The European Commission is in the process of preparing a new Directive on pay transparency; one that will damage growth, make skills adjustment more difficult and create extensive bureaucracy, says chief economists at several employers” organisations.
Europe is facing a series of tough challenges. International competition has intensified, and the EU is increasingly distant from its goal of being a world leader in competitiveness and innovation. Once again, the pandemic is hitting both people and businesses hard.
The focus should therefore be on creating positive conditions for competitiveness and sustainable growth. However, the European Commission is in the process of preparing a new Directive on pay transparency; one that will damage growth, make skills adjustment more difficult and create extensive bureaucracy.
The purpose of this Directive is to counteract wage discrimination based on gender. That objective is right and important. However, the method being used to pursue it is totally inappropriate. In addition, the proposals announced also run completely contrary to the Swedish wage formation model.
The European Commission estimates that the pay gap between men and women in Europe is around 15 percent. According to the Commission, it is impossible to say whether the difference is wholly or partly due to discrimination. Nevertheless, the Commission seeks to try to increase gender equality by resolving more pay discrimination cases in courts.
In Sweden, the pay gap between men and women has decreased over the past 13 years. If one takes into account age, occupation, education and other quantifiable factors, the wage difference now stands at 4.2 percent. The Swedish labour market model is thus well on its way to achieving equal pay.
The EU”s competence for regulating working life is currently limited. The Member States are responsible for matters relating to employment, wage formation and social relations. It is important in principle to maintain that balance.
However, the proposals that the Commission is expected to present in January show an almost implausible lack of insight into how labour markets actually work in practice.
Among other things, the Commission wants employees to find out the salaries of colleagues, in order to assess whether they can consider themselves to be discriminated against. Currently, the employer - together with the trade unions - has the main responsibility for assessing wage setting from a gender equality perspective. The Commission”s ambition to have more cases addressed in court will undermine the partners’ responsibility for wage setting in collective agreements.
The Commission also believes that wage setting should be based on objective grounds, such as duration of employment or length of training. This means that agreements where the salary is linked to the individual performance would be impossible to apply. The Mediation Institute”s latest analysis shows that approximately 580 central agreements and 85 per cent of employees in Sweden are covered by, more or less, individual wage setting. How will these agreements be affected? What happens to employees” motivation and skills development within companies if performance-related salaries disappear?
The Commission also wants to increase pay transparency through wage mapping for equal work or work of equal value. The surveys shall be based on gender-neutral job classifications and values based on gender-neutral job titles and job descriptions.
In Sweden, we undertake salary surveys within companies; however, it is a completely different matter to force comparative surveys between companies and employers. In a rapidly evolving dynamic labour market, the idea of documenting the content of different jobs as a basis for legal processes is completely alien. What do you do with all the jobs that do not yet exist? If the Commission”s proposal is implemented, it will become difficult to change job content and salaries.
The Commission also wants to introduce uniform definitions of pay, equal work and equivalent work for the whole of the EU, together with comparative figures that will facilitate comparisons between employers. The purpose is to facilitate the application of law by the courts of the Member States and the European Court of Justice. Several of the Commission”s proposals demonstrate a clear ambition to take wage formation away from the partners and into the courts.
The Commission fail to recognise the elements that characterise a functioning wage formation in a market economy - and how such arrangements work in Sweden and in other Nordic countries:
• First, that wages are affected by supply and demand for different skills.
• Second, that salary is only part of any total compensation package, which also includes - among other things - pension contributions, holidays, leave and reductions in working hours.
• Third, that salary policy within a company is central to a company”s strategy.
• Last, that the labour market is dynamic, that jobs are constantly changing and with it also the competence requirements.
An EU Directive would create a barrier to structural change and weaken Europe”s overall competitiveness. For Sweden, it would also be a hammer blow for what is a well-functioning partner model.
We must, of course, continue to work for gender equality, but it must be with methods that do not restrict structural change, competitiveness and thus do not undermine the conditions for sustainable growth.
Europe needs more companies that seek to hire and a labour market model that - like the Swedish one - encourages adaptation and structural change. Believing that a highly extremely complicated legal framework will somehow create the conditions for competitiveness and sustainable jobs shows how far detached from reality the European Commission is in this issue.
Johan Davidson, Chief Economist, Swedish Trade
Carl Eckerdal, Chief Economist, Swedish Food Federation and IKEM
Kerstin Hallsten, Chief Economist, Swedish Association of Industrial Employers
Fredrik Isaksson, Chief Economist, Swedish Construction Federation
Lars Jagrén, Senior Advisor, Confederation of Swedish Enterprise
Thomas Jakobsson, Chief Economist, Visita
Patrick Joyce, Chief Economist, Almega
Mats Kinnwall, Chief Economist, Association of Swedish Engineering Industries