European Economy. Economic Papers. Germany's growth performance in the 1990's

Figure 3.14 : Participation rates
Source : Eurostat
With its sectoral collective agreements, wage bargaining in Germany takes place at an
intermediate level of centralisation. In France, the bulk of bargaining takes place at the company
level but sectoral agreements are also common. Wage negotiations in Italy are more centralised
through nation-wide sectoral agreements and they are completely decentralised to the company
level in the UK. The discussion of how wage bargaining structures affect wage developments
has to a large extent been shaped by the Calmfors and Driffill (1988) hypothesis. It predicts a
‘hump-shaped’ relation of unemployment and the centralisation of wage bargaining. Fully
centralised and fully decentralised bargaining produce the most employment-friendly outcomes
because, in a nutshell, firm-level bargaining takes the competitiveness of the firm into account
and economy-wide bargaining is concerned with its macroeconomic employment effects. In
between the two extremes, the externalities of wage increases on employment are not fully
taken into account, which leads to inferior outcomes. However, economy-wide co-ordination of
wage negotiations can help internalising macroeconomic externalities (cf.) Calmfors (2001)).
Germany and Italy have a high degree of wage bargaining co-ordination across sectors, which is
a persistent feature in Germany over the last two decades (OECD (1997)). De facto co-
ordination in Germany stems from pattern bargaining (i.e. the fact that, in a specific year, it is
usually up to an influential trade union to conclude the first agreement, which then becomes a
benchmark for other sectoral negotiations). Since 1998, tripartite high-level discussions take
place between employers’ associations, trade unions and the federal government in the so-called
“Bündnis für Arbeit” (Alliance for Jobs). The Alliance has issued a recommendation on wage
moderation for the first time in the context of the 2000 wage round. Although not binding for
the Social Partners at the sectoral level, this recommendation had indeed a moderating
influence.
In practice, aggregate real wages seem to be rather flexible in Germany. Wage equation
estimates (e.g. OECD (2000)) show a relatively high elasticity of aggregate wages to aggregate
45
Firm level collective agreements still play a minor role. They were applied, in 2000, by 3% (4%) of West (East)
German firms, and covered 7% (10%) of workers. The remaining firms are not covered by any collective
agreement, although some report “using the sectoral agreement as an orientation”.
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
1983
1985
1987
1989
1991
1993
1995
1997
1999
D
D_W
F
I
UK

---

unemployment. Figure 3.15 shows that real wages moved more or less in line with those of the
other big Member States in the 1980s. Then in the early 1990s, strong wage increases followed
during the re-unification boom. These developments – in the end political rather than
economical – had enormous costs in terms of employment and competitiveness. Only the wage
moderation of the second half of the 1990s brought a new convergence towards the
developments in partner countries (see section 3.1). Still, the data presented in the first sub-
section show that the very strong regional dimension of unemployment remains. Furthermore,
the risk of unemployment is substantially higher for low-skilled workers, compared to the
average worker.