They faced each other with iron determination. For eleven hours, employers and employees of the metal sector sat down on October 28 before they announced an agreement, just in the nick before midnight.

The 130,000 employees in the sector – including companies like steelmaker Voestalpine to car parts supplier Magna – will get an average pay raise of 2.8%. The leaders of the unions, Rainer Wimmer and Karl Dürtscher, described the deal as bringing home “everything that was attainable.”

Employees secured a new minimum wage of €2,000 in the sector – significantly above the Austrian-wide minimum wage of €1,500 – which is seen as strong signal for other industries whose wage negotiations are soon to follow. In fact, the average increase of 2.8% is also decent, even if not spectacular. With inflation running at 1.8%, metal workers will get a 1% increase in real income, very close to the annual rise in productivity in the wider economy.

The magic Benya formula

This, then, is an almost perfect illustration of the Benya formula in action. Austrian trade unionist Anton Benya (1912-2001) formulated in the 1960s that wage increases should equal the inflation rate plus medium term increases in productivity. The formula worked exceedingly well in the following decades for both raising the purchasing power of large swathes of the population (and with it, domestic demand), while also allowing companies to stay internationally competitive. While Austria experienced higher inflation in the 1970s, but never an inflation spiral like other countries.

In the 1990s, the formula was weakened with the argument that “globalization’s pressure” would necessitate a bigger share for companies. The share of wages in national income accordingly fell from 76% to 68%, while the share of dividends doubled to 10%. More than emerging markets, though, it was pressure from Germany and Netherlands – which had both practiced extreme pay restraint in the 2000s, and competed directly with Austrian companies in many key sectors –, which led to this new situation.

In the last decade, however, the Benya formula has come back in fashion and wage deals have been broadly in line with it – the metal workers saw their pay rise by an average of 2.46% in the last seven years, closely reflecting the inflation rate and rising productivity.

It remains to be seen if other sectors with often less specialized workers can repeat this feat, such as breweries and retail, whose sectoral wages are being negotiated right now. Perhaps a round of beer for everybody will help to clinch a fair deal?

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