite institutions made it possible for the social partners to negotiate multi- employer agreements, despite being the worst sector affected by the economic recession.

Nevertheless, the unions find it far more difficult to negotiate collective agreements at company level. The local unions may start negotiations only if they have more than 50 percent union density; if not, the FGS together with representatives of employees may initiate collective bargaining in unionised companies, but often employees do not elect representatives because they are afraid that employees’ representatives could be fired. Also, a FGS official indicated that there have been cases of intimidation of local union officials. Nevertheless, there are some companies where unions have very good relations with the employers. The two local union officials interviewed worked in such companies and they both reported that ownership changes had a more significant impact on collective bargaining than the recession or the recent changes in the legislation. Both companies had previous senior managers who were unwilling to have a dialogue with the unions. These developments indicate that collective bargaining in unionised companies depends primarily on the willingness of the local senior management team to deal with unions. Additionally, the new legislation makes it impossible for unions to negotiate collective agreements in over 90 percent of the micro-enterprises which carry out the subcontracted construction work, as they have less than 15 workers.

Discussion and conclusion

This paper examines the main changes in collective bargaining since 2008. It argues that the state hammered the system of collective bargaining and imposed its decentralisation, primarily through legal changes. The biggest change was at the national level, as the SDA makes it impossible for the social partners to negotiate cross-sectoral collective agreements. Also, the state declared null and void all sectoral agreements at the end of 2011 and made it very difficult to negotiate sectoral agreements in 2012 due to the new legal requirements for the social partners (Barbuceanu, 2012). Union officials reported that very few unions managed to negotiate multi-employer collective agreements in 2012. The social partners in the construction sector were the first to conclude a sectoral agreement for 2012, while the regional office of Sanitas was among the first to conclude a collective agreement for a group of companies. Both agreements cover only employees in the companies that signed the agreements, while before 2011, all employees working (legally) in the two sectors were covered by branch agreements. This shows a decentralisation and fragmentation of sectoral collective bargaining, which is in line with institutional developments in neo-liberal market economies.

Besides some general trends in collective bargaining observed in both sectors, there are striking differences between collective bargaining in healthcare and construction which suggest that political rather than economic factors affected the institutional changes in collective bargaining. Although the construction sector was the worst affected by the market

9 forces during the recession, the social partners worked together and utilised their unique bi- partite institutions to deal with it. In contrast, the state almost unilaterally established the terms and conditions of employment in the healthcare sector. The government disregarded the provisions of the collective agreements for all public sector employees between 2009 and 2011, allegedly due to the conditions for the loan agreed with the IMF (Trif, 2010). The centre-right government unilaterally reduced public sector wages in 2010 by more than 25 percent, while it increased them by 15 percent in June 2011. The new government also increased wages for the public sector employees by eight percent in June 2012, without consulting the unions. According to union officials, the latest wage increase is a populist measure, as local elections and parliamentary elections are due to take place in 2012. Additionally, a local union official indicated that their union got a definitive court judgment in 2009 regarding the payment of arrears to nurses in a public hospital which illegally reduced their salaries for seven years, but the government passed an emergency ordinance to invalidate the court decision. Considering also that all the main changes in the labour laws since 2008 have been introduced unilaterally by the governments through emergency ordinances, it could be argued that we are witnessing a return to authoritarian decision- making practices.

In contrast to Bohle and Greskovits (2012) argument that Romania has a weak state that concedes to union demands, the recent changes in collective bargaining reveal a rather strong state and weak unions. The governments disregard for the provisions of collective agreements, the legal changes and the alleged intimidation of union leaders led to a decline of unions’ legitimacy and influence in collective bargaining. The economic crisis reduced trade union membership and their mobilisation power (Trif, 2010). The recession was also used as a pretext by the centre-right government to reform the industrial relations system. Ironically, the so-called Social Dialogue Act was passed unilaterally by the government without being discussed in the parliament and without involving the social partners. It should be noted that four (out of 13) national employers’ associations employing over 60 percent of the active labour force did not support this new legislation (Ciutacu, 2012: 2), as it hindered social dialogue and multi-employer collective bargaining. The government made statutory changes to the terms and conditions of employment agreed by the social partners and abolished all the existing collective agreements. The non-democratic procedures used to alter industrial relations resemble the authoritarian rule in place before 1989. The evidence demonstrates a large degree of continuity in terms of strong state intervention in industrial relations. We call this type of institutional arrangement authoritarian neo-liberalism, as change in industrial relations is driven by a strong, interventionist state in the field of wage setting that, at the same time, pushes forward the deregulation of the labour market and the dismantling of workers’ rights. However, it is difficult to foresee whether authoritarian neo- liberalism is a transitional stage or it is likely to be a long term institutional arrangement.

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