The changing meaning of wage bargaining in Sweden since the 1960s: A contextual approach to shifts in industrial relations

The political and economic couplings between wage bargaining institutions and macro-economic policy regimes are explored in this article. It is argued that in advanced industrialized democracies with well-organized unions and employers' associations, macro-economic performance (especially unemployment) is the outcome of an interaction between the centralization of the wage bargaining system and the monetary policy regime. Thus, a decentralized bargaining system in which the government in credibly committed to a non-accommodating monetary policy rule poses an institutional alternative to a centralized mode of wage regulation where the government enjoys macro-economic policy flexibility. Based on time-series data from ten highly organized market economies, I show that both of these institutional ‘equilibria’ produce superior employment performance, but also that the two systems are associated with very different distributional outcomes, and that they are supported by different coalitions of organized interests. In addition to predicting economic outcomes, the proposed model provides a theoretical framework for analysing institutional change in wage bargaining systems and in macro-economic policy regimes.

This paper revisits the development of the canonical Swedish wage bargaining model, from the 1930s to the 1950s. The question at the core of the debate is: how did Sweden achieve “good” wage bargaining institutions -- good, in the sense of facilitating investment, employment, and controlled inflation? The conventional account focuses on the actions of employers and trade unions in export industry, and a cross-class alliance between the two. This paper questions this account. The paper builds on archival sources in the Swedish Labour Movement's Archives and Library in Stockholm: the minutes from the main trade union confederation's yearly wage policy discussions, in preparation for bargaining rounds. In total, some 1,500 pages of wage policy discussion. I find that the export sector cross-class alliance played a very small role, and that macro-corporatist concerns, that the labour movement had to take responsibility of all of society and pursue a planned wage policy, was much more important. This has theoretical implications for the analysis of wage bargaining institutions in general and the Swedish model in particular.

Transformed patterns of labor market governance occupy a central place in the study of contemporary West European political economies. Here, detailed analysis of the dramatic decentralization of wage bargaining in Sweden identifies organized employers, especially engineering employers, as the decisive agents of institutional change. We argue that the employer offensive should be understood as a response to a shift in power within old wage-bargaining institutions, introducing invasive regulation of firm-level pay practices and, at the same time, as a consequence of new flexibility-centered production strategies, giving rise to demands for more firm-level autonomy in wage bargaining. The exceptional features of the old Swedish bargaining and the particular needs of different sectors come into play as we seek to explain the mixed pattern of wage-bargaining changes across Western Europe.

Wage Bargaining Tensions in Italian and Greek Banking: The Role of Employer Associability and Labour-State Coalitions

The theoretical literature has argued that a centralized wage bargaining system may result in low regional wage differentiation and high regional unemployment differentials. The empirical literature has found that centralized wage bargaining leads to lower wage inequality for different skills, industries and population groups, but has not investigated its impact on regional wage differentiation. Empirical evidence in this paper for EU regions for the period 1980-2000 suggests that countries with more coordinated wage bargaining systems have lower regional wage differentials, after controlling for regional productivity and unemployment differentials.

After years of pent-up frustration, Korean unionism exploded back into motion in 1987, whereupon the traditional functions of industrial relations — wage bargaining and collective bargaining — were activated. As a characteristic of an emerging stage of unionism, union members as well as their leaders focused more on improving wages and working conditions that had a direct impact on the lives of workers than on the institutional development of collective industrial relations. This led to frequent labor disputes and very high wage increase rates. Moreover, because most of the bargaining units were at enterprise level, this in turn led to the problematic widening of interfirm wage differentials.

This chapter examines the effects of shifts in wage-bargaining systems on the organization of firms in EMU member-states, and argues that the move to coordinated wage bargaining induced by the Maastricht criteria has led firms in EMU member-states to align their product market strategies with the existing institutional framework. Where wage bargaining became (or was) centrally coordinated, firms increasingly pursued high-end product market strategies, while firms in countries where wage bargaining followed a decentralised coordination path opted for low-end strategies. This argument is developed in three steps. First it assesses how firms in the most important export industries adjusted their competitive strategies in the course of the 1990s, and finds that companies increasingly pursued product market strategies which are supported by national labour-market institutions. It then examines how several key firm-level indicators of competitiveness and labour market organisation evolve and find that skill profiles, workplace cooperation, and career development were adjusted to reflect the dominant product market strategy. The chapter concludes by comparing the strategies of employers with regard to wage-bargaining in Italy and Spain over the 1990s.

This paper examines the nature of the relationship between economic interest groups and government in Ireland and how this was altered following the introduction of economic planning at the end of the 1950s. The involvement of trade union and employer organisations in the various bodies which were spawned by the economic development process is examined. This is related to evidence of increased state concern with the industrial relations and wage bargaining systems which resulted from increased state involvement in the minutae of economic activity. The process leading up to the start of centralised national wage bargaining in 1970 is described, and the material is assessed in the context of recent literature which suggests that the Irish approach to economic management has led to corporatist‐type structures. It is argued here that although interest groups and government were brought into a closer relationship with each other, the organisational characteristics of the interest groups and the approach of government to economic policy‐making, as reflected in the agenda for tripartite cooperation, do not support the idea that corporatist structures have taken or could take root in Ireland.

Reviewed by: Holding the Shop Together: German Industrial Relations in the Postwar Era by Stephen J. Silvia Adam T. Rosenbaum Holding the Shop Together: German Industrial Relations in the Postwar Era. By Stephen J. Silvia. Ithaca, NY: Cornell University Press, 2013. Pp. xvi + 280. Paper $29.95. ISBN 978-0801478970. In the wake of the so-called cultural turn, the history of postwar German industrial relations does not necessarily register as a subject worthy of scholarly inquiry. Recent events, however, might cause detractors to reconsider. In early November 2014, the 20,000-member German Locomotive Engineers Union (GDL) staged a four-day strike in pursuit of a 5 percent wage increase and a thirty-seven-hour workweek. Although the strike was called off on the third day, it effectively paralyzed transportation networks across Germany, leading to chaos at train stations, massive traffic jams on [End Page 474] highways, and epic lines at bus depots, not to mention delays in the shipment of goods. As of the writing of this review, the German government is considering legislation that would prevent smaller unions from incapacitating the country’s economy and infrastructure through such actions. In this 2013 monograph, economist Stephen J. Silvia provides a more positive assessment of German trade unions and their role within the industrial relations system. As the culmination of three decades of research, Silvia’s book utilizes new evidence and an interdisciplinary approach to detail the trajectory of German industrial relations over the course of the postwar decades. In recent years, both trade unions and employers associations have dealt with economic downturn, political challenges, and declining memberships; but Silvia maintains that these organizations can rely on a solid framework endorsed by the state—a system of “supportive pillars” that has made German trade unions and employers associations among the most successful in the world (41). Refuting the “erosion” (1999) and “exhaustion” (2009) arguments of scholars like Wolfgang Streeck, Silvia contends that the industrial-relations system retains a central place in the German economy, providing it with some of its most distinctive features. This present-minded history of the “social partnership” between trade unions and employers associations ultimately celebrates corporatism and its ability to weather economic and political storms. Silvia’s analysis of the framework and evolution of the German industrial-relations system is facilitated by the unique organization of this book. Chapters one and two focus on the historical framework of industrial relations, discussing labor laws, state institutions, and the distinctly German practice of co-determination (Mitbestimmung). Silvia traces the roots of the postwar system to the Imperial and Weimar eras; and although he does not dwell on the Third Reich, he does suggest that the contentious legacy of the Nazi era “has served as a moderating force to this day” (221). After identifying historical precedents and underscoring the influence of the state, Silvia turns his attention to the central players within the industrial relations system: the trade unions and the employers associations. In chapter three, Silvia offers a quantitative analysis of declining union membership in postwar Germany. Among the more important conclusions are that Europeanization actually strengthened the German labor movement, as did German unification, albeit temporarily. Conversely, Silvia asserts that the decline in Germany’s labor milieu—which he defines as “social custom”—has played a role in the drop in union density. Chapters four and five offer a more historical approach, detailing the separate histories of the postwar trade-union movement and the employers associations. Within these sections, the author pays special attention to how both organized labor and management have recently modified their strategies, experimenting with new forms of recruitment, activism, and collective bargaining. In conclusion, Stephen J. Silvia has provided economists and historians with a readable and clearly argued story of trade unions, employers associations, and the [End Page 475] challenges that they have faced. It uses a variety of sources, including government legislation, membership data, and newspapers, to paint a complex picture of the German system of industrial relations. Moreover, the unique organization allows individual chapters to effectively stand alone, with chapter four providing an especially useful history of postwar trade unions. That being said, the organization does present some problems. For...

This paper explores the endogenous emergence of wage bargaining institutions in a union-oligopoly framework. Technological asymmetries among firms are shown to be the driving force for the emergence of alternative wage bargaining centralization structures that are observable in real life. As wage deals at the sector-level obtain the consensus of all unions and the efficient firms, a regulator has an incentive to authorize those deals by activating/establishing a Minimum Sectoral Wage Institution(MSWI). If productivity differences are high enough, wage setting above the established wage floor may subsequently occur in efficient firms. Otherwise, a completely centralized wage bargaining structure emerges and the sector-level wage deal is simply confirmed as the firms’ wage rate. If, however, productivity asymmetries are rather insignificant, firms and unions have conflicting interests and a completely decentralized wage bargaining regime prevails in equilibrium.

The theoretical literature has argued that a centralized wage bargaining system may result in low regional wage differentiation and high regional unemployment differentials. The empirical literature has found that centralized wage bargaining leads to lower wage inequality for different skills, industries and population groups, but has not investigated its impact on regional wage differentiation. Empirical evidence in this paper for EU regions for the period 1980-2000 suggests that countries with more coordinated wage bargaining systems have lower regional wage differentials, after controlling for regional productivity and unemployment differentials.

One of the many merits of James Jaffe's Striking a Bargain is that it reminds us that we know less about the history of work than we think we do. In this important study, Jaffe takes aim at the Webb-inspired orthodoxy that collective bargaining did not exist before the 1860s. The first half of the nineteenth century is still often held to be a period when primitive trade unions, labouring under legal restrictions, had to learn "the rules of the game" (in Eric Hobsbawm's phrase). At a more profound level, Jaffe is unhappy with market-based models of industrial relations in the early industrial period. In a manner that reminds me of the early work of William Reddy, Jaffe demonstrates how cultural as much as economic forces shaped trade union behaviour.

This article considers the question of how monetary union in the EU is likely to impact the preferences of governments, employers, and unions regarding the organization of wage bargaining. European Monetary Union involves a decentralization of wage bargaining (centered at the national level) in relation to monetary policy (centralized at the European level). Drawing on recent literature and on the experience of two member states (Italy and Spain), which, prior to EMU, underwent periods of intense bargaining fragmentation, the author argues that the imposition of restrictive monetary policy in a fragmented wage bargaining context in which workers nonetheless have substantial bargaining rights tends to have perverse effects. These effects ultimately led governments and bargaining actors in Italy and Spain to seek a reorganization of bargaining that gave national actors greater control over wage setting. The article considers to what extent a similar dynamic might play out in the Euro zone.

The economic policy forum discusses the question of whether the German system of autonomous wage bargaining is still up-to-date. Wolfgang Franz considers two aspects. First, he examines to what extend the existing unemployment rate can be reduced by wage policy. Due to certain forms of unemployment, this can be done only partly by lower real wages. In addition, he shows that it can be rational for employees as well as for employers to agree on wages which are higher than the equilibrium wage. In the second part, he considers the question of whether centralised or decentralised negotiations over wages are more likely to solve the problem of unemployment. Arguments in favour of both options can be found. The paper concludes with some suggestions to make collective agreements more flexible. Wernhard Möschel compares the German system of autonomous wage bargaining with a cartel agreement which results in prices higher than the equilibrium price. Moreover, the globalisation of markets and new orientations in the international division of labour require more flexible solutions. However, the autonomous wage bargaining is a constitutional right which is rather unlikely to be changed. An agreement by the social partners on common measures such as setting minimum wages lower than the equilibrium wage is also not very likely. The paper thus suggests that employers may undertake unilateral actions such as restructuring their associations. This should be accompanied by specific government measures. Karl-Heinz Paqué argues that countries with a system of autonomous wage bargaining are characterised by persisting unemployment. This characteristic is the result of both structural changes of the economy and its consequences for the market value of labour. Two mechanisms exist in order to adopt to the different market conditions: a flexibilisation of the agreed wage rate structure or a general restraint in wage bargaining. However, both mechanisms have failed so far due to the lack of willingness by the social partners. Competition by outsiders on the labour market and a political “alliance for employment” could increase employment while keeping the system of autonomous wage bargaining. The paper concludes with stating that in the near future unemployment will be unavoidable.

Before the Trade Union Act 1871 the legal position of trade unions in the United Kingdom was at best ambiguous, as in many ways they remained outside the law. At the same time, Political Economy maintained that, given a country’s stock of capital and the population of workers, any rise in wages would undermine profits and accumulation. This provided the rationale for politicians and industrialists to argue that wages were not negotiable and that collective action was illegitimate. In reviewing William Thornton’s defence of workers’ right to claim higher wages, John Stuart Mill accepted that the denial of the positive effect of trade unions on wages ‘is deprived of its scientific foundation’. Using evidence from debates in the Royal Commission on Trade Unions, 1867-69, this article examines the extent to which Mill’s acceptance of the economic argument in favour of trade-union collective action contributed to improving the legal status and role of unions in wage bargaining and to change in industrial relations.