Decentralizing Wage Bargaining in Germany — A Way to Increase Employment?

Abstract

The area-wide wage agreement is at the centre of Germany's system of collective bargaining. In recent years, however, there has been a tendency towards the decentralization of collective bargaining. Individual wage agreements have led to more moderate wage developments, whilst collective agreements with individual firms, and agreements at the production unit level, have not had this moderating effect. On the other hand, collective bargaining has become more flexible, leading to greater pay differentiation. The further decentralization of collective bargaining, although desirable, has given rise to objections based in constitutional law and to resistance from employees and employers. Copyright 2005 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

Rent-sharing and collective wage contracts–evidence from German establishment-level data

“…Industry agreements were embedded in a corporatist environment characterised by a high degree of coordination (Soskice 1990). However, in the last decade, there has been a strong tendency towards decentralisation of wage determination, as wage determination without any bargaining coverage has increasingly grown in importance (Hassel 1999, Ochel 2005. Even within centralised industry agreements, there have been numerous attempts to allow for more (downward) flexibility of wages by introducing opt-out and hardship clauses.…”

“…While opt-out clauses delegate issues that are usually specified in the central agreement, such as working-time and pay-conditions, to the plant level, hardship clauses enable firms to be exempted from the centralised agreement if they are close to bankruptcy. In general, the adoption of such clauses requires the approval of the collective bargaining parties (Hassel 1999, Ochel 2005. Moreover, bargained wages in centralised agreements merely represent a lower bound for wages, so that there is always sufficient room for upward flexibility.…”

Rent-Sharing: Does the Bargaining Regime Make a Difference? Theory and Empirical Evidence

“…While opening clauses delegate issues that are usually specified in the central agreement, such as working-time and pay-conditions, to the plantlevel, hardship clauses enable firms to be exempted from the centralised agreement if they are close to bankruptcy. In general, the adoption of such clauses requires the approval of the collective bargaining parties (Hassel 1999, Ochel 2003. Thus, similar to firm-specific collective contracts, the adoption of flexibility provisions in central wage agreements is still coordinated by the centralised bargaining parties and involves merely a decentralisation of the level of bargaining.…”

“…Hartog et al (2002) and Cardoso and Portugal (2003). 1 without any bargaining coverage have become more and more important (Hassel 1999, Ochel 2003. Even within centralised industry agreements, there have been numerous attempts to allow for more (downward) flexibility of wages by introducing opening and hardship clauses.…”

Marginal Taxes: A Good or a Bad for Wages?: The Incidence of the Structure of Income and Labor Taxes on Wages

“…While earlier empirical evidence found support for the predictions of wage bargaining theories, this has been contested by more recent studies. Despite the de-unionization observed in Germany in the past several years, collective agreements still play an important role in wage setting and particularly the right-to-manage model has been considered a fairly close description of the wage regime in place (Nickell and Wadhwani, 1991;Bach and Wiegard, 2002;Ochel, 2005). So far there is little evidence on the effect of tax progressivity and the structure of taxes on wages in Germany in recent years; yet for the second half of the 1980s Schneider (2005) finds support for the wage moderating effect of marginal income taxes with stronger effects in the lower part of the pre-tax wage distribution in West Germany.…”