The changing structure, role and functions of the public sector and of public services

provided not only by public organisations, but to a significant extent also by private sector for- and non-profit organisations, with personnel on ordinary employment contracts. This prevents a precise identification of the boundaries of the public sector, and consequently of the size of public sector employment and its variation over time. Nonetheless, these are the only data that allow systematic comparisons between countries and sectors. Therefore, it is on these Eurostat NACE Rev.2 data that our analysis on public sector employment size and structure is based, unless differently specified. For a discussion of definitions, see box 1.3.

Box 1.3: Statistical classifications for the public sector

The statistical classification of economic activities in the European Community (NACE) represents the basic reference for all analysis of the economic structure in the EU. However, NACE is organised along activity rather than ownership lines and therefore it is not possible to distinguish between the private and the public sector when looking at the different statistical data which are classified according to the NACE taxonomy, such as employment levels. In the case of NACE Rev.2, the present version of the classification system, which has been used since 2008, the core of the public sector is to be found in section O (Public administration, defence; compulsory social security), since most of these activities are performed directly by public employers and public employees – although not exclusively.

Other important activities for the public sector – which are usually also quite relevant in terms of employment – are sections P (Education) and Q (Human Health and Social Work), since the public sector typically directly provides an important share of overall education and health services. However, private organisations are widely present in these activities, with a relative importance which depends on both national traditions as well as on the national regulatory framework. This framework may in some cases distinguish between the formal responsibility and possibly the funding of certain services and the legal form as well as the substantive nature of the provider of the service, so that it is not rare to find private organisations which operate within the public education and health systems according to ‘accreditation’ rules, for instance. This latter possibility points to a second very important issue when looking at statistical data on the public sector: their cross-country comparability. Not only should data and indicators be regarded in general as ‘proxies’ of the public sector size, because the classification is built around activities, but also, in the various national settings, the relative importance in each NACE section of public and private organisations and employment is different.

1.3.2 The changing structure, role and functions of the public sector and of public services

The public sector is of special relevance for the functioning of any economy and society and for many decades after World War II the public sector was the main provider of fundamental and vital economic and societal services such as education, public transport, telecommunications, healthcare, postal services. During the past decades the public sector has been faced with major challenges such as budget constraints and the need to cut public services, which have led to profound structural reforms of the sector. These reforms are well documented for the EU (e.g. Ferner, 1995; Schulten, Brandt and Hermann, 2008, Vaughan-

34 Whitehead, 2012) and have led both to changes for public sector employees, such as wage cuts, changes in human management practices, and adjustments of operations to facilitate economies of scale, and quantitative adjustments of the sector, such as employment cuts and outsourcing of services to private sectors.

Privatisation and outsourcing

One major trend in all EU Member States has been the continuing privatisation of public services and the transfer of public service provision to the private sector via selling public (i.e. state-owned) companies completely or partially to private owners. Usually, this has been achieved by transforming public sector organisations or companies into joint-stock companies. Before privatisation, many of these public sector organisations held a monopoly for their (sub-) sector or market respectively. Simultaneously with privatisation, a liberalisation of the sector (or market) was carried out so that the new private companies were able to enter the previously protected market. In some cases, (sub-) sectors or markets have also been opened up to private service providers even though the previous public provider firm has remained under state ownership. Most notably, services in electricity, public transport, postal services and hospitals have been privatised and outsourced by the state.3 In terms of the consequences for industrial relations, the liberalisation of (sub-) sectors and the emergence of new companies has frequently led to a two-tier system of industrial relations, with relatively centralised structures in the former public organisation but decentralised and fragmented structures in the new companies. As a consequence, collective bargaining coverage is substantially higher in the former public organisations compared with the new companies (Schulten, Brandt and Hermann, 2008). The reason for the prevailing structure in the previously public and in the companies that remain in state ownership was that many employees still enjoy public sector employment conditions and contracts regulated by public law, and public sector trade union structures remain. However, the presence of two different types of companies with different types of industrial relations in one sector has blurred industrial relations and undermined sector-wide regulation and coordinated bargaining (Doellgast and Greer, 2007).

In the hospital sector, for example, these changes in industrial relations due to privatisation are well documented. As was shown by Hermann and Flecker, (2009), one main characteristic after privatisation has been that union density has remained relatively high in public hospitals but is low in new companies, where unions often do not have the power to push for collective agreements. Employees in the new companies do not enjoy the same employment security and often receive lower salaries than workers in the older companies. For example, in Austria wages in private hospitals are approximately 20 % below those wages paid in public hospitals. On the other hand, in some countries, such as Sweden, trade unions have negotiated via collective bargaining similar standards for private and public hospitals.

In parallel with outsourcing of whole sectors via liberalisation and privatisation, outsourcing of certain internal services for the public sector has become increasingly widespread in the past decades. Services for the operation of public services such as cleaning, IT and catering, which were previously performed internally by public sector organisations, have been increasingly bought in from private companies. As a consequence, public sector employees

3

Whether or not former public (sub-)sectors and now privatised and liberalised (sub-)sectors are categorised as part of the public sector is a question of definition. See box 1.3 for the problems of defining the public sector. In the following part of this chapter, privatised sectors and (previously) state owned companies are not considered as part of the public sector.

35 have been substituted by contracting private sector employees. Outsourcing and privatisation mean that a growing division between “old” and “new” employees and between a core and peripheral workforce has emerged (Brandt and Schulten, 2007) which has caused frictions and conflicts among these different groups of employees. This has also provoked protests against the processes of privatisation, liberalisation and outsourcing.

Conflict and strike action

All these developments in the public sector have led both to changes for public sector employees, such as wage cuts, changes in HRM practices, and adjustments of operations to facilitate economies of scale, and to quantitative adjustments of the sector, such as employment cuts and outsourcing of services to private sectors. As a consequence this has provoked many protests and strikes. For an overview of strike action in the public sector from 2008 to 2012, see chapter 4 of this report.

Three main patterns in terms of strike action emerge. First, public sector strikes are found in almost all EU Member States. Second, education, healthcare, social work, and public administration are the segments in which strikes have been particularly frequent. The reason is that these segments have suffered most in terms of budget cuts. Third, strike activity was triggered by the start of the economic crisis in 2008 because this led to further public sector budget cuts and restructuring reforms (Carley, 2010).

The level of industrial actions in the public sector all over the EU, which has been significant, is remarkable for two reasons. First, the right to strike for many groups of public sector employees is limited in many countries - see section 1.4 of this chapter for an explicit overview of these restrictions. Second, in almost all European Member States mechanisms for the prevention of strikes are in place. Usually these aim to resolve conflicts through arbitration, mediation and/or conciliation provided by the state or the social partners (Warneck and Clauwaert, 2009). However, the extent to which the state intervenes in industrial conflicts and makes use of these mechanisms varies among EU Member States. In some countries these conflict resolution mechanisms have prevented further strikes or further strikes. On the one hand they have led to state concessions in reforming public transport sectors in Bulgaria, Portugal, Romania and Spain and on the other hand trade unions have agreed not to carry out strike action (Carley, 2010). For more details on conflict and strike action in the public sector, see chapter 3 of this report.

However, the process of public sector transformation, reform and protest continues and further changes can be expected. Moreover, the process of public sector transformation can be expected to accelerate as public deficits need to be cut further because of the global economic crisis and the need for fiscal consolidation in all EU Member States, thus increasing the pressure for reforms. The burden of public deficit cuts is likely to impose major changes on the public sector and public sector industrial relations. As in past decades, public sector reforms may lead to an increasing shift in the provision of services away from the public sector towards the private sector.