Firm heterogeneity and wages under different bargaining regimes : does a centralised union care for low-productivity firms?

This paper studies the relationship between wages and the degree of firm heterogeneity in a given industry under different wage setting structures. To derive testable hypotheses, we set up a theoretical model that analyses the sensitivity of wages to the variability in productivity conditions in a unionsised oligopoly framework. The model distinguishes centralised and decentralised wage determination. The theoretical results predict wages to be negatively associated with the degree of firm heterogeneity under centralised wage-setting, as unions internalise negative externalities of a wage increase for low-productivity firms. We test this prediction using a linked employeremployee panel data set from the German mining and manufacturing sector. Consistent with our hypotheses, the empirical results suggest that under industry-level bargaining workers in more heterogeneous sectors receive lower wages than workers in more homogeneous sectors. In contrast, the degree of firm heterogeneity is found to have no negative impact on wages in uncovered firms and under firm-level contracts

Regional population structure and young workers' wages

This paper estimates the effect that changes in the size of the youth population have on the wages of young workers. Assuming that differently aged workers are only imperfectly substitutable, economic theory predicts that individuals in larger age groups earn lower wages. We test this hypothesis for a sample of young, male, full-time employees in Western Germany during the period 1999-2010. In contrast to other studies, functional rather than administrative spatial entities are used as they provide a more accurate measure of the youth population in an actual labour market. Based on instrumental variables estimation, we show that an increase in the youth share by one percentage point is predicted to decrease a young worker's wages by 3%. Our results also suggest that a substantial part of this effect is due to members of larger age groups being more likely to be employed in lower-paying occupations

Wage insurance within German firms : do institutions matter?

Using a large linked employer-employee data set, this paper studies the extent to which employers insure workers against transitory and permanent firm-level shocks. Particular emphasis is given to the question of whether the amount of wage insurance depends on the nature of industrial relations. Adopting the identification strategy proposed by Guiso et al. (2005), it is shown that wage insurance is particularly apparent for individuals subject to collective wage agreements. While collective contracts alone are sufficient to fully insure workers against transitory shocks in small plants, they provide only partial insurance in medium-sized and large plants. At large employers, the joint existence of collective contracts and works councils helps to provide full insurance against transitory shocks, but provides only partial insurance against permanent shocks. This finding is consistent with the amount of insurance against permanent shocks being constrained by the possibility of considerable job losses and bankruptcy

Do industry-level contracts suppress firm wage differentials?

This article studies the role of collective bargaining coverage for the relationship between wages and firm-specific performance. The empirical evidence based upon German linked employer-employee data provides support for the hypothesis that industry-level contracts suppress firm wage differentials that arise from firm-specific profitability conditions. Addressing the role of the frequency of shocks to firm performance, the evidence further suggests that the insensitivity of wages to firm-specific productivity fluctuations is mainly driven by the insulation of wages from transitory shocks. For permanent shocks, however, the evidence points to somewhat more flexible wages as - at least at large employers - wages are found to significantly respond to permanent productivity fluctuations. As to the role of firm heterogeneity in a given industry, the empirical results also show that under industry-level bargaining workers in more heterogeneous sectors receive lower wages than workers in more homogeneous sectors. This may be interpreted as evidence that centralised unions internalise negative implications of a compressed industry wage structure for below-average performing firms

Skill-biased technological change and endogenous benefits: the dynamics of unemployment and wage inequality

In this article, we study the effect of skill-biased technological change on unemployment and wage inequality in the presence of a link between social benefits and average income. In this case, an increase in the productivity of skilled workers, and hence their wage, leads to an increase in average income and hence in benefits. The increased fallback income, in turn, makes unskilled workers ask for higher wages. As higher wages are not justified by corresponding productivity increases, unemployment rises. Generally, we show that skill-biased technological change leads to increasing unemployment of the unskilled and to a moderately increasing wage inequality when benefits are endogenous. The model provides a theoretical explanation for diverging dynamics in wage inequality and unemployment under different social benefits regimes. Analysing the social legislation in 14 countries, we find that benefits are linked to the evolution of average income in Continental Europe but not in the US and the UK. Given this institutional difference, our model predicts that skill-biased technological change leads to rising unemployment in Continental Europe and rising wage inequality in the US and the UK.

Flexibilisation in the German system of wage bargaining: extent, determinants, impacts

Given the recent financial crisis, the German labour market performs relatively well. This has not been the case until recent years: collective bargaining and the rigid system of wage setting have been often cited as one of the reasons for Germany's high structural unemployment. Contrary, a reform process has started at least since the mid-1990s, introducing measures of flexibility and decentralization to the formally rigid system of wage setting. This article summarises the developments of possible and actual flexibilisation of collective bargaining contracts via so called hardship or opening clauses. A literature review sums up the scientific progress that had been made at the beginning of the research project and shows which gaps were to fill. Lacking data, the first parts of the project investigate on the actual existence and shape of opening clauses and create a new data set to measure the incidence of opening clauses in collective bargaining agreements in West German manufacturing sector for the years 1995 to 2007, the IAW data set on opening clauses. Using this, we analyse the determinants of the introduction of opening clauses on the industry level and of their actual implementation on the firm level. The latter parts of the project focus on the relation between opening clauses and measures of firm performance, especially considering wages and job growth. The results show that opening clauses are more and more common and that a more diversified wage structure and higher job growth is observed