Getting Together and Breaking Apart: The Decline of Centralized Collective Bargaining
In: Differences and Changes in Wage Structures
AbstractThis paper studies the stability of centralized wage-setting systems in light of the on-going decentralization of labor relations in much of the Western world. It takes the decline of peak level bargaining in Sweden, the traditional archetype of centralized collective bargaining, as its key case for study, but is intended to speak to other cases as well. Like many earlier analysts, we argue that centralization offers potential economic gains by internalizing the costs of inefficient wage inflation. With this potential benefit, however, comes a cost: centralized decisions are not sufficiently responsive to local conditions. To avoid excessive inflexibility, the center can allow for "wage drift" at the local level (i.e., local wage settlements above the central agreement), but once the center allows wage drift, it becomes difficult to distinguish between justifiable drift due to local economic conditions and unjustifiable drift in the self-interest of local bargaining pairs. Thus, centralized wage-setting systems face a tradeoff: allowing less drift makes it easier to monitor local bargaining pairs but harder to achieve the appropriate responsiveness to local conditions. We develop a game-theoretic model of this tradeoff, and consider how the center's optimal policy moves towards decentralization (i.e., towards allowing more drift) as the cost of inflexibility rises. We then interpret the evolution of centralized bargaining in Sweden in light of the model. We argue that centralized bargaining flourished when the private-sector blue-collar workers (represented by LO) dominated the workforce, but began to wane as public-sector and white-collar unions grew in strength, as skill differentials in decentralized labor markets grew in size, and as product-market competition intensified (especially through the shortening of product lifecycles).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
This chapter was published in:
This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7862.
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Richard B. Freeman & Robert Gibbons, 1993. "Getting Together and Breaking Apart: The Decline of Centralised Collective Bargaining," NBER Working Papers 4464, National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lundberg, Erik, 1985. "The Rise and Fall of the Swedish Model," Journal of Economic Literature, American Economic Association, vol. 23(1), pages 1-36, March.
- Calmfors, Lars & Horn, Henrik, 1986. "Employment Policies and Centralized Wage-Setting," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 53(211), pages 281-302, August.
- Holmlund, B. & Zetterberg, J., 1989.
"Insider Effects In Wage Determination: Evidence From Five Countries,"
Papers, Uppsala - Working Paper Series
1989a, Uppsala - Working Paper Series.
- Holmlund, Bertil & Zetterberg, Johnny, 1991. "Insider effects in wage determination : Evidence from five countries," European Economic Review, Elsevier, Elsevier, vol. 35(5), pages 1009-1034, July.
- Horn, H. & Wolinsky, A., 1988.
"Bilateral Monopolies And Incentives For Merger,"
Papers, Stockholm - International Economic Studies
410, Stockholm - International Economic Studies.
- Lindbeck, A., 1990. "The Swedish Experience," Papers, Stockholm - International Economic Studies 482, Stockholm - International Economic Studies.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.