Social reforms and social dialogue: examples from Estonia, Latvia - - PowerPoint PPT Presentation

Social reforms and social dialogue: examples from Estonia, Latvia and Lithuania

Jaan Masso*, Kerly Krillo*, Inta Mierina# *University of Tartu, Estonia

#University of Latvia, Latvia

Presentation in the conference “The European Social Model in times of Economic Crises and Austerity Policies”, Brussels, 27-28 February 2014

Some key features of the social model of the Baltic States

• Baltic social protection systems do not mimic exactly any of the 4

European ones (Paas and Masso 2007), features of both liberal (e.g. 3-pillar pension systems) and conservative (unemployment insurance) models (Aidukaite 2006); social expenditures at relatively lower levels (in 2009 – 19% in EE, 17% LV, 16% LT, 30% EU15):

• Elements not necessarily consistent with ESM – institutions (e.g. flat

income tax), performance, like high inequalities (e.g. EE has highest gender pay gap in Europe, ca 30%) – despite similar institution better performance in EE (e.g. declining inequality since 2000, increasing in LV, LT)

• Factors shaping the Baltic Social model – path dependency (relying on

employers contributions) and path departure (attitude against paternalistic state), Scandinavian models as some source of inspiration, growth vs welfare, value orientation of the population (against paternalistic state)

• Varieties of capitalism - CEE as “Dependent Market Economies” - high

importance of FDI (Nölke and Vliegenthart 2009); Baltics as “flexible market economies” (Kuokštis 2011); (e.g. in corporate governance, role of financial markets, importance of small and medium-sized enterprises).

Key points on adjustment and austerity during the crises

• Low indebtedness at the start of crises (e.g. In EE 4.6% in 2008, 14% by

2014), still heavy fiscal consolidation (both revenue and expenditure measures) due to very sharp crises (GDP-14% in 2009), strong recovery thereafter (+7.6% in EE in 2011)

• Different fiscal policies during the crises - Estonia tight policy to join euro

(in 2009 primary balance -1.8%, in 2010 +0.4%), Latvia turned to IMF, Lithuania had large deficit without IMF financing; structural versus expenditure cuts - in Estonian rather expenditure cuts, in two other Baltic States, esp. Latvia, more structural (e.g. reorganizations in health care and education)

• Strong adjustments in labour markets: both in employment (ca -10%),

average wages (ca – 4%, in EE for ca 45% of workers wages reduced), hours reduction (unpaid leaves); higher migration (also due to elements of ESM: working conditions, social and health care systems)

• Massive adjustments with little protests (esp. Estonia) – public

consensus on the necessity of cuts, specific culture of patience, trust in national political institutions, agreements with unions and employers, perception of the need to reduce the number of bureaucrats

Unions and social dialogue during the crises and recovery in Estonia (1)

• Trade unions’ modest role: low union density (less than 10%),

collective agreements signed by less than 6% of firms, many reasons (Woolfson and Kallaste 2011);

• Impact of unions on wages modest: either as shown by statistical

studies (Eamets and Kallaste 2004/2005), or surveys of firms (Rõõm and Uusküla 2006); during the crises union members did somewhat better in terms of employment and wages (Masso and Krillo 2011).

• Social dialogue: Bipartite social dialogue relatively absent, tripartite

dialogue compensating for shortage of dialogue at the firm level

• Social dialogue at sectoral and company level during the crises–

less collective agreements (97 in 2007, 54 in 2011)

• Tripartite agreements during the crises, still unions failed to influence

many developments during the crises; whether approaches favoured by unions would have led to better social outcomes? Woolfson and Kallaste (2012) argue that the un-ability of the Baltic unions to mobilize against the government imposed austerity measures has undermined their credibility.

• Social partners have strongly criticised the social dialogue between

them and the state: government breached several agreements already made, wished to make quick decisions => no involvement or only formal involvement of social partners

Unions and social dialogue during the crises and recovery in Estonia (2)

• Government’s decision to include the reserves of the Unemployment

Insurance Fund and the Health Insurance in the state budget 2011:

• pposition from both employers and unions – e.g. employers removing their

representatives from the Supervisory Boards of both the Unemployment Insurance Fund and the Health Insurance Fund

• The establishment of the rates of the unemployment insurance

premium (raised during crises to the maximum level 4.2% of gross wages): the state has not taken the opinions of the employers or the employees under consideration – declined the proposed reduction of the UI rates; lowered only in 2013.

• Summary: problems with social partnership primarily regarding the

involvement of partners in decison making, reduced belief in binding agreements

• New Employment Contracts Act in 2009: a compromise - for easier

dismissal procedures, it was agreed to increase security (raise unemployment insurance benefit, grant UI to those quitting at own initiative, increase unemployment assistance) – flexicurity approach; government decided not to increase UI as agreed

Development of Labour Contracts Act in Estonia: Effect on social dialogue

• Government’s actions have undermined its credibility as the

partner in social dialogue for social partners: the government’s steps overrode the social dialogue process and broke the tripartite principles in place since 2003 that required all policies in the field

• f employment to be consulted with various confederations of

social partners (Woolfson and Kallaste 2013).

• Labour market experts: the state abandoned the promises made

and this could have longer-term effects of the social dialogue; implementation of other austerity measures without consultations criticized

• Ministry of social affairs (MSA): the developments have

undermined the credibility of the MSA as a partner in social dialogue; restoring trust between social partners is seen as one of the challenges in the MSA in coming years. (case study 1)

Case study 2: Reform in education and science during the crises in Latvia

• Largest cuts of all areas of public spending (2008-2011 -50%), spending

down to 5% of GDP, disregards targets by EU (7% of GDP) and national laws (annual increase for HE and science seen till reach 1% and 2% of GDP); universities had the largest funding cuts in Europe: 2009-2010 by 55 % (Kalmuka 2010);

• Reorganization of school network: crisis accelerated the closings: during

2008/2009-2009/2010 105 (10.7%) of schools were closed in just one year; mass layoff of teachers (in 2009/2010 15.5% of all teachers lost their job), increased workload of teachers lowers the quality of education.

• Cost-saving structural changes justified: demographic changes, low ratio
• f pupils to teachers,
• Negative consequences: cuts too big, reforms too small, focused on short-

time financial gain, quality of learning and childrens’ lives in general could be affected negatively, worsened access to higher education (65%

• f students)

Case study 2: social dialogue (1)

• The large cuts to education budget were made without consulting the

social partners; teachers were initially very patent and accepted the cuts, as the economy was recovering, but the education budget still remained at the ‘crisis levels’, frustration grew.

• Some agreements (e.g., financing of pre-school teachers wages from the

state budget) have not been upheld, and some promises have been broken (e.g., the Memorandum of cooperation with higher education institutions), damaging confidence in the Ministry and its credibility as a partner in a dialogue.

• An unprecedent conflict escalated between Ministry of Education and

Science and those working in the sector: LIZDA, the Council Of Higher Education, the Student Union of Latvia, The Council of Rectors, and

• thers, surrounding the evaluation and accreditation of higher education

institutions, and several calls for the demission of the minister were raised (e.g., IK Informācija 2012); communication with social partners was insufficient and generally unsuccesful (NRA 2013) => minister resigned in May 2013

Case study 2: social dialogue (2)

• Lack of a constructive dialogue between the Ministry and social partners

mainly stemmed from poor communication, traditions, and ideological differences.

• Trade unions have no experience or even a philosophical

understanding of how to deal with neoliberal policies (Ilze Trapenciere)

• Besides ideological differences, the Ministry and LIZDA have been

talking past each other also because of different accents: the Ministry emphasizing the quality issues and the need for structural reforms, LIZDA – the issue of remuneration as the main basis for other problems.

• Lack of confidence among the Ministry representatives that people

speaking on behalf of these organizations actually represent the views

• f their members, not just themselves => more discussions and

consultations are needed within local organizations to reconcile the

• pinions within the organization before voicing them.
• Trade union (LIZDA) weakened because of decreasing number of

teaching staff, reputation has also suffered during the crisis, and young people are not very keen to join it.

Conclusions

• Study of the social models of the Baltic States provides a

different perspective on the ESM.

• Limited social dialogue certainly affected they way how

the Baltic States responded to the crises (high external and wage flexibility)

• Fast response to crises may have contributed to

recovery, but more developed social dialogue may have contributed to better outcomes, still social dialogue was to large extent neglected in the crisis and in the austerity-related reforms.

Case study 2: development of the new Labour Contracts Act in Estonia

• High level of labour market flexibility, yet employment protection

legislations for a long time an exception (Eamets and Masso 2005)

• New Employment Contracts Act in 2009 – based on the principals of

flexicurity employment contract termination more easy; advance notice period down to 30 days (before 2-4 months), conclusion of fixed-term contracts will be allowed in all cases etc.

– Increase in unemployment insurance (50%=>70% of average wage), UI extended to those quitting by agreement between employee and employer, increase in unemployment allowance – Result of consultation with social partners, tripartite agreement signed in 23.04.2008, example of constructive dialogue between parties that ended up in the compromise accepted by all parties.

• Act implemented in 1 July 2009, but government withdraw the

agreements made:

– security part (higher benefits) not implemented, no discussions with social partners