Wage Coordination Research Articles

Hit by the Silk Road: how wage coordination in Europe mitigates the China shock*

AbstractCoordination in collective wage setting can constrain potential monopoly gains to unions in non‐tradable industries. Countries with national wage coordination can thus stabilize overall employment against fluctuations and shocks in the world economy. We investigate this argument by exploring within‐country variation in exposure to competition from China in 13 European countries. Our estimates demonstrate that in countries with uncoordinated wage setting, regions with higher import exposure experienced a marked fall in employment, while countries with wage coordination experienced no such employment effects. We show that our findings are robust to alternative measures of wage coordination, industry classifications, and trade exposure.

Wage‐setting coordination in a small open economy*

AbstractThis paper studies wage‐setting coordination in a two‐sector, open economy dynamic stochastic general equilibrium model. Two large sectoral unions anticipate the effects of their wage demands on aggregate variables. In an open economy, there are externalities that the unions can take into account to increase aggregate welfare, but the strategic interaction between the sectoral unions tends to erode this gain. When wage coordination takes place through a wage norm set by either of the sectors, this minimizes the strategic interaction. However, wage norms create welfare losses as sector‐specific wage adjustment is required to make an efficient adjustment to shocks.

Wage centralization and the political economy of budget deficits

This paper studies the relationship between wage centralization and budget deficits. Using a panel of 18 major OECD countries from 1980 to 2014, I find strong evidence that wage centralization is associated with lower budget deficits in the panel of industrialized economies. The autoregressive distributed lag (ARDL) model shows that this negative link is mostly in the long run and not in the short run. The empirical results suggest that this negative association cannot be explained by either wage coordination at national level or by formal/informal cooperation among industry-level unions. Instead, the paper introduces a political economy model that can be viewed as one potential explanation for the empirical results. The model argues that wage centralization interacts with the political economy of budget deficits, leading to a lower level of deficit bias. The suggested mechanism is based on sectoral wage inter-dependency that emerges from centralization of wage bargaining.

Editorial: Trade Unions and Social Policy in the Process of European Integration

AbstractThis special issue brings together innovative theoretical perspectives and timely empirical research on trade unions’ impact on the formation and implementation of social policy across Europe and on the European level. The starting point of this editorial and the baseline for the articles included in the issue is the assumption that trade unions remain an important factor in creating and maintaining social policies in the course of European integration. However, the integration process has fundamentally transformed the power constellation between state, capital and labour that once facilitated the post-war establishment of national welfare states in Europe. Since this new constellation impedes trade unions on both the national and transnational level, the emergence of a ‘Social Europe’ remains an unfulfilled promise. In this situation, our editorial focuses on the national impact on European social policy and the European impact on national social policy. This special issue then contributes to the literature in three relevant areas. International comparisons improve our understanding of national policy dynamics and help us in making sense of the institutional heterogeneity within the EU-27. Such comparisons can reach their theoretical potential when applied in explaining institutional dynamics within the multi-level political system of the EU. Last but not least, analyses in the field aim at identifying transnational effects stemming from mutual observation or bilateral initiatives, such as wage coordination or transnational organisations.

Uruguay and Contemporary Theories of Wage Coordination: Origins and Stabilization of Segmented Neocorporatism, 2005–2019

ABSTRACTThis study seeks to explain the rise and performance of “segmented neocorporatism” in Uruguay in light of contemporary theories of wage coordination, largely framed by the Varieties of Capitalism school and its recent critics. First it argues that the legacy of a centralized labor law framework, and a unified union movement, combined with Frente Amplio’s decisive labor empowerment from above to launch neocorporatist wage coordination in the period 2005–10. Second, it analyzes the stabilization of the coordinated model in 2013–19, in times of sluggish growth and labor tensions, evinced in the control of inflation pressures and social conflict. The article concludes that the macroeconomic combination of supply-side and Keynesian policies and the inclusion of precarious workers shaped an egalitarian version of corporatism with important challenges ahead.

Cointegration and Structure in Norwegian Wage–Price Dynamics

Wage coordination plays an important role in macroeconomic stabilization. Pattern wage bargaining systems have been common in Europe, but in different forms, and with different degrees of success in terms of actual coordination reached. We focus on wage formation in Norway, a small open economy, where it is custom to regard the manufacturing industry as the wage leader. We estimate a model of wage formation in manufacturing and in two other sectors. Deciding cointegration rank is an important step in the analysis, economically as well statistically. In combination with simultaneous equation modelling, the cointegration analysis provides evidence that collective wage negotiations in manufacturing have defined wage norms for the rest of the economy over the period 1980(1)–2014(4).

Understanding wage restraint in the German public sector: does the pattern bargaining hypothesis really hold water?

AbstractGerman public sector wage restraint has been explained through the presence of a specific type of inter‐sectoral wage coordination in the industrial relations system—that is, export sector‐led pattern bargaining. First, as a literature‐assessing exercise, this paper reviews the literature in industrial relations and comparative political economy (CPE) and finds that (i) the origins and mechanics of inter‐sectoral wage coordination through pattern bargaining have never been laid out clearly; (ii) that the mechanisms of the pattern bargaining thesis have never been tested empirically; and (iii) that the CPE literature reveals an export‐sector bias. Second, as a theory‐testing exercise, hoop tests are performed to verify the pattern bargaining hypothesis. The key finding is that Germany cannot be considered a case of export sector‐driven pattern bargaining, opening a new research agenda for the study of public sector wage setting centred on public sector employment relations, public finance, public administrations and the politics of fiscal policy.

Trade imbalances within the Euro Area: two regions, two demand regimes

Greater trade integration, convergence in economic performance and a high level of employment among member states: this was why the Euro Area was created. In this respect, the paper analyses the sources of trade imbalances within the Euro Area, focusing on the direct trade relationship—intra-EA trade—between surplus and deficit countries. The econometric evidence based on a VAR/SVAR methodology suggests that asymmetric wage shocks determine asymmetric gains from intra-EA trade, resulting from opposing growth strategies. In addition, the empirical evidence shows that the Euro Area is divided into two economic regions representing different demand regimes: a northern region, which is profit-led and a southern region, which is wage-led. The paper suggests that wage coordination is an essential macroeconomic tool but is insufficient to achieve trade and economic integration given the current state of divergence. Thus, a trade-based transfer mechanism is proposed to restore convergence in the Euro Area.

Hit by the Silk Road: How Wage Coordination in Europe Mitigates the China Shock

Coordination in collective wage setting can constrain potential monopoly gains to unions in non-traded-goods industries. Countries with national wage coordination can thus stabilize overall employment against fluctuations and shocks in the world economy. We test this theory by exploring within-country variation in exposure to competition from China in 13 European countries. Our causal estimates demonstrate that in countries with uncoordinated wage setting, regions with higher import exposure from China experienced a marked fall in employment, while countries with wage-coordination experienced no such employment effects. We test our main mechanism against other explanations, and show that our findings are robust to alternative measures of wage coordination, industry classifications, and trade exposure.

Regional value chains and spontaneous multi-employer wage coordination in China

This article explores how wage determination is coordinated within a regional value chain in China's auto industry and the underlying mechanism that governs this coordination. While the market-economy reform over the past four decades has granted firms considerable autonomy in managing their own employees, this case demonstrates that in China's private sector, wage determination is not at individual employers' full discretion. In general, scholars agree that Western-style formal institutional structures for wage coordination – centralized collective bargaining – have not been effectively established in China. But in Tianjin's auto industry, spontaneous multi-employer wage coordination occurs through informal arrangements that leverage a lead firm's control over its suppliers and various social networks that connect employers, labor unions, and workers in the locality. As a result, wages across the local auto industry are greatly compressed. This article concludes by discussing the important role of informal institutions in China's private governance.

Neither existing nor emerging: euro stabilization by means of European wage coordination

ABSTRACT Since the 1990s and even more so since the introduction of the euro, European trade unions have been committed to the transnational coordination of wage demands. This commitment has prevailed until today although, under conditions of persistent institutional heterogeneity, coordination attempts have continuously failed. Keeping the commitment nevertheless alive aims at retaining the option of effective wage coordination for the long-term future. In the short to medium term, in contrast, no evidence suggests that transnational wage coordination will be able to correct the distorted real effective exchange rates that have emerged since the introduction of the euro.

The weakness of social dialogue in the Baltic countries: An employer-centric political economy perspective

Social dialogue is underdeveloped in the Baltic countries. This is often attributed to weak labour institutions and low mobilization, but I argue that employers’ motivation to engage in multi-employer bargaining is a crucial precondition for social dialogue. I build on scholarship in comparative political economy that links the long-run stability of collective bargaining to export competitiveness, and investigate why enterprises in the Baltic countries do not use multi-employer bargaining as an institutional instrument for wage coordination, even though economic growth is export-led. Until recently, employers lacked interest in coordinated wage-setting because of macroeconomic conditions: in particular favourable price trends in international markets which resulted in significantly higher value added without additional investments in efficiency, reducing structural pressure to align wages with productivity. Therefore, the strategies currently employed by Baltic enterprises are not complementary with social dialogue institutions.

Strategies, Struggles, and Sites of Transformation in Korean Political Economy

Strategies, Struggles, and Sites of Transformation in Korean Political Economy

The Rise of Segmented Neo-Corporatism in South America: Wage Coordination in Argentina and Uruguay (2005-2015)

Argentina and Uruguay are the only democracies in Latin America (among few in the world) that have developed sustained, state-oriented national and sectoral wage bargaining between employers and unions after 2005. The article defines “segmented neo-corporatism” as a new form of centralized incomes policy in the region that applies to a substantial portion (i.e., registered workers), though not to all the labor force. Drawing on neo-corporatist theory, I explain, first, why only Argentina and Uruguay could consolidate a centralized, national wage policy in the context of the Latin American Left-Turn. Second, I test empirically the degree of state-oriented wage coordination. The study argues that monetary policy deterrence and higher levels of bargaining centralization largely explain the greater capacity of Uruguayan neo-corporatism to govern wage-setting compared with its Argentine counterpart. Finally, the article puts segmented neo-corporatism in comparative perspective in the developing world and draws some theoretical implications.

Why Do Trade Unions Engage in Wage Coordination, Although It Does Not Work? Evidence from the German Metal Sector

The article addresses the following puzzle: if, as it appears, wage coordination under the European Monetary Union is unlikely to succeed, why do European trade unions continue to pursue it? The article examines German metal-sector trade unions’ ongoing participation in wage-coordination initiatives within the Eurozone. It argues that their participation can be explained by two factors – a decoupling of talk and action, as two complementary types of organisational output, and the reframing of wage coordination as an activity that will pay off in the distant future.

Coordination, inclusiveness and wage inequality between median- and bottom-income workers

What explains cross-national variation in wage inequality? Research in comparative political economy stresses the importance of the welfare state and wage coordination in reducing not only disposable income inequality but also gross earnings inequality. However, the cross-national variation in gross earnings inequality between median- and low-income workers is at odds with this conventional wisdom: the German coordinated market economy is now more unequal in this type of inequality than the United Kingdom, a liberal market economy. To solve this puzzle, I argue that non-inclusive coordination benefits median but not bottom-income workers and is as a result associated with higher – rather than lower – wage inequality. I find support for this argument using a large N quantitative analysis of wage inequality in a panel of Western European countries. Results are robust to the inclusion of numerous controls, country fixed effects, and also hold in a larger sample of OECD countries. Taken together these findings force us to reconsider the relationship between coordination and wage inequality at the bottom of the income distribution.

From Fixed to Flexible? Wage Coordination and the Collective Bargaining System in Italy

This article analyses the rules on wage coordination and their effectiveness in the Italian two-tier bargaining system. It seeks to cast light on bargaining coordination by starting from the analysis of collective agreements, rather than focusing exclusively on normative and institutional aspects of wage bargaining. Accordingly, the study examines a dataset of 498 company-level collective agreements concluded between 2012–2015 in three sectors – metalworking, food, banking and finance – to analyse wage developments in company-level bargaining. The study considers the extent to which local wage negotiations are consistent with the rules on wage bargaining coordination laid down in economy-wide agreements and national collective labour agreements. Wage coordination rules are generally respected, though a significant number of company-level agreements still provide fixed-rate pay rises in breach of the rule that wage increases at company level should be linked to productivity and other factors relating to the workers’ and/or the firm’s economic performance. Although the violation of wage bargaining rules between national agreements and company-level collective agreements is in line with the favourability principle, it is argued that local negotiations on fixed-rate pay rises could be regarded as a form of uncoordinated decentralization, diminishing the effectiveness of horizontal coordination policies and the normative role of the social partners.

(Re-)Designing institutions for EMU wage setting

This article uses the concept of ‘institutional learning’ to make a legal case for a stronger wage policy at the EMU level. This article takes the view that an inherent asymmetry in the EMU, namely the presence of a unified monetary policy without a commensurate coordination of wage-setting mechanisms, contributed to the development of the crisis. The latent consequences of this flaw—diverging (wage) growth and cost competitiveness—were brought into full view when the global financial crisis struck. A unique wage-coordination process has already become institutionalised at the EU level through the European Semester: wage and spending cuts supplant the role of currency depreciation as a means of addressing external economic shocks and competitiveness gaps. We argue that the new wage coordination process constitutes a step in the right direction insofar as the EU has learned from its mistake, namely creating a currency union without any transnational wage determination mechanism. However, this paper makes a legal and institutional case for a more reflexive and solidaristic approach to wage coordination. In order to do so, we take the economic view that stronger EU labour coordination is not likely to diminish competitiveness. While market wisdom would seem to support the view that decentralised collective bargaining systems performs better, evidence suggests that solidaristic wage-setting offers a critical means of channelling economic policy into a model less narrowly focused on labour cost. Beyond the economic debate, there is a legal case to be made in favour of stronger wage bargaining that can reconcile the markets with labour law in the EMU. It is the role of lawyers to investigate possible legal avenues towards achieving a more appropriate solution that is compatible with the Treaty of Lisbon as well as with the goal of competitiveness. Our project does not advocate Treaty changes; instead we use the concept of ‘institutional layering/learning’ to reinforce already-existing reflexive approaches such as the Macroeconomic Dialogue (MED) in order to create a multi-level wage determination strategy that mediates a genuine facilitation process between the Commission, the European Central Bank and the unions.

Whither the Middle Class? Financialization, Labor Institutions, and the Gap between Top- and Middle-Income Earners in Advanced Industrial Societies

Recent research shows that financial activities expand the wage gap between affluent and middle-class workers in advanced industrial societies. Furthermore, a well-established literature indicates that differences in labor institutions may be responsible for cross-national variations of income inequality in developed countries. Surprisingly, there is no empirical research examining whether the positive association between financialization and income inequality is conditioned by differences in wage coordination. We contribute to this comparative income inequality literature by testing the claim that wage-setting institutions suppress the inequality-widening effects of finance in advanced industrial societies. To test this contention, we compile an unbalanced panel dataset of 20 developed economies during the years 1988 to 2009. According to our results, financial activities are a robust positive predictor of 90–50 inequality. More importantly, the interaction of financialization and wage coordination returns significant negative associations with the dependent variable. These results are found to be consistent across different estimation techniques and numerous regression parameters.

The Globalization of Production and Income Inequality in Rich Democracies

Despite prominent and compelling theoretical arguments linking manufacturing imports from the global South to rising income inequality in the global North, the literature has produced decidedly mixed support for such arguments. We explain this mixed support by introducing intervening processes at the global and national levels. At the global level, evolving characteristics of global production networks (GPNs) amplify the effect of Southern imports. At the national level, wage coordination and welfare state generosity counteract the mechanisms by which Southern imports increase inequality, and thereby mitigate their effects. We conduct a time-series cross-section regression analyses of income inequality among eighteen advanced capitalist countries to test these propositions. Our analysis addresses alternative explanations, as well as validity threats related to model specification, sample composition, and measurement. We find substantial variation in the effect of Southern imports across global and national contexts. Southern imports have no systematic effect on income inequality until the magnitude of GPN activity surpasses its world-historical average, or in states with above-average levels of wage coordination and welfare state generosity. With counterfactual analyses, we show that Southern imports would have led to much different inequality trajectories in the North if there were fewer GPNs, and if the prevailing degrees of wage coordination and welfare state generosity were higher. The countervailing effects of GPNs and institutional context call for theories of inequality at the intersection of the global and the national, and raise important questions about distributional politics in the years to come.