Building Strategic Capacity: The Political Underpinnings of Coordinated Wage Bargaining

Abstract

The coordination of wage bargaining has been used to explain everything from inequality to unemployment in rich democracies. Yet there has been little theoretical work and almost no quantitative empirical work exploring the determinants of bargaining coordination. Others hypothesize that centralized bargaining depends on the ability of peak associations to control the strike activities of their affiliates. I argue formally that more unequally distributed resources across unions should inhibit the centralization of strike powers in union federations. Using membership as a proxy for union resources, I find empirical support for this hypothesis in a panel of 15 OECD democracies, 1955-92. I then show that the centralization of strike powers is a strong predictor of coordinated bargaining. I also find that the influence of other variables purported to explain bargaining coordination (trade, country size, party systems fragmentation, government partisanship, and federalism) flow only through their relationships with centralized strike powers.The centralization of wage bargaining is the linchpin of theories purporting to explain everything from price levels to inequality to unemployment. The degree of coordination between partial monopolists in the labor market is at the core of current theories of political control of the economy and the New Keynesian macroeconomics (Iversen and Soskice, 2006;Soskice, 2000 1 the electorate), proportional electoral institutions are more common (Boix, 1999;Cusak, Iversen and Soskice, 2007), Left and Social Democratic parties more frequently in government (Korpi, 1983;Western, 1997), social spending greater, and redistribution more profound (Bradley et al., 2003;Lee and Roemer, 2005). The organization of labor interests-filtered through partisan politics and economic institutions like the central bank-has an influence on economic outcomes from wage compression (Wallerstein, 1990(Wallerstein, , 1999 to unemployment and inflation (Alvarez, Garrett and Lange, 1991;Calmfors and Driffill, 1988;Garrett, 1998;Iversen, 1999;Nickell and Layard, 1999). Rueda (2008) argues that "corporatism" mediates the effects of partisanship on wage dispersion in the bottom half of the income distribution. While the robustness and magnitude of these relationships as well as the directionality of causation are contested (Flanagan, 1999;Golden and Londregan, 2006), there is broad consensus on the negative relationship between union centralization and wage dispersion.More coordinated bargaining is strongly associated with greater wage and disposable income equality. 1Given the importance of union coordination, there has been little theoretical work accounting for the variation in labor movements' institutionalized coordination. None of the existing thinking on union coordination takes seriously the internal politics of union federations as they relate not just to coordinated bargaining but to large scale cooperative union activities more generally. This lack of theoretical progress runs counter to the stron...

Real Exchange Rates and Competitiveness: The Political Economy of Skill Formation, Wage Compression, and Electoral Systems

“…In particular, we do not provide a sufficient set of conditions for skilled unions consenting to coordinated and solidaristic bargaining. In accounting for this phenomenon, the existing literature has variously emphasized the role of complementarities between skilled and unskilled workers (Wallerstein 1990), the collective gains from controlling wage inflation (Iversen 1995; Katzenstein 1985), the distribution of strike capacity across unions (Ahlquist 2010), and (most important, in our view) the capacity of employers in the export sector to impose coordination in order to reduce the cost of skilled labor (Swenson 1991; Thelen 2004). These factors (employer preferences, in particular) have probably also played a role in the shift away from highly centralized bargaining in some countries, but our model is designed to explain the consequences of these shifts, not their causes.…”

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