The German Model of Industrial Relations: (Where) Does It Still Exist?

Abstract

Using data from the representative IAB Establishment Panel, this paper charts changes in the two main pillars of the German IR model over the last 20 years. It shows that collective bargaining coverage and worker representation via works councils have substantially fallen outside the public sector. Less formalized and weaker institutions such as voluntary orientation of uncovered firms towards sectoral agreements and alternative forms of employee representation at the work-place have partly attenuated the overall erosion in coverage. Multivariate analyses indicate that the traditional German IR model (with both collective agreements and works councils) is more likely found in larger and older plants, and it is less likely in plants managed by the owner, in single and foreign-owned plants, in individually-owned firms or partnerships, and in exporting plants. In contrast, more than 60 % of German plants did not exhibit bargaining coverage or orientation or any kind of worker representation in 2015. Such an absence of the main institutional features of the German IR model is mainly found in small and medium-sized plants, in particular in the service sector and in eastern Germany, and its extent is increasing dramatically.

The Rise in Orientation at Collective Bargaining Without a Formal Contract

“…To analyze TSD and CSD depending on the existence of a works council, I conduct separate estimations from separate samples with and without the prevalence of works councils. While this does not analyze the causal influence of works councils on transitions between bargaining regimes, as the existence of works councils is correlated with variables such as establishment size (Oberfichtner and Schnabel ), it provides some descriptive evidence on difference between plants by employee representation through works councils. Table displays effects of the sample with works councils and Table presents effects of the sample without works councils.…”

“…Hence, it is of general interest how collective bargaining coverage develops over time and to help us understand the underlying economic mechanisms (Addison et al. ; Oberfichtner and Schnabel ).…”

“…Interestingly, in Germany collective bargaining contracts coexist with firm‐level contracts and the orientation at collectively bargained wages without formal contract (Addison et al. ; Oberfichtner and Schnabel ). The latter is an interesting case to study, because an increasing number of plants pursue an orientation by aligning wages to collectively bargained wage levels without a formal contract.…”

“…In the German case, sector‐specific employers’ associations and unions typically bargain over wages for all workers of the same occupation within the member firms . The respective collective agreements are rarely expanded to nonmembership firms, and hence, the decreasing coverage can be explained by fewer firms that are willing to participate in collective bargaining (Oberfichtner and Schnabel ). Firms can leave collective bargaining contracts and change the remuneration scheme by quitting their membership with the employers’ association without justification, but the legally binding principle of sustainability (so‐called “Nachwirkungsprinzip”) requires them to follow the collective bargaining contract until a new firm‐level agreement is reached.…”

The one constant: a causal effect of collective bargaining on employment growth? Evidence from German linked‐employer‐employee data

“…Employers opted out of coverage or chose to align working conditions to sectoral agreements without being legally obliged to adhere to them ( Tariforientierung ). This development is well documented, but not well understood (Addison et al ., a, Oberfichtner and Schnabel, ). It is unclear, for example, whether firms leaving bargaining coverage may be doing so because they are finding it increasingly difficult to pay the collectively bargained wage rates…”