The conditional effect of technological change on collective bargaining coverage

Abstract

Recent work in labor economics has shown that technological change has induced labor market polarization, an increase in demand for both high and low skill jobs, but declining demand for middle skill routine task jobs. We argue that labor market polarization should affect firms’ participation in collective agreements, but only in countries where laws automatically extending collective agreements to nonparticipating firms are weak. We develop an argument in which labor market polarization increases the distance between different skill groups of workers in both preferences for unionization and leverage to realize those preferences. Because of this, an increase in labor market polarization should be associated with a decline in collective bargaining coverage. We test our hypothesis about collective agreement extension and collective bargaining coverage in a cross-national sample of 21 Organisation for Economic Co-operation and Development countries from 1970 to 2010 and our hypothesis about labor market polarization in German firm-level and industry-level data from 1993–2007. We find a negative relationship in the Organisation for Economic Co-operation and Development sample between technological change and collective bargaining coverage only in countries that make little or no use of extension procedures. We find that higher workforce skill polarization is associated with lower collective agreement participation in both German firm-level and industry-level samples.