T HE present study estimates the effects of trade unions, Hitler's regime, and codetermination on relative wages in Germany. I Each of these establishments is considered to have had important implications for Germany's labor market. Moreover, a thorough understanding of their effects can be valuable for comparative purposes. Following a brief discussion of these phenomena and their hypothesized effects on wages, the analytical model is developed in section II. The empirical results are reported in section III and section IV contains the summary and conclusions. The extensive literature on the relative wage effects of trade unions has focused almost exclusively on the union impact in North America2 and, more recently, in Great Britain.3 Since the German institutions of industrial and labor relations differ considerably from their AngloAmerican counterparts4 and often have been studied as a successful (possibly superior) system which might be adopted by others, it is worthwhile exploring the magnitude of the union wage effect in the German institutional setting. In particular it has been argued that, compared to their American and British counterparts, the continental unions tend to place more emphasis on political and social, rather than economic achievements.5 If this hypothesis is correct, then, ceteris paribus, the estimated relative wage effect of German unions ought to be smaller than that found in the United States and Great Britain. With the advent of Hitler's regime in 1933 there was a dramatic transformation of the existing political and economic institutions. Trade unions, which in 1932 represented over 40% of the industrial labor force, were promptly abolished6 and replaced by a government-operated Front.7 Strikes and lockouts were forbidden and wages were determined centrally.8 While the effects of these changes on the cultural, political and social life have been well documented, few economic studies attempted to analyze the effect of Hitler's regime on wages and incomes. Moreover, those that did, used a qualitative or only a loose quantitative approach, partially as a result of the lack of a systematic wage series prior to 1934.9 W. Krelle (1962, p. 17) has shown, for example, that labor income Received for publication July 30, 1979. Revision accepted for publication May 1, 1980. Cornell University. I would like to thank Orley Ashenfelter, Albert Rees and two anonymous referees for helpful comments. I have also benefited from discussions with J. S. Butler, William Greene, Louis Phlips and Katherine Terrell. Any remaining errors are, of course, my own. This research was in part supported by a grant to the Princeton University Economics Department from the Sloan Foundation. I The term codetermination refers to the German participatory system of management, as it was originally established in the Federal Republic by the 1951 Codetermination Act and the 1952 Works Constitution Act. 2 The most important work and collection of references on the subject is still Lewis (1963). Among the later studies in the private sector are Ashenfelter (1972), Ashenfelter and Johnson (1972), Bloch and Kuskin (1978), Boskin (1972), de Menil (1971), Rosen (1969) and Schmidt and Strauss (1976). Public sector studies are summarized by Lewin (1977). X See especially Pencavel (1974), Mulvey (1976) and Metcalf (1977). 4 Needless to say there are important differences between the U.S. and British systems of industrial and labor relations. They exhibit considerable homogeneity, however, when compared to the systems in continental Europe. Historically, the relatively most salient features of the German system have been (1) trade union affiliation with political parties and/or religioiis organizations, (2) industrial unionism. (3) governmental interference in industrial and labor relations, and (4) paternalistic management. World War II led to the unification of the formerly splintered unions in the Deutsches Gewerkschafts Bund (DGB), close collaboration with the Social Democratic Party (SDP) and the establishment of codetermination. For institutional references see Almanasreh (1977), Fiirstenberg (1969, 1977), Schregle (1978) and Vollmer (1976, 1979). 5 See Kassalow (1969, 1980) and Windmuller (1969). 6 Employers associations followed their lead in 1934. 7 The Labor Front included all employees and employers. It represented the Nazi government in the factories and possessed broad powers over its member subjects. 8 In fact, the entire economy underwent considerable centralization as Hitler proclaimed his first Four Year Plan in 1933 and a second one in 1936. 9 Among the most thorough and informative of these conventional studies is that of Bry (1960). For a discussion of the data see Gerss (1977).