The German Model of Industrial Relations: Balancing Flexibility and Collective Action

Abstract

We give an overview of the “German model” of industrial relations. We organize our review by focusing on the two pillars of the model: sectoral collective bargaining and firm-level codetermination. Relative to the United States, Germany outsources collective bargaining to the sectoral level, resulting in higher coverage and the avoidance of firm-level distributional conflict. Relative to other European countries, Germany makes it easy for employers to avoid coverage or use flexibility provisions to deviate downwards from collective agreements. The greater flexibility of the German system may reduce unemployment, but may also erode bargaining coverage and increase inequality. Meanwhile, firm-level codetermination through worker board representation and works councils creates cooperative dialogue between employers and workers. Board representation has few direct impacts owing to worker representatives’ minority vote share, but works councils, which hold a range of substantive powers, may be more impactful. Overall, the German model highlights tensions between efficiency-enhancing flexibility and equity-enhancing collective action.

Seeking shelter in times of crisis? unemployment, perceived job insecurity and trade union membership

“…To substantiate the idea that union membership can be particularly beneficial in times of economic crisis, we now describe the institutional framework in which workers decide on membership. The German system of industrial relations is often argued to be based on two features (Jäger et al 2022). First, collective bargaining, mainly at the industry level, determines wages and overall working conditions.…”

“…The German system of industrial relations is often argued to be based on two features (Jäger et al . 2022). First, collective bargaining, mainly at the industry level, determines wages and overall working conditions.…”

“Which side are you on?” A historical study of union membership composition in seven Western countries

“…West Germany is an intermediate case: it used to have a mainly sectoral level of bargaining, albeit at the regional rather than at the national level, until reunification. Since then, it has witnessed more and more firms opting out of sectoral agreements, instead adopting an establishment wage negotiation often less advantageous for workers (Dustmann et al, 2014; Jäger et al, 2022). Another constraint on wage setting comes from nation‐ or state‐wide minimum wages set by the relevant governments.…”

Wage determination in the shadow of the law: The case of works councilors in Germany

“…The latter grants the workforce representation on company boards in enterprises with at least 500 employees. Moreover, it is compulsory, and its extent varies with firm size (see Addison, 2009;Jäger et al, 2022a). 2.…”

“…The German industrial relations system rests on two main pillars: collective bargaining, mostly at the sectoral level, and co-determination within establishments (e.g. Jäger et al, 2022a). Currently, collective agreements cover more than 50% of private sector employees and works councils represent about 40% of eligible employees (Ellguth and Kohaut, 2021; Oberfichtner and Schnabel, 2019).…”