Centralized Wage Bargaining Research Articles

Coalitions and Corporatism: The Slovenian Political Economy and the Crisis

Slovenia stands out as the only post-communist country to have established a corporatist system and centralized wage bargaining at the national level in the 1990s. This article analyses the emergence and sustainability of Slovenian corporatism as well as the ways in which it has shaped policymaking during the economic crisis. Drawing on recent advances in institutional analysis, this article develops a coalitional argument to account for the emergence of centralized wage bargaining in the 1990s and for decentralization in more recent years.

The Rise and Fall of Centralized Wage Bargaining

AbstractDuring the three decades spanning the early 1950s to the early 1980s, the wage‐setting process in most Northern European countries was dominated by centralized bargaining (i.e., peak‐level labor and employer associations set wages nationwide). In the early 1980s, centralized wage bargaining began to collapse. In this paper, we assess a novel explanation for both the initial establishment of a centralized wage‐setting process, and its subsequent collapse. According to our theory, centralized wage bargaining was set up as a response to the spillovers created by the unemployment benefit program. Its collapse was the result of the increase in the productivity gap across workers, brought about by equipment‐specific technological progress and equipment–skill complementarity.

Determinants of Executive Incentive Pay in Europe

In this paper we study possible determinants of the use of incentive pay for managers in European companies. Data from 5,000 firms in 15 countries are used to analyze the degree to which incentive pay is associated with national embeddedness, local labour market institutions, ownership, and internationalization of markets. We find that companies in countries with high scores on power distance and individualism tend to use incentive schemes for managers more frequently than companies with lower scores on these cultural dimensions. Centralized wage bargaining and unionization at the firm level tend to reduce the prevalence of such schemes. Incentive pay is less common in state-owned companies than in privately owned firms. The findings also reveal that the more global the market in which a firm operates, the greater the probability that it will implement incentive pay elements for its managers. Our results suggest that unions, national labour market institutions and social and cultural norms serve as buffers against the introduction of US-style compensation systems. _______________________________________________________________________________________ Denne artikkelen er lastet ned fra www.idunn.no. Reproduksjon eller annen videreformidling av artikkelen er ikke tillatt uten avtale med rettighetsforvalter. (PUBLISHER NOT AVAILABLE) , 1-14

Centralized Wage Setting and Active Labor Market Policies in Frictional Labor Markets: The Nordic Case

We adopt a standard search and matching model with endogenous job destruction to investigate two issues. First, we use a simplified version of Boeri-Burda to show that at sufficiently low levels of wage share, centralized wage bargaining performs better than decentralized bargaining in terms of average productivity, unemployment, and income inequality. Second, we incorporate active labor market policies in the model and establish that they are more effective in reducing unemployment when wage setting is centralized. Finally, numerical analysis suggests that the difference in effectiveness is sizeable.

Wages, implicit contracts, and the business cycle: Evidence from a European panel

We study the joint behavior of hours and wages over the business cycle in a unique panel of 13 European countries, and document significant history dependence in wages. Workers who experience favorable market conditions during their tenure on the job have higher wages, and work fewer labor hours. Unobserved differences in productivity, such as varying job quality, or match-specific productivity are not likely to explain this variation. The results instead point to the importance of contractual arrangements in wage determination. In economies with decentralized bargaining practices, such arrangements resemble self-enforcing insurance contracts with one-sided commitment (by the employer). On the other hand, in countries with strong unions and centralized wage bargaining, wage behavior is better approximated by full-commitment insurance contracts. The co-movement of hours and wages further confirms a contractual framework with variable worker hours. Despite the strong prevalence of contracts in Europe, however, the elasticity of labor supply is considerably smaller compared to the U.S. labor market.

The Impact of the Eurozone Crisis on Irish Social Partnership

The first casualty of the Eurozone crisis in Ireland was social partnership and centralized wage bargaining. Despite the fact that a consensual approach to socio-economic policy was the default position of the country’s political economy for twenty three years, the Irish government has so far pursued a unilateral rather than a negotiated adjustment. The policy constraints of EMU and the narrow focus on public sector austerity, in the context of an unprecedented fiscal crisis, has undermined the capacity of the actors to engage in a strategy of social partnership. Internal devaluation has reinforced the liberal market orientation of Ireland’s public policy regime. The author will detail the failed attempt at a negotiated response to the crisis in 2009, the implicit reform strategy of the public sector agreement reached in 2010 and will analyze the impact of de-centralised collective bargaining in the private sector. We conclude that the narrow focus on austerity decreases the capacity of the democratic state to pursue an egalitarian response to the crisis, and reflects a general movement toward neoliberalism at the European level.

The Rise of Private Authority and the Decline of Embedded Liberalism Across the OECD, 1982-2008

Does corporate authority complement or substitute for public regulation and institutionalized social solidarity? While there has been considerable interest in the use of private regulation in developing countries and weak governance zones, private regulation in developed countries has been understudied. A small but growing literature addresses the institutional determinants of private governance and corporate self-regulation in these countries. This literature has debated whether the self-regulation of firms functions as a complement or a substitute for the welfare state, trade unions, market correcting regulation and other institutions of what Ruggie called ‘embedded liberalism.’This paper examines the relationship between private and public regulation in thirty capitalist democracies from the early 1980s until the late 2000s. It uses business-led Corporate Responsibility organizations to measure the state of private regulation at the country level. Their establishment dates and membership levels serve as proxies for the timing and quantity of private regulation. Independent variables include wage bargaining centralization, labor market regulation and employment protection, and industry regulation. The results suggest that corporate self-regulation is associated with declining regulatory density – deregulation – for a variety of different variables. This confirms qualitative historical evidence that the emergence of business activity promoting self-regulation was deeply bound together with the rise of neo-liberal economic policies since the 1980s. During this period of deregulation and privatization, business leaders put out a distinct call for business to taken on new social responsibilities. The notion of responsible business and of business self-regulation played an important role in legitimating the institutional transformation of OECD economies toward neo-liberalism, as the institutions of the post-war compromise were breaking down. A recurring theme propagated by business leaders is the unmistakable idea of corporate responsibility as being a domain of voluntary activity, which must be free of state regulation. The paper suggests that in OECD countries, private authority may be as much the source of our contemporary problems as part of their solution.

Understanding wage determination in a multi-level bargaining system: a panel data analysis

This article presents an estimation of the elasticity of actual wages to industry-level collective bargaining thereby quantifying empirically the role of industry-level bargaining on wage determination. For this purpose, we use a unique employer–employee panel dataset covering the entire Belgian employment population over 9 years (1998–2006). Like several other European countries, e.g. Germany, France, Italy and the Netherlands, Belgium has a relatively centralised wage bargaining system, with the industry level playing the most important role. Regression results confirm that wage increases collectively decided at the industry level are, on average, fully passed on to individual wages. In addition to industry-level bargaining, we are interested in the supplementary wage increases granted at the firm level, referred to as wage drift or wage cushion in the literature. Our estimates show that wage drift is affected by company size, by the economic performance of the industry and to a much lesser extent by labour market tensions as measured by the local unemployment rate. Interestingly, our results show that industry-level bargaining also takes most of these features into account.

Central Bank Independence, Wage Bargaining, and Labor Market Performance: New Evidence

Using data on 20 industrial countries over the period 1982 to 2003, this article finds central bank independence to favorably affect both unemployment and employment rates. The size of these effects appears to be substantial, particularly in the long term. In contrast to some of the previous literature, the article finds that the favorable effects of central bank independence do not depend on the degree of wage bargaining centralization or coordination. Furthermore, it finds that higher centralization as well as higher coordination of wage bargaining may also have favorable direct effects on labor market performance.

Assessing the impact of incomes policy: the Italian experience

PurposeThe Saint Valentine's Decree (1984) and the ensuing hard‐fought referendum (1985), which reduced the automatisms of scala mobile, started a process of redefinition of wage fixing in Italy, which culminated with the final abolition of scala mobile (1992) and the approval of Protocollo d'intesa (1993). Since then, following new corporatist principles, a national system of centralised wage bargaining (concertazione) and so‐called “institutional indexation” have governed the determination of wages. Does incomes policy generate greater coordination in the process of wage formation? Does it cause greater co‐movement of wages, prices, labour productivity and unemployment? This paper aims to answer these questions with reference to one of the G8 economies.Design/methodology/approachAfter testing for unit root each component by using the ADF, Phillips and Perron, DF‐GLS and Zivot and Andrews statistics, the paper tests for co‐integration the so‐called WPYE model using different methods. The Engle and Granger approach is used to assess the impact of incomes policy on the speed of adjustment of real wages, productivity (and unemployment) to their equilibrium value, while the Gregory and Hansen procedure serves as a means to endogenously detect the presence of a regime shift. The paper estimates coefficients before and after the structural break.FindingsIncomes policy based on the 1993 Protocol has caused a regime shift in the process of wage determination. The long‐run estimates of the WPYE model do not generate stationary residuals except when a dummy for 1993 is added. The share of wages over GDP reduces by about ten percentage points in the early 1990s and has stood at about 57 per cent since 1995. The link with productivity is close to one‐to‐one only before the break. The feedback mechanism, as measured by the coefficient of lagged residuals in short‐run estimates, is increased from −0.46 in the pre‐reform to −0.79 in the post‐reform period, suggesting that incomes policy has increased real wage flexibility indeed. In recent years the link between real wages and (very low) labour productivity growth has weakened. In a sense, incomes policy has introduced a new form of (upward) wage rigidity. Last but not least, incomes policy has changed the correlation with the unemployment rate from positive to not statistically significant.Research limitations/implicationsFuture developments will focus on disentangling the impact of incomes policy vis‐à‐vis other policy interventions on WPYE and on unemployment.Practical implicationsThe analysis calls for a careful revision of the 1993 Protocol aimed at better protecting the purchasing power of real wages without losing control on inflation, and introducing growth‐generating mechanisms.Originality/valueThe paper studies the impact of incomes policy on WPYE and the Phillips curve by means of co‐integration and structural break analysis. It proposes to interpret the effect of incomes policy on the Phillips curve as changing the coefficient of the error correction mechanism that leads real wages to their long‐run equilibrium value.

Assessing the Impact of Incomes Policy: The Italian Experience

The Saint Valentine's decree (1984) and the ensuing hard fought referendum (1985), which reduced the automatisms of scala mobile, started a process of redefinition of wage fixing in Italy, which culminated with the final abolition of scala mobile (1992) and the approval of Protocollo d'intesa (1993). Since then, following New Corporatist principles, a national system of centralised wage bargaining (concertazione) and the so-called institutional indexation have governed the determination of wages. This paper aims to assess the impact of such incomes policy agreements on the long and short run equilibrium relationship between real wages, labour productivity and unemployment. Different time series econometric tools confirm that incomes policy has altered the relationship between real wages and productivity, generating not only a permanent downward impact on prices, but also on real wages. In a sense, incomes policy has caused a new form of (upward) wage rigidity. Interestingly, no impact of incomes policy on the weak relationship between real wages and unemployment is detected. The analysis calls for a careful revision of the 1993 Protocol aimed at: a) better protecting the purchasing power of real wages without losing control on inflation; b) introducing growth generating mechanisms.

Monetary-Labor Interactions, International Monetary Regimes, and Central Bank Conservatism

A two-country general equilibrium model with large wage setters and conservative monetary authorities is employed to investigate the welfare implications of three international monetary regimes: i) non-cooperative, ii) cooperative, and iii) monetary union. The analysis shows that the unions’ wage claims depend on three strategic effects which are substantially different between the international policy arrangements. In contrast with recent studies, a switch from non-cooperation to monetary union is welfare improving with a sufficiently conservative central bank because unions perceive wage hikes as delivering lower terms-of-trade gains; while a switch from non-cooperation to cooperation is always beneficial because wage hikes do not yield any terms-of-trade gain. Finally, the paper qualifies Lippi’s (2003) findings about the real effects of central bank conservatism and centralized wage bargaining.

Institutions, Partisanship, and Inequality in the Long Run

It has been widely suggested by political scientists and economists, based on empirical evidence for the period since 1970, that the institution of centralized wage bargaining and the presence of a government of the left are associated with lower levels of income inequality. The authors make use of new data on top income shares as well as long-run series on wage inequality to examine the effects of partisanship and wage bargaining over a much longer time period, nearly the entire twentieth century. Their empirical results provide little support for the idea that either of these two factors is correlated with income inequality over this period. They then show that a closer look at the introduction of centralized wage bargaining in individual countries during the middle part of the twentieth century reveals that in countries that moved to centralize wage bargaining, income inequality had already been trending downward well before the institutional change, that the move to centralized bargaining did not alter this trend, and that these changes in income inequality were also observed in countries that did not adopt centralized wage bargaining at this time. The results suggest that there were alternative institutional paths to reduced income inequality during most of the twentieth century. This raises the possibility that either structural economic changes or commonly shared economic and political events, such as world wars and economic crises, may ultimately be more important for understanding the evolution of income inequality than are the institutional or partisan characteristics commonly considered to be decisive by political scientists.

Specific Skilled Labor and the Demand for Social Insurance

The relationship between specific skills and the welfare state is contested. To help resolve the conflict, we present a general model of preferences over social insurance with endogenous wages and investment in specific skills and a variety of exogenous constraints. Our dynamic model underscores the link between wages, skills and unemployment risks. It shows that skill-specificity will not affect preferences for insurance when wages adjust for investment costs and unemployment risks. We validate this part of the model with U.S. data. We then extend the model to show how different conditions, including centralized wage bargaining, capital market imperfections and taxation, affect skill formation and skill-based preferences for social insurance. These extensions provide testable hypothesis about political support for the welfare state. Our model reconciles the disparate empirical findings and demonstrates how they, along with Iversen and Soskice’s seminal results, are special cases of the interaction between labor markets and politics. A final, revised version to appear in the Quarterly Journal of Political Science, Volume 7, Issue 1, 2012, tentatively titled, On the (Ir)relevnce of Skill Specificity for Social Insurance.

Regional Wage Differentiation and Wage Bargaining Systems in the EU

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.

Institutions, Partisanship, and Inequality in the Long Run

It has been widely suggested by political scientists that institutions like centralized wage bargaining and factors like government partisanship are correlated with differences in income inequality between advanced industrial countries. There is empirical evidence for the period since 1970 to support each of these propositions. We make use of new data on top income shares to examine the effects of partisanship and wage bargaining over a much longer time period, nearly the entire twentieth century. Our empirical results provide little support for the idea that either of these two factors is correlated with income inequality over this period. We then show that a closer look at the introduction of centralized wage bargaining in individual countries during the 1930s and 1940s reveals that in countries that moved to centralize wage bargaining, income inequality was already trending downward well before the institutional change, and the move to centralized bargaining did not alter this trend. Our results suggest that there were alternative institutional paths to reduced income inequality during most of the twentieth century. This raises the possibility that commonly shared economic and political events, such as world wars and economic crises, may ultimately be more important for understanding the evolution of income inequality than are the institutional or partisan characteristics commonly thought to be decisive.

Centralized Wage Bargaining and the “Celtic Tiger” Phenomenon

Drawing on a variety of sources and research methods, this article argues that centralized wage bargaining contributed to the “Celtic Tiger” phenomenon by linking wage increases in the dynamic multinational companies sector to wage and productivity increases in the much more sluggish domestic sector of the economy and, in so doing, considerably increased the competitiveness of foreign multinational companies—a key driver of Irish growth. The article also argues that much‐received wisdom about the institutional and organizational preconditions for centralized wage regulation needs to be reconsidered in light of the Irish case. Public sector unions played a pivotal role in initiating and sustaining wage centralization, yet their leadership role did not undermine its effectiveness. Likewise, internal democratic procedures and the absence of wage compression policies, rather than centralized organizational structures, facilitated compliance with centralized wage policies.

Politics in wage setting: does government colour matter?

This paper studies the relationship between wage formation and the political colour of the government in an economy with a centralized wage bargaining system. Ideological, organizational and personal ties between the central trade union and the social democratic political party suggest that the trade union may behave significantly different in wage negotiations under a social democratic than under a conservative government. Using time series data for Norway, we estimate that changing from a conservative to a social democratic central government significantly reduces manufacturing wages and makes wages more responsive to unemployment. This result is consistent with a wage bargaining model augmented by political preferences of the union leaders and suggests that the effect of bargaining coordination depends on the political colour of the government. The estimated effects are both robust with respect to model specification and stable over time.

Strategic Profit Sharing in a Unionized Oligopoly

This paper studies the incentives for firms and unions to establish profit sharing contracts as a strategic instrument in a Cournot product market oligopoly with decentralized and centralized wage bargaining. Therefore, we examine the stability of these institutional arrangements and show that unions and firms collectively prefer classical wage contracts. However, under decentralized wage bargaining individual firms and unions have incentives to replace classical wage contracts by profit sharing agreements. Under a centralized wage bargaining system semi-collusion - where firms collude over the form of the labor contract but set product market quantities in a competitive fashion-is externally and internally stable. It can be shown that firms do not have incentives to deviate to negotiate separate firm-level wages unless profit-sharing is feasible. Hence, the possibility to conclude profit-sharing agreements can destabilize the so-called semi-collusive agreement and lead to more decentralized wage negotiations.

Introduction: Think Tanks in Austria, Switzerland and Germany - A Recalibration of Corporatist Policy Making?

The German-speaking countries share a multitude of commonalities which separate Germany, Austria and Switzerland from other developed democracies. One prominent commonality of the German-speaking of (Castles 1993, 2004; cf. Armingeon/Freitag 1997) is the broad integration of interest organizations into the process of policy deliberation, policy decision-making and policy implementation (Katzenstein 1987). The dominant role of interest organizations in public policy making is, however, not mirrored in standard attempts to measure the integration of interest-groups or, as it is called, neo-corporatism. While Austria ranks very high in most of the various empirical investigations (cf. Lehmbruch 1984, Siaroff 1999, Traxler/Blaschke/Kittel 2001), Germany usually is positioned in the middle of the range. Switzerland ranks low in most cases or is perceived as representing a very specific form of corporatism. As Isabelle Steffen and Wolf Linder (in this volume) argue, core institutional features classically associated with corporatism, such as strong trade unions or centralized wage bargaining patterns, are missing in Switzerland. Nevertheless, there are some functional structures equivalent to neo-corporatist (Kriesi 1995: p. 342), such as the institutionalized consultation procedure in policy deliberations (Vernehmlassung), which together with other institutional arrangements fosters and stabilizes the crucial influence of interest groups on policy decisions in Switzerland. The same might be argued for Germany. In contrast to Nordic-style corporatism, German wage bargaining was never centralized, nor did powerful, centralized peak associations of labor and capital dominate German politics after World War II. Nevertheless, interest groups and especially those from capital and labor are deeply involved into public policy-making patterns, either through parliamentary commissions or through their powerful position in agencies that implement welfare policies in Germany. Furthermore, self steering of interest groups in several sectors of the German welfare state is a prominent feature of the German Model, such as in wage bargaining or vocational training, to mention only the most important examples (cf. Czada 2003, Siegel 2003, Streeck 1997, Thelen 2004). This meso-corporatist interest mediation is furthermore segmented between different policy fields, and as a consequence, different logics of interest mediation rule at the same time the development of the German democracy (Dohler/Manow 1997). The clearest example of classical corporatism in the German-speaking family of nations is Austria. As Karlhofer (this volume) summarizes, the Austrian case is a prominent example of institutional corporatism because of centralized wage bargaining patterns and, especially, the extensive chamber system. These chambers have quasi-public functions and channel the interest of associated interest groups directly into policy deliberations and policy decisions. At the same time, these chambers have far reaching competences, covering broad areas of the welfare state as well as economic policy making. This leads Karlhofer to conclude that Austria may indeed be called a Kammerstaat (state of chambers). Hence, the role of interest organization in public policy-making is an important feature in the democracies of Germany, Austria and Switzerland. Since the early 1980s, however, the traditions and institutions of corporatist interest mediation were challenged by several developments. Firstly, old interest groups from capital and labor had to face organizational problems. While German unification might be interpreted as a specific challenge to German trade unions and employers' associations to organize their own camps (Schroeder 2000), in all three countries membership figures and density rates stagnated or revealed a shrinking capability of the respective organizations to attract the rank-and-file. …