Why does Germany abstain from statutory bargaining extensions? Explaining the exceptional German erosion of collective wage bargaining

Abstract

Against the European trend, German statutory collective bargaining extensions (SBEs) have decreased in the last two decades, contributing to the exceptional erosion of German wage-bargaining coverage. This article distinguishes between two liberalization dynamics: an intrasectoral dynamic that started with the introduction of employers’ association memberships outside the scope of collective agreements, and an intersectoral dynamic. The latter is the result of an abnormal German institutional feature, the veto power of the employers’ umbrella association in the committees that have to approve SBE applications. Activation of this veto enabled employers to promote collective bargaining erosion in sectors other than their own, in order to contain cost pressures. This intersectoral liberalization dynamic has been part of Germany’s transition into an asymmetrically export-driven growth regime and could be stopped by means of political reforms.

The politics of growth models

“…Two qualifications must immediately be noted: first, the detrimental consequence of wage repression for sectors catering to domestic demand might be offset if domestic demand is stimulated by credit expansion, and, secondly, wage repression may have negative effects for export-oriented sectors too if it undermines the loyalty and commitment of their core workforce. For the latter reason, sectors producing high value-added exports tend to favor wage-repression policies that target the wages of workers engaged in the production of goods and services consumed by their employees rather than the wages of their own core employees (Günther and Höpner 2022).…”

“…Dominated by export-oriented sectors, the intersectoral employer associations frequently used their veto power to block statutory extension in service sectors, thus contributing to decoupling wages in low-skilled service sectors from manufacturing wages. Keeping service-sector wages low was expedient for export-led companies because it shifted the costs of real exchange-rate disinflation onto the domestic sectors (Günther and Höpner 2022).…”

Round Table. Mission impossible? How to increase collective bargaining coverage in Germany and the EU

“…The dualisation of the German economy between a competitive export sector and a low-cost service economy meant that employers’ associations made sure that wages in the service sector remained low (Hassel, 2014). As a result, the number of extensions of agreements declined from 146 in 1996 to 38 in 2016 (Günther and Höpner, 2023: 10). This also contributes to declining coverage rates (Figure 3).…”

“…OT membership was a response to increasing frictions within employers' associations because suppliers and manufacturers were part of the same agreement, but also the same supply chains. Small suppliers experienced strong cost pressure from manufacturers, which they could not accommodate within existing pay agreements (Günther and Höpner, 2023).…”

On the determinants of bargaining‐free membership in German Employers' Associations

“…Offering a bargaining‐free membership status makes only sense in an environment where firms face a low risk of mandatory extensions by the government. Indeed, mandatory extensions of industry‐level agreements by the Federal Ministry of Labour are relatively rare in Germany (Günther & Höpner, 2022; Paster et al, 2020). However, a membership freed from industry‐level bargaining does not always guarantee that a firm can completely avoid collective bargaining.…”