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A Cartel Analysis of the German Labor Institutions and Its Implications for Labor Market Reforms

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  • Justus Haucap
  • Uwe Pauly
  • Christian Wey

Abstract

In this paper we apply standard cartel theory to identify the major institutional stabilizers of Germany's area tariff system of collective bargaining between a single industry union and the industry's employers association. Our cartel analysis allows us to demonstrate that recent labor policy reforms that intend to make labor markets more "flexible" further serve to stabilize the labor cartel while other pro-competitive proposals have failed. We argue that the pro-competitive recommendations failed exactly because of their destabilizing effects on insiders' incentives to stay in the labor cartel. We propose regulatory measures for injecting competition into Germany's labor markets that focus on the creation of new options for firms and workers outside the existing area tariff system; in particular, by liberalizing existing barriers for the establishment of a fully tariff-enabled union. Such an endeavor must go hand in hand with the institutionalization of a competition policy framework for labor market disputes as any destabilizing policy inevitably provokes counter measures of the incumbent labor cartel so as to protect their dominance vis-à-vis outsider competition.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.55731.de/dp651.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 651.

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Length: 15 p.
Date of creation: 2006
Date of revision:
Handle: RePEc:diw:diwwpp:dp651

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Keywords: Union; Collective Bargaining; Cartel Stability; Labor Market Reforms;

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References

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  1. Haucap, Justus & Wey, Christian, 2003. "Unionisation Structures and Innovation Incentives," Working Paper 21/2003, Helmut Schmidt University, Hamburg.
  2. Reinhard Selten, 1973. "A Simple Model of Imperfect Competition, where 4 are Few and 6 are Many," Working Papers 008, Bielefeld University, Center for Mathematical Economics.
  3. Eric Posner, 2003. "Four Economic Perspectives on American Labor Law and the Problem of Social Conflict," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(1), pages 101-, March.
  4. Fitzenberger, Bernd & Franz, Wolfgang, 1999. "Der Flächentarifvertrag: Eine kritische Würdigung aus ökonomischer Sicht," ZEW Discussion Papers 99-57, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Justus Haucap & Christian Wey & Uwe Pauly, 1999. "The Incentives of Employers’ Associations to Raise Rivals’ Costs in the Presence of Collective Bargaining," CIG Working Papers FS IV 99-06, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  6. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer.
  7. Kohaut, Susanne & Schnabel, Claus, 2001. "Tarifverträge - nein danke!? Einflussfaktoren der Tarifbindung west- und ostdeutscher Betriebe," Discussion Papers 8, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  8. Donges, Juergen B., 1992. "Deregulierung am Arbeitsmarkt und Beschäftigung," Beiträge zur Ordnungstheorie und Ordnungspolitik, Mohr Siebeck, Tübingen & Walter Eucken Institut, Freiburg, Germany, edition 1, volume 127, number urn:isbn:9783161459610, November.
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Cited by:
  1. Thomas K. Bauer & Jochen Kluve & Sandra Schaffner & Christoph M. Schmidt, 2008. "Fiscal Effects of Minimum Wages – An Analysis for Germany," Ruhr Economic Papers 0079, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Luciano Fanti & Nicola Meccheri, 2014. "Capacity choice and welfare under alternative unionisation structures," Discussion Papers 2014/176, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  3. Göddeke, Anna & Haucap, Justus & Herr, Annika & Wey, Christian, 2011. "Stabilität und Wandel von Arbeitsmarktinstitutionen aus wettbewerbsökonomischer Sicht," DICE Ordnungspolitische Perspektiven 10, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  4. Beatrice Pagel & Christian Wey, 2013. "Unionization Structures in International Oligopoly," LABOUR, CEIS, vol. 27(1), pages 1-17, 03.

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