Cyclopedia Of Economics 1st edition

IIIi. National Employment Contract

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IIIi. National Employment Contract

Many countries - especially in Latin America and in Central and Eastern Europe - have signed "National Employment Contracts" between government, trade unions, employers (represented by the Chamber of Commerce), and Central Bank.

In this neo-corporatist approach, employers usually guarantee the formation of new work places against a freeze on employee compensation, the exclusion of part time labour from collective bargaining, and added flexibility on minimum wages, job security, hiring and firing procedures, social and unemployment benefits, indexation of wages and benefits, the right to strike, and wage increases (increasingly linked to productivity gains).

Trade unions, in return, are granted effective control of the shop floor - issues like unemployment insurance, employment protection, early retirement, working hours, old age pensions, health insurance, housing, taxation, public sector employment, vocational training, and regional aid and subsidies to declining and infant industries.

In Sweden and Germany there is co-determination. Workers are represented even in non-wage related matters (such as the work organization).

Wages and unemployment benefits are perceived as complementary economic stabilizers. Many countries instituted an "Incomes Policy" intended to ensure that employers, pressurized by unions, do not raise wages and prices. In Sweden, for instance, both labour and management organizations are responsible to maintain price stability. The government can intervene in the negotiations and even threaten a wage freeze, or wage AND price controls. In Holland the courts can set wages.

Another possibility is a Guaranteed Wage Plan - Employers assure minimum annual employment or minimum annual wages or both to tenured employees. In return, firms and trade unions forego seniority (LIFO, last in first out, firing the newly hired first) and the employer is given a free hand in hiring and firing employees, regardless of tenure.

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