Who sets wages? The legal and institutional foundations of collective bargaining in Austria

Zuckerstätter, Sepp Article Who sets wages? The legal and institutional foundations of collective bargaining in Austria Wirtschaft und Gesellschaft (WuG) Provided in Cooperation with: Kammer für Arbeiter und Angestellte für Wien Suggested Citation: Zuckerstätter, Sepp (2024) : Who sets wages? The legal and institutional foundations of collective bargaining in Austria, Wirtschaft und Gesellschaft (WuG), ISSN 0378-5130, Kammer für Arbeiter und Angestellte für Wien, Wien, Vol. 50, Iss. 4, pp. 83-116, https://doi.org/10.59288/wug504.250 This Version is available at: https://hdl.handle.net/10419/333138 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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The legal and institutional foundations of collective bargaining in Austria Sepp Zuckerstätter* ABSTRACT This article presents an overview of the Austrian system of collective bargaining that is characterized by largely autonomous wage-setting between social partners and high coverage rates. The paper outlines the historical origins and the fundamental ideas behind the Austrian regulatory system, which is designed to facilitate negotiations between actors in industrial relations without undue interference from lawmakers. A detailed account is given of the legal and institutional framework of collective agreements, including various erga omnes rules and extension clauses, that protect the system from fragmentation into decentralized wage regulations. Future challenges for the Austrian wage negotiation system are identified, such as maintaining the constituency for collective agreements, ensuring that collective agreements remain comprehensive, and avoiding the disintegration of the informally coordinated wage-setting system. KEYWORDS Collective bargaining, Austria, industrial relations, wage-setting JEL-CODES J5, K31 DOI 10.59288/wug504.250 * Sepp Zuckerstätter: Arbeiterkammer Wien Contact: sepp.zuck[email protected] 84 Zuckerstätter (2025): Who sets wages? 1. Historical context To understand the genesis of industrial relations in Austria, one has to appreciate the unique historical situation in post-war Austria. The First Republic founded in 1919 was the diminished German-speaking portion of the former Austro-Hungarian Monarchy, with a population of just 6,760,044 (Statistik Austria, 2024 VZ 1934) compared to the 49,408,576 (Mischler, 1912 VZ 1910) of the now disintegrating empire. The establishment of the First Republic was not characterized by an overly optimistic attitude but rather by a climate of confrontation between conservative and social democratic factions. The collapse of the Austro-Hungarian Empire left the remaining states without their traditional markets. Faith in the economic viability of the new Austrian state was low. In terms of political developments, however, the first two years of the First Republic under the Social Democratic Party’s leadership witnessed a number of significant advancements. These included the introduction of universal suffrage for women, the establishment of the eighthour workday, laws on worker representation, such as the establishment of works councils (Betriebsräte 1 ), a law allowing collective bargaining agreements (Einigungsamtsgesetz) and numerous other regulations (Felten and Mosler, 2020; Lichtenberger, 2021). These developments had long been impeded by the exceedingly conservative orientation of the Habsburg monarchy. The new laws eventually formed the basis for the Austrian wage-setting system. At the time the social democratic unions (freie Gewerkschaften) had approximately one million members, while the conservative Christian unions had about 80,000. The nationalist and the employer-oriented, so-called yellow unions, reached approximately 40,000 members each (Krula, 2002, p. 43). The communist unions, like the Communist Party in general, did not achieve a significant level of influence among workers. Instead, they operated as part of the left-wing opposition within the social democratic unions (Autengruber, 2021). The first democratic republic ended in a coup d’état by the Christian Democratic Party in 1934. They established a dictatorship similar to the Italian and Spanish fascist regimes, the so-called corporative state (Ständestaat). The new government outlawed labour unions and all political opposition parties. In addition, the Ständestaat effectively abolished the democratic self-governance of corporatism and incorporated the Economic Chambers (Wirtschaftskammer Österreich, WKO) and the Chambers of Labour (Kammer für Arbeiter und Angestellte, AK) into the direct administration of the state 2 (Arbeiterkammer, 2024; Hager et al., 2016). The purpose of self-governance was to allow for the self-regulation of particular groups in domains where direct governance by the state would be deemed too much of an interference. 1 Please note the glossary of German legal terms in Annex 2, as the article refers to specific German terms throughout the text. 2 For the sake of historical fairness, it is essential to address a common misconception. The system of chambers is not a consequence of the Ständestaat. The Chamber of Economics was founded in 1848 and the Chambers of Labour were founded in 1920 during the First Republic. These institutions established a democratic system of representation for the political and social interests of specific professional and social groups. 85 Wirtschaft und Gesellschaft 50 (4): 83–116 The Austrofascist regime ended with the Anschluss to the Third Reich, which in turn resulted in the imprisonment of Christian Democrats alongside the already imprisoned Social Democrats. This historical episode, marked by a violent confrontation and, in the end, a common oppression, has contributed to the inclination of both political camps to coalition-building and compromise-seeking in post-war Austria.3 Following the liberation of the country from fascist rule by Allied forces, representatives of the two former political parties, which had been in opposition to one another, resolved to establish a system of governance based on consensus. In 1945, trade unions opted to establish a unified union, the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB), which encompasses all political orientations and sectors within a single large union (Battisti, 1975). The practical necessities of organizing under the post-war regime of four occupational forces and the objective of joining forces to organize together rather than in separate, smaller and less powerful groups also contributed to the unification of the unions. The principal figures involved in the formation of the ÖGB, Johann Böhm (Social Democrat), Lois Weinberger (Christian Democrat) and Gottlieb Fiala (Communist), articulated this intention to collaborate in the inaugural issue of the union magazine Der österreichische Arbeiter und Angestellte (Böhm, 1945; Fiala, 1945; Fischer, 1945; Weinberger, 1945). In the ÖGB, the various political groups form factions, which collectively determine the political positions of the union. Candidates for leadership positions are nominated by the factions and subsequently elected through internal democratic processes. At the outset, these factions comprised solely those affiliated with the Social Democratic, Christian Democratic, and Communist unionist movements. They subsequently expanded to encompass the nationalistic/liberal unionists of the Freedom Party and the group of the independent and the Green unionists. On the employer side, the central organizations were reconstituted as legal representative bodies with their own democratic elections. Membership to these chambers is mandatory, and the specifics of this will be discussed in greater detail below. The significant, though probably unintended, consequence of the decision to form one all-encompassing union, in combination with a chamber system for employers, was a unified and macro-oriented wage negotiation system. 2. The evolution of Austrian industrial relations regulation At the root of the Austrian industrial relations (IR) system is a deep distrust between labour being represented mainly by the Social Democratic Party (from 1945 Sozialistische and from 1991 Sozialdemokratische Partei Österreichs, SPÖ) and capital being represented by the Christian Democratic Party, which was renamed the Austrian People’s Party (Österreichische Volkspartei, 3 The role of the common oppression suffered by representatives of the main political parties is still debated among Austrian historians. While it became a part of Austrian self-representation, the details are less consensual (see for example (Maier et al., 2020; Rathkolb, 2008). Brigitte Bailer describes the issue well: “However, the experience of the National Socialist threat and the common enemy will certainly have contributed significantly to this new willingness to cooperate” (Bailer, 2013, p. 7). 86 Zuckerstätter (2025): Who sets wages? ÖVP) after the war. This is moderated and modified by a serious effort by both sides to overcome this distrust after the disastrous history of civil war and fascism. During the period of reconstitution of the Austrian IR regulation, the dominant political parties were deeply connected to the social partners. This allowed negotiations, which were held between government and social partners in many other countries, to take place directly between social partners in Austria. The legal structure of industrial relations in Austria as it stands now is laid down in the Labour Constitution Law (Arbeitsverfassungsgesetz, ArbVG)4. As (Cerny, 2014) lays out, the law was adopted by the social democratic majority government (1971–1983) in 1973. It replaced a few separate laws, such as the law on works councils, and acts on collective and individual labour law. Each of these previous laws dealt separately with certain aspects of industrial relations. The following short description of the genesis of the ArbVG is based on two overviews by Cerny (Cerny, 2020, 2014). The adoption of the ArbVG ended a protracted discussion about the legal regulation of industrial relations in Austria, which had started back in the early 1960s. The reform process was interrupted by harsh resistance from employers as well as a lack of consensus within the coalition government of Christian Democrats and Social Democrats (1949–1965). The minister of labour and social affairs (and one of the first female ministers in Austria), the Christian Democratic unionist Käthe Rehor (*1910, †1983), restarted the process under the Christian Democratic majority government of 1966–1970. During these discussions, it became clear that the regulation of industrial relations at national and branch level must go hand in hand with a new regulation of industrial relations at the firm level. This would make it possible to build a comprehensive system of the actors’ rights and duties at different levels. This system had to ensure that tasks not assigned to one level are adequately addressed at another level. By then, collective agreements had been regulated in the law on collective agreements (Kollektivvertragsgesetz) plus some accompanying laws (Einigunsamtsgesetz, Mindestlohntarifgesetz), while firm-level IR was governed by the works councils act (Betriebsrätegesetz). The next proposal for the new regulation was formulated by the newly elected Social Democratic majority government of 1971–1983 under Chancellor Bruno Kreisky (*1911, †1990). The proposal presented in 1972 by the minister of labour and social affairs Rudolf Häuser (*1909, †2000), who was also vice president of the ÖGB, was met with aggressive resistance from employer representatives. Therefore, the heads of social partner organizations, WKO president Rudolf Sallinger (*1916, †1992) and ÖGB president Anton Benya (*1912, †2001) entered into negotiations to reach a consensus on the new rules. Both were also members of parliament: Benya for the SPÖ and Sallinger for the ÖVP. And both sides had high-profile members of parliament in their negotiating committees; for instance, SPÖ representative Alfred Dallinger who later became minister of labour and social affairs, and ÖVP representative Walter Hauser who was a high-profile expert 4 The law is available at https://ris.bka.gv.at/eli/bgbl/1974/22/P0/NOR11008479 and a commented version can be found in (Gahleitner and Mosler, 2020, opp. 1–5). 87 Wirtschaft und Gesellschaft 50 (4): 83–116 for the WKO. Even though the Social Democratic government had, at this time, the required parliamentary majority to enact the law without the consent of the other parties, it still decided to allow social partners to enter into negotiations with the aim of reaching a broad consensus. Finally, all three political parties in parliament including the national and only partially liberal Freedom Party5 (FPÖ) unanimously accepted this broad consensus in 1973 and the ArbVG entered into force in 1974. While the drawbacks of such a compromise were criticized by the left and the right, it seems to have contributed to the long-term stability of the regulation, which was not changed by the first (1999–2007) or second right-wing coalitions (2017–2019), despite them having had the necessary majorities. The general political mood of the early 1970s gave large public support to initiatives on more democratic influence for workers at the workplace too, and a labour market at full employment helped the unions achieve a satisfactory result. Austrian lawmakers granted the social partners a high degree of autonomy in regulating employment relations, but also demanded democratic responsibility and accountability to their respective members. This combination of autonomy and democratic accountability allowed government and parliament to take a “hands-off” approach to regulating industrial relations. The state confined itself to the provision of legal instruments for the social partners to use (Müller, 2021). This legal framework favours multi-employer bargaining over firm-level negotiations, giving the negotiating partners the ability and the incentive to take account of the macroeconomic and political implications of their decisions. In most cases, collective agreements (see chapter 5) have to cover multiple firms. The system achieves flexibility by allowing the negotiating parties to delegate some matters to lower levels of negotiation. Centralized collective bargaining also forces the partners to find compromises within the diverging interests of their own diverse membership. For instance, the differing priorities of small versus big firms or of export-oriented versus internal market-oriented companies have to be taken into account. All-encompassing organizations also have to factor in the possibility of their policies having inflationary or deflationary consequences, as famously pointed out by Calmfors and Driffill (1988) and many others later on (Layard et al., 1991; Traxler, 2002). Austria provides quite a good example of this as the ÖGB followed a wage policy along the lines of overall productivity increase plus inflation with the aim of keeping demand in line with growth and cost increases in line with international competitive requirements (Feigl and Zuckerstätter, 2013; Zuckerstätter, 2012). The main law governing industrial relations in Austria, the Labour Constitution Law (ArbVG), is – contrary to its slightly misleading name – not a constitutional law in the formal sense. In 5 The Austrian Freedom Party organized the remaining German nationalistic right-wing voters. It sometimes leant towards a more liberal direction but became one of the first and most successful right-wing populist parties in Europe under Jörg Haider and his successors from 1986 onwards (Demokratiezentrum Wien, 2022). 88 Zuckerstätter (2025): Who sets wages? Austria, a constitutional law needs a two-thirds majority to be passed in parliament, but it only takes an ordinary resolution to change the ArbVG. Nonetheless, the name is quite well chosen as the ArbVG defines the fundamental rules of Austrian collective labour relations. In contrast, the conduct of industrial conflict is hardly regulated by law. For many years up to around 2010, a standard interpretation in Austrian labour law was that there is no explicit right to strike, and not showing up for work constitutes a breach of labour law. While this rather extreme position is no longer supported by legal experts, there is still a wide area of unregulated and under-regulated issues in labour law. It was via the indirect path of international agreements, especially the interpretation of Art.11 of the European Convention on Human Rights (ECHR), that the right to strike became part of the Austrian legal framework. A lively discussion is still ongoing on the details of the right to strike which is beyond the scope of this paper (for further information, see (Mosler, 2023; Krejci, 2015; Marhold, 2015; Gruber-Risak, 2024)). The following chapter begins by touching on the question of the right to negotiate and describing the institutions involved in more detail. Subsequently, an overview is provided of additional regulations which are vital in order to stabilize the collective bargaining system. Finally, there is a focus on the political and legal.6 3. The right to negotiate Austrian labour law defines four kinds of institutions that are able to intervene in collective agreements:7 • Voluntary associations of employers or employees (Berufsvereinigungen der Arbeitnehmerinnen und Arbeitnehmer, Berufsvereinigungen der Arbeitgeberinnen und Arbeitgeber) • Large not-for-profit associations, which can enter collective agreements under certain conditions but only for their own employees (kollektivvertragsfähige Vereine) • Mandatory associations of employers or employees like the Economic Chamber or the Chambers of Labour (kollektivvertragsfähige gesetzliche Interessenvertretungen) • Public bodies (öffentliche Körperschaften) In addition, there are some special laws that also grant the right to collective bargaining to some explicitly mentioned firms or institutions, like the (partially) privatized Austrian Postal Service, or the public Austrian Broadcasting Corporation. Most of these regulations were adopted in the course of privatizations of former public entities. Especially for the purposes of international comparison, it seems important to highlight the fact that firms do not in general have the right to negotiate collective agreements for their workers, as will be explained below. 6 A detailed description of the Austrian system can also be found in (Glassner and Hofmann, 2023; Mesch, 2015). 7 Detailed norms are available online at https://www.ris.bka.gv.at/eli/bgbl/1974/22/P4/NOR12096972 (accessed 07.01.2025). 89 Wirtschaft und Gesellschaft 50 (4): 83–116 3.1 Voluntary associations of employers or employees The Labour Constitution Law (ArbVG) gives the right to sign collective agreements to voluntary organizations of employers and employees if they represent a sufficiently relevant portion of the economy for which they wish to set wages. It is not possible to provide a clear-cut percentage, but recent verdicts pointed out that organizing less than 8.5% of potential job holders is definitely too little8 (Grillberger, 2018, p. 483). However, this question is legally too complex to be distilled into a single percentage share. Formally, voluntary organizations had to apply for the right to negotiate at the Bundeseinigungsamt, and a list of all organizations holding the right to negotiate can be found in the online appendix. To obtain the right to negotiate, a voluntary organization has to • explicitly state the aim to regulate employment conditions in its statutes, • cover a sufficient range of the employers or employees in the regional and professional sphere for which it wants the right to negotiate, • have sufficient economic relevance based on its share of employees and relevance in the branch of activity, and • be independent from the other side of the collective agreement. If these conditions are met, the organization has the right to become kollektivvertragsfähig, which is the legal term for being permitted to sign collective agreements on behalf of one’s members. 3.2 Large (non-commercial) associations Associations can apply for the right to negotiate on behalf of employers in collective agreements covering their own employees only. Therefore, they must not be members of an employers’ association. They have to be organized as a non profit organization (Verein ) according to the stipulation of the Vereinsgesetz which, among other things, means they have to be non-profit organizations. Currently only four rather small associations9 have this particular right. Extension mechanisms, which will be addressed later, cannot be applied to agreements signed by such associations. 3.3 Mandatory associations of employers or employees Austria has a rather unique system of professional self-governance. Most employed people, the self-employed as well as employees, are members of such a self-governing institution. These 8 The author also highlights an earlier verdict by the VwGH (Supreme Administrative Court) that even 23% of potential members might be too little, which the author deems overly ambitious. 9 Verein Wiener Symphoniker; Wiener Tierschutzverein; Neustart – Bewährungshilfe, Konfliktregelung, Soziale Arbeit; Niederösterreichisches Hilfswerk. 90 Zuckerstätter (2025): Who sets wages? institutions have mandatory membership within their respective constituency, defined by labour market, professional or class status. Such institutions are quite common in many countries for liberal professions, like lawyers, medical doctors and chartered accountants. Even institutions like the Economic Cambers usually called chambers of commerce or chambers of trade are frequently seen in other countries. The rather unique feature in Austria, however, are the Chambers of Labour and the Chamber of Agriculture. These institutions act not only as self-governing interest groups but also as representatives of employers (or employees) in collective agreements, which is unusual in other countries.10 Special laws constitute these organizations as “chambers” with mandatory membership. In return, the members have the right to democratically vote for the leadership of their chamber. Apart from negotiating collective agreements, chambers also represent the interests of their members in other fields of politics, like professional regulations, competition policy, social security issues and many others.11 The link between mandatory membership and democratic self-governance is a core element of the Austrian system of representation and important to securing the principle of freedom of association (Korinek, 1991; Müller, 2020). In addition, there is precedence of agreements signed by voluntary organisations over those concluded by mandatory institutions if they might be in conflict for the same employment relationship. Therefore, mandatory organizations are not able to prevent voluntary ones from organizing. A notable implication of the self-governance principle is the fact that citizenship is not required to vote in internal elections. The chambers are therefore the only institutions of wider government where non-citizens have the democratic right to vote for their political leadership. Noncitizens make up almost a quarter (24%) of employees and self-employed persons in Austria (‘Arbeitsmarktdaten online’, 2024). 3.4 Public bodies As is the case in most other countries, the wages of public servants are set by law. The employer – in this case, the state – has the formal right to set wages unilaterally. De facto negotiations take place between the public sector unions (GÖD, Younion) and the federal government and representatives of the Austrian federal states and are very similar to the wage rounds in the private sector. In addition to setting the wages for public servants, public authorities have the ability to sign collective agreements for their non-executive staff like public utility workers or hospital staff, and do so regularly. Such agreements cover large numbers of healthcare workers, for example. 10 For a description of the role played by mandatory associations in practical wage-setting, see for example (Zuckerstätter, 2020). 11 Karl Korinek (*1940, †2017), a former member of the Austrian Constitutional Court, gives a detailed analysis of the character and roles of professional self-governance in the political system of Austria, reprinted in German in Korinek (2018). 97 Wirtschaft und Gesellschaft 50 (4): 83–116 4.3 Mandatory organizations representing employers While the negotiations on the employees’ side are dominated by voluntary organizations, employers usually organize within their respective mandatory organizations. Nevertheless, there are some important agreements which are negotiated by voluntary employers’ organizations, as will be described below. To understand the interplay of voluntary and mandatory organizations in the field of collective bargaining, it is important to understand the relation between the two forms of organization. Table 3 gives a quantitative impression of the various organizational forms on the employer side in collective agreements. While the Chamber of Commerce covers the employers of about two thirds of Austrian wage earners and about 16% fall into the wider public sector, the remaining roughly 15% is covered by other institutions. The data are incomplete in the field of agriculture as the base data are from the survey of production and service enterprises which does not cover this sector. Nonetheless, the available data highlight the quite substantial amount of organizing work necessary for Austrian unions to maintain their bargaining coverage even in spite of the chamber system. Table 3: Employees by employer organization Legal status of the employer association Employees Share Wirtschaftskammer (Economic Chambers) 2,468,067 67.71% Landwirtschaftskammer (Chamber of Agriculture) 391 0.01% Kammer der freien Berufe (Chambers of Liberal Professions) 126,207 3.46% Berufsvereinigung der Arbeitgeber (Voluntary Employers’ Organizations) 75,312 2.07% Sondergesetz (special legal provisions) 108,740 2.98% Mixed (heterogeneous groups across different employers’ organizations, and the public sector) 226,690 6.22% Mindestlohntarif (minimum wage tariff) 1,007 0.03% Öffentliche Körperschaft (public body) 583,081 16.00% Unbekannt (unknown) 55,510 1.52% Source: Statistik Austria, own calculation; for details see Annex 1. 4.3.1 The Economic Chambers (Wirtschaftskammer, WKO) The WKO or Austrian Economic Chambers usually represents the employer side in wage negotiations. Membership of the chamber is mandatory for most enterprises and EPUs. The chamber is organized at the national level and at the level of the nine federal states. The chambers are organized into seven major sections: Crafts and Trades, Industry, Commerce, Banking and Insurance, Transport, Tourism and Leisure, and Information and Consulting, which in turn are divided into branch organizations called a Fachgruppe, Fachverband or Gremium. The right to 98 Zuckerstätter (2025): Who sets wages? negotiate lies with the Fachgruppe or Fachverband at the federal state level. The detailed organizational chart is shown in the online appendix. This federal and branch structure results in a very fine-grained net of professional representation with half of the units consisting of fewer than 92 enterprises, and 90% having fewer than 700 members. This gives the individual member sufficient influence in the representative body. The organizations at the federal state level usually delegate their right to negotiate to their national branch-level organization. But they implicitly retain a form of veto power over their central organization as they can reclaim the right to negotiate at any time. This is crucial as it moderates the centralistic character of the Austrian wage negotiation system. The branch-level organizations of the WKO are not predominantly wage negotiation bodies. They also represent members’ interests to government and European bodies and provide services such as support in foreign trade or education and training for the self-employed. They also play an important role in controlling access to some professions in terms of professional education and licensing (Meisteroder Konzessionsprüfung). They also determine the self-governing bodies for the social insurance system of the self-employed, and they nominate employers’ representatives within the social insurance system for employees. The system of the Economic Chambers covers roughly 2.5million employees or about 66% of all Austrian employees. This constitutes one but obviously not the only reason for the high coverage rate of collective bargaining in Austria. 4.3.2 Other chambers Most of the other chambers, like those for lawyers, doctors and agriculture, also negotiate collective agreements on behalf of their members with the respective branches of the ÖGB. In total, these chambers of the liberal professions employ about 3.5% of employees (approx. 130,000). In the past, agreements with these chambers proved to be more difficult and less cooperative. Historically, the Chambers of Agriculture17 were also important partners to collective agreements. They still negotiate on behalf of their members, but their quantitative importance is diminished. According to NACE-based statistics, agricultural enterprises employ about 26,000 employees, hardly reaching 0.7% of total employment in Austria. 17 Again, as the federal states are in charge of the regulation of agriculture according to the constitution, the Chambers of Agriculture have no legal representation at the national level, which they compensate by voluntary cooperating within the Landwirtschaftskammer Österreich, which legally speaking is a Verein or association of the federal chambers. They are also of interest from a legal perspective as some of the federal chambers represent both employers and employees within one organization but in separate organizational departments. Whether this is sufficient to guarantee the independence of the two negotiating parties is still debated by labour law experts, among others (Mosler, 2012, p. 288 f). 99 Wirtschaft und Gesellschaft 50 (4): 83–116 4.4 Voluntary organizations representing employers As shown in the online appendix, there is a substantial number of voluntary organizations representing employers in spite of, or in addition to, the system of mandatory representation. Among these organizations, two different types or situations can be distinguished: organiza - tions representing employers outside the system of mandatory membership and organizations representing employers concurrently with mandatory representational systems. Some of the latter negotiate their own agreements while others leave negotiations to the representative bodies of the mandatory system. The first group consists of employers’ organizations that were historically outside the chamber system, like newspaper publishers or electricity suppliers.18 These organizations have a longstanding tradition of negotiating collective agreements. Newspaper publishers, for example, have special regulations due to the important role of media in a democracy, which kept them out of traditional branch organizations. The number of people employed by newspapers is estimated at around 5,000. Electricity suppliers were outside the system as they have been state-owned for most of the time since World War II and therefore there was no need to integrate them in another self-governing structure. They employ about 20,000 people. Another group of organizations consists of newly formed employer organizations in the field of social and educational services. They have gained in importance over recent decades due to the privatization of services formerly provided by the public sector or within the family, like care for the elderly and children and some other social services. These employer organizations now form an important part of the bargaining system. Without the possibility to have recourse to an organization enjoying the advantages of mandatory membership, constant pressure and organizing efforts from the union have been needed to keep this increasingly important sector in the bargaining system. Employers in the care sector in Austria are mainly non-profit entities and largely dependent on public funding or the public procurement of their services. This puts them in an intermediate position between employees demanding higher wages and public bodies often unwilling to pay more for their services. It might be exactly this intermediate position which gives the employers an incentive to form an employer organization that is able to provide collective bargaining at all. Passing on increased labour costs to their public client becomes somewhat easier if there is a legal obligation to pay according to a collective agreement. This sector of private providers of childcare, elderly care and social work is estimated to employ about 150,000 people. This number is particularly uncertain as official statistics still do not distinguish sufficiently between the private for-profit, the private non-profit and the public care sectors. 18 Another example are cooperatives especially in the so-called “Raiffeisen” sector, which consist of cooperative organizations mainly of farmers providing various services like the wholesale of agricultural products or maintaining agricultural machinery. One of the sub-sectors in the Raiffeisen sector is banking. They form their own association and use their right to collective bargaining regularly. The number of people employed by Raiffeisen is extremely hard to estimate. 100 Zuckerstätter (2025): Who sets wages? The second group of employers’ associations consists of lobby organizations like the Bankers Association, the Association of Insurance Companies or the Federation of Austrian Industries. These organizations usually cooperate very closely with the corresponding organizational units of the Economic Chambers. In some cases, they even take over some of the tasks from the chamber. While the representative bodies from the finance sector take part in collective negotiations, other bodies like the Federation of Austrian Industries leave this task to the chamber. In any case, if a voluntary organization reaches an agreement, it replaces the one negotiated by the mandatory body. In many cases it is easier for voluntary organizations to ensure broad compliance by leaving the task of negotiating to the mandatory organization. Members of voluntary organizations could always use the exit option if they are not satisfied with the compromise reached in wage negotiations, while members of mandatory organizations only have the voice option19 (Hirschman, 1974) within their institution. If voluntary organizations come to an agreement, the WKO usually signs the same agreement to give it full coverage in the sector. 4.5 Social partnership and the Parity Commission This article will not go into detail on the important political role played by social partners in Austrian post-war policy beyond pure wage policy. 20 One central element was the Parity Commission (Paritätische Komission) that was set up in 1957 as a voluntary institution of cooperation between the main bodies of employer and employee representation. The commission played an important role in curbing post-World War II inflation in Austria by avoiding a high frequency of contract renewals on the wage side, and by supervising and regulating the prices of many goods. The character of the commission has changed substantially from a core instrument of social partner influence in economic policy to an advisory and consultation instrument of the social partners. It still plays some role in coordinating the position of the social partners in the main fields of economic policy (‘Die Sozialpartner Österreich’, 2024). In the field of wage policy, it retains the task of permitting the renegotiation of collective agreements, but it focuses mainly on their timing. Unions still request permission from the wage commission to renegotiate or renew collective agreements. Almost always this procedure is a technicality, as the commission does not exert influence on the content of agreements but constitutes an important safeguard to keep the system from falling apart or dissolving in demarcation issues. Economists would call it an important off-equilibrium instrument, which entices subdivisions of the unions as well as employers to coordinate and report to higher levels of 19 Albert O. Hirschman, in his seminal work Exit, Voice, and Loyalty (German: “Abwanderung und Widerspruch”) (Hirschman, 1974) distinguished two possible responses for members if they think that an organization Is providing not enough benefit to them: they can exit (withdraw from the relationship); or, they can use voice i.e.. attempt improve the relationship through communication of complaints, grievance or proposals for change within the organization, in our case also vote against the current leadership. (‘Exit, Voice, and Loyalty’, 2024). 20 See Karlhofer and Tálos (2005) for comprehensive overviews of the diminishing political influence of the social partners, and Karlhofer and Tálos (2019) on the changes during the first and second centre-right coalition. A detailed account of the current role of these social partner organizations can be found in Marterbauer and Witzani-Haim (2023), Pernicka (2022), and Tálos and Hinterseer (2019). 101 Wirtschaft und Gesellschaft 50 (4): 83–116 the organization, and potentially refuses to allow negotiations if they are not in line with higher-level interests. In the view of many commentators, the wage commission now plays a minor role, confined mainly to tasks of documentation (Schiller, 2018, p. 189 ff). 5. The core of the social partnership: Collective agreements Collective agreements (Kollektivverträge) are the core legal instrument in the Austrian system of wage-setting. As in most countries, they take an intermediate position between direct regulation by law and private contractual agreements between the parties involved. This intermediate position is sometimes illustrated in labour law by a nested system of legal regulations, starting at the individual level of employment contracts, which must obey the limitations of the relevant collective agreement but are usually free to deviate in favour of the employee. The same holds at the next level of collective agreements, which again must stay within the minimum standards set by law but again can improve conditions above that standard to the benefit of the weaker party of the employment relation, i.e. the employee. Thus, in most cases the hierarchy is from general to specific, with the latter usually being favourable to the employees. However, even within the limits of these favourability principles, trade-offs and deals within connected dimensions of the regulation are possible. Figure 2: Relations of collective agreement to other regulations Source: own presentation 5.1 The content of collective agreements The agreements specify collective minimum pay for different job categories (KV-Löhne [wages], KV-Gehälter [salaries]). These wage or salary tables range from very detailed categories of 102 Zuckerstätter (2025): Who sets wages? qualifications and experience to rather simple three or four-group schemes with little further differentiation. Qualifications are specified in many ways, the focus being on the description of qualifications actually needed on the job, not on the job holder’s formal qualifications. The same holds for experience categories that explicitly refer to former work experience within a particular category but not to age or length of employment at the specific firm. In about a third of agreements, increases in actual pay (Ist-Löhne, Ist-Gehälter) are also agreed upon. These are not to be confused with take-home pay or net wages as they refer to the gross earnings people actually receive. While minimum pay is binding for all people doing a particular job, it by no means constitutes the maximum pay for that work. It is perfectly legal to overpay without changing the minimum category. A change in the pay category becomes obligatory only if the content of the job falls into a higher classification. Firms regularly overpay the minimum to give people extra incentives, to reward them for specific additional skills, or to compete for workers within the sector. In some sectors it has become standard in wage negotiations to also arrange increases in actual payments. Without such agreements, only people earning below the new minimum would benefit from pay increases. Increases in actual pay tend to be slightly lower than increases in minimum pay. There are some important points which must be highlighted here: Only minimum pay per job category is binding, especially for newly hired employees, while overpayments are paid voluntarily by each firm. Whether a branch overpays or pays exactly the agreed minimum is not necessarily informative about labour market tightness or pay scales relative to other branches. Some branches tend to use overpayments as a form of special incentive for their employees, while others tend to use promotions to higher job classifications rather than overpayment. Pay scales can go high for some qualifications, like medical doctors or other specialist qualifications. Due to the weak legal protection against dismissals for pay reductions (see description of Änderungskündigungen above), even highly paid employees need some protection against pay pressure after they have gained firm-specific human capital investment.21 Collective agreements also specify how and when wages or salaries are paid. Most white-collar employees are paid on a monthly basis, while for blue-collar employees hourly wages are still in use.22 Collective agreements also specify working times in various ways, first of all the time used to calculate pay. While this may seem trivial in the case of hourly wages, it soon becomes complicated when discussing whether the time taken to change clothes, clean up or travel to the workplace etc. should be paid or not. As soon as weekly (extremely rare) or monthly payment (most common) comes into play, regular working time, holidays and leave in special cases have to be specified. Depending on the branch, these specifications are part of collective agreements. 21 Collective monthly minimum pay therefore ranges from the very low level of €566 for apprentices for dentists’ assistants to €10,280 for leading medical doctors with more than 35 years of experience at the end of their career. 22 Out of 500 collective agreements 375 specify monthly, 120 hourly, 4 weekly and 1 annual pay. Some specify rather specific forms of piece rates. 103 Wirtschaft und Gesellschaft 50 (4): 83–116 Holiday and Christmas bonuses enjoy preferential taxation in Austria, therefore practically all collective agreements specify some form of a 13th and 14th monthly payment. Despite being called “monthly”, they are also common in sectors with hourly wages and with employments of less than a full year.23 In terms of annual working time, holiday entitlements for single days such as Christmas Eve or New Year’s Eve are part of some collective agreements but not in others. Moreover, sick leave, holiday entitlements, working conditions, periods of notice in case of termination and many other regulations can be stipulated in collective agreements. This list of matters that can be regulated in collective agreements is by no means exhaustive, but the main takeaway is the possibility of having flexible and industry-wide regulations on many work-related issues without delegation to the firm level, which eventually rendered these areas an issue of competitiveness between firms. The agreements also facilitate compromises on pay deals by widening the range of potential subjects of negotiations. 5.2 The common procedure to reach a collective agreement The employers’ side in collective agreements is usually represented by the relevant chamber, mostly the Economic Chambers (WKO), while the employee side is usually represented by the voluntary organization of the Austrian Trade Union Federation (ÖGB). In total, there are several hundred collective agreements covering the various branches and collective wage bargaining is spread throughout the year. The start of the validity of the agreement is concentrated at the beginning of the year, with some agreements commencing in spring and a third focal point occurring in November (Bittschi, 2023 Abb. 4, p90). Agreements are usually due for renegotiation annually, but two-year or even longer periods are possible as well. The negotiations for the metal industry take place in autumn and are usually regarded as a benchmark for other branches. Several studies show the pattern-setting character of the autumn round (Bittschi, 2023; Knell and Stiglbauer, 2009; Traxler and Brandl, 2008). The negotiating parties use the information from the autumn economic forecast of the Austrian Institute for Economic Research (WIFO) and the Institute for Advanced Studies Vienna (HIS) as their basic economic outlook. Especially the WIFO plays a notable role here as it is partly financed by the social partners and usually considered to provide a neutral forecast. This is also the point at which expected inflation enters the wage formation process. In addition, information on past inflation, productivity growth, international unit labour costs, branch-specific developments (surveys, balance sheet data, etc.), and unemployment are taken into consideration. Austrian unions roughly follow a productivity-oriented wage policy, which can as a first approximation be summarized by the rule that inflation plus general productivity increase equals the 23 If a person works less than a full year, the additional payments are calculated proportionally to their actual time of employment. In some cases, employees need a minimum employment time to receive additional payments; for example, for service personnel in hotels and restaurants it is two months. 104 Zuckerstätter (2025): Who sets wages? nominal wage increase, also known as the Benya Formula named after a former president of the ÖGB (Mesch, 2015; Zuckerstätter, 2012). However, this overall guideline is modified in many ways by general labour market or branch-specific factors. There were also discussions about the appropriate measure of inflation as the guideline for wage demands during the high inflation period of 2022–2023. The unions decided to stick with the previous convention of using the average inflation of the previous 12 months. This of course caused a significant lag in wage adjustment but also helped to slow down inflation propagation.24 Negotiations in the metal sector start with general talks about the economic situation and outlook, followed by a presentation of the union’s pay demands. These demands were pre - sented behind closed doors for many years, but now they tend to be presented in public. The ensuing series of negotiations usually leads to an agreement that comes into force by 1November. The demands made, as well as the approval of the negotiation results, are up to the executive committee of the relevant union, which also decides on any industrial action. A strike must be approved by the ÖGB, but industrial action has been uncommon in Austria over recent decades. The procedure in the event of the escalation of collective negotiations is to hold general staff meetings (Betriebsversammlungen) in the most important firms affected by the agreement and to inform employees about the current situation. If industrial action becomes necessary, general polls are held among the affected employees. In contrast to other countries, there is no formal obligation to do so since Austrian legislators deemed it better to avoid detailed regulation of industrial conflict and rely on the social partners’ ability to reach constructive solutions. In many cases, strikes were called off after a majority of polled employees being in favour of industrial action led to last-minute compromises. Sometimes the relevant heads of the union and the Economic Chambers act as mediators. By 2023 the climate in the core sector of the metal industry had become less consensual. Employers offered wage increases of only 1.9 to 2.2% in response to union demands of 11.6%, while average inflation stood at 9.6%. The negotiation resulted in warning strikes combined with protracted negotiations. While negotiations usually take about a month and reach an agreement before 1November, in 2023 it took till 1December (wage increases were later backdated to 1November). To some surprise, there was no attempt by the leadership of the union or the Economic Chambers to mediate. It remains to be seen whether this was a one-off complication caused by the unusually high and unexpected inflation or a permanent shift to a less consensual climate. The compromise included a biannual agreement with the pay increase for 2025 indexed to one percentage point above average inflation, therefore providing a cooling-off after a rather heated wage round in 2024. And the possibility to renegotiate the increase if a firm is under economic strain (“Härtefallklausel”). 24 The Russian invasion of Ukraine started in February 2022. Given the high dependency of Austria on imported energy, especially natural gas from Russia via Ukrainian pipelines, it was not deemed sensible to introduce additional uncertainty by changing the wage adjustment rule. 105 Wirtschaft und Gesellschaft 50 (4): 83–116 6. Additional instruments and provisions There is no minimum pay legislation in Austria besides the minimum pay set in collective agreements. 25 Even though no explicit minimum pay legislation exists, some legal regulations do cover certain aspects, such as the entitlement to sign collective agreements and the extent of that agreement’s coverage. As these regulations are often overlooked when analysing wage regimes, they will be briefly described here.26 6.1 Erga omnes If an employer is a member of the contracting party to the collective agreement, the collective agreement by law covers all employees of the company regardless of their membership status in the contracting union (Aussenseiterklausel). In contrast to some other countries, this also has the consequence of extending collective bargaining coverage to (higher-paid) jobs in higher positions of organizational hierarchies. Only the core of entrepreneurial jobs in top management positions are exempt from collective agreements. As mentioned above, this is also a necessary consequence to secure employee rights given the flexible employment law and weak dismissal protection in Austria. The reach of collective agreements, and thus of minimum pay regulations, is therefore extensive despite the lack of a universal minimum pay act. 6.2 Extension clauses If an agreement has been reached with a large share of the employers’ representation (e.g. eight out of nine federal states), then the agreement can be declared binding for all similar establishments in Austria (Satzung). The same holds for agreements in which employers are represented by voluntary organizations if those organizations have sufficient economic importance within their sector. Austrian law allows for extension clauses to make all or some of the stipulations of the agreement binding for non-members within the same branch of activity. However, they cannot extend beyond the branch covered. There are a few areas where extension is a regular practice: private health and social support organizations, organizations providing ambulance transport, private educational organizations (mainly in adult education), and newspaper printers, because they are negotiated by non-mandatory employers’ organizations and have to be extended. 25 There are special regulations (Mindeslohntarife) for cases in which no employers’ organization exists, but they are of minor importance. 26 An excellent overview can also be found in Melzer-Azodanloo (2016). 106 Zuckerstätter (2025): Who sets wages? 6.3 Minimum wage tariffs If no employers’ organization exists, Austrian law allows for so-called minimum wage tariffs (Mindestlohntarife). These Mindestlohntarife are set by the Bundeseinigungsamt on the request of the unions and after consultation with employer representatives from the WKO. Minimum wage tariffs are a somewhat less state-centred form of minimum wage laws which apply in sectors where employees would be entirely without the opportunity to have some form of collective representation. The typical areas for minimum wage tariffs are people employed in the real estate sector like caretakers or domestic employees, since landlords and private households are not sufficiently organized to negotiate agreements on behalf of employers. Especially agreements for domestic workers have gained in importance recently due to the growing relevance of elderly care organized by private households, i.e. 24-hour care workers. 6.4 Special provisions for freelance journalists Freelance journalists are a special group who, like employees, usually depend on one or sometimes a few different employers. Unlike employed journalists, they lack any possibility of collective organization despite their weak individual negotiating position. The Austrian Law on Journalists (Journalistengesetz, JournG) allows special agreements (Gesamtverträge) that protect freelance journalists just like in a collective agreement (Leeb, 2018). This form of collective bargaining in a field of increasingly precarious non-standard forms of work was included in the law by 1999 and provides an example of potential future directions to secure the freedom of associations in new forms of work organizations. One of the problems here is to allow for such agreements within EU competition law (Risak, 2018). 7. The role of firm-level negotiations Collective agreements on wages and salaries by firm-level parties are legally binding only if special clauses in the agreements allow for such firm-level negotiations. Nonetheless, many wage-related issues (e.g. detailed piece rates) are resolved in firm-level negotiations. Furthermore, there are informal agreements on firm-specific overpayment. These negotiations are held between the firm-level employee representatives, i.e. works councils (Betriebsräte),27 and management. The rules for these elected bodies of worker representatives are also part of the Labour Constitution Law. Austrian law requires every establishment employing more than 5 employees to set up a works council, but only upon the request of employees. According to the latest figures, 54% of employees in Austria are represented by a works council (Zeglovits et al., 2023). About 10% of employees work in enterprises that are too small to be entitled to have a local representative. These firm-level representatives do not need to be part of any union but they usually are. The 27 Works councils (Betriebsräte) also fulfil other functions like taking part in non-managing boards and other forms of co-determination. 113 Wirtschaft und Gesellschaft 50 (4): 83–116 Landarbeiterkammern Chambers representing all non self employed people in agriculture Mindestlohntarife Legal instrument allowing the setting of minimum wages, and some other minimum conditions, in sectors without the possibility of forming employer organizations, to contract with unions (i.e. private households). Unions can apply to the Bundeseinigunsamt for such an agreement. Raiffeisen A conglomerate of cooperatives serving agriculture by providing banking and trade services among others. Satzung Instrument of Austrian Labour Law allowing the Bundeseinigungsamt to declare a sufficently broad collective agreement binding for all employers in a particular sector. Verein Not for Profit organization in accordance with the specific law the Vereinsgesetz Vereinsgesetz Law on Associations Wirtschaftskammer (WKÖ) Chamber representing all employers in the fields of commerce, crafts, trade, industry and private services ACKNOWLEDGEMENTS The author thanks the editor and three anonymous referees for many helpful suggestions, and Maria Slater for proof-reading and many stylistic improvements. I would like to thank many people for sharing their knowledge of Austrian labour law with me. Starting with my father Sepp Zuckerstätter sen, a seasoned trade unionist, many comrades from the Austrian Trade Union Federation, including Jimmy Müller and Susi Haslinger, and from the Chamber of Labour, such as Silvia Hruska, Walter Gagawczuk and Josef Cerny, and of course many others. I also benefited from the IR expertise and practical knowledge of my colleagues Vera Glassner, Ruth Naderer, Heinz Leitsmüller and Ursula Filipic. 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