This paper examines critically the system of industry-level wage bargaining in Germany. More specifically, it shows that the importance of industry-level wage bargaining declines in Germany and that one major reason for this development is the highly restrictive institutional framework. However, fully decentralized wage bargaining at the firm level also exhibits some disadvantages. We compare the employment effects of industry-level and firm-level wage bargaining in a theoretical model integrating insider-outsider aspects and an exit clause in the wage contract. The exit clause effectively allows workers and firms to renegotiate the wage level in the case of a negative goods demand shock. The model yields ambiguous results with respect to the employment consequences of different wage bargaining regimes. As a consequence, we argue that industry-level wage bargaining should not be abandoned but be made more flexible instead.
Fitzenberger, B. and Wolfgang Franz (1999), Der Flächentarifvertrag: Eine kritische Würdigung aus ökonomischer Sicht, ZEW Discussion Paper No. 99-57, Mannheim. Download