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Paying More than Necessary? The Wage Cushion in Germany

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  • Jung, Sven

    ()
    (University of Erlangen-Nuremberg)

  • Schnabel, Claus

    ()
    (University of Erlangen-Nuremberg)

Abstract

Using a representative establishment data set for Germany, we show that more than 40 percent of plants covered by collective agreements pay wages above the level stipulated in the agreement, which gives rise to a wage cushion between the levels of actual and contractual wages. Cross-sectional and fixed-effects estimations for the period 2001-2006 indicate that the wage cushion mainly varies with the profit situation of the plant and with indicators of labour shortage and the business cycle. While plants bound by multi-employer sectoral agreements seem to pay wage premiums in order to overcome the restrictions imposed by the rather centralized system of collective bargaining in Germany, plants which make use of single-employer agreements are significantly less likely to have wage cushions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4278.

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Length: 23 pages
Date of creation: Jul 2009
Date of revision:
Publication status: published in: Labour, 2011, 25 (2), 182-197
Handle: RePEc:iza:izadps:dp4278

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Keywords: wages; wage cushion; wage determination; bargaining; Germany;

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References

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  1. Hübler, Olaf & Jirjahn, Uwe, 2001. "Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages," IZA Discussion Papers 322, Institute for the Study of Labor (IZA).
  2. Gesine Stephan & Knut Gerlach, 2005. "Wage settlements and wage setting: results from a multi-level model," Applied Economics, Taylor & Francis Journals, vol. 37(20), pages 2297-2306.
  3. Addison, John T & Schnabel, Claus & Wagner, Joachim, 2001. "Work Councils in Germany: Their Effects on Establishment Performance," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 659-94, October.
  4. Paulo Bastos & Natália P. Monteiro & Odd Rune Straume, 2008. "Firm heterogeneity and wages in unionised labour markets: Theory and evidence," NIPE Working Papers 14/2008, NIPE - Universidade do Minho.
  5. F. W. Gould, 1967. "The Dynamics of Wage‐Drift," The Economic Record, The Economic Society of Australia, vol. 43(3), pages 371-394, 09.
  6. Kohaut, Susanne & Schnabel, Claus, 2003. "Verbreitung, Ausmaß und Determinanten der übertariflichen Entlohnung," Discussion Papers 23, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  7. Hibbs, Douglas Jr. & Locking, Hakan, 1996. "Wage compression, wage drift and wage inflation in Sweden," Labour Economics, Elsevier, vol. 3(2), pages 109-141, September.
  8. Ordine, Patrizia, 1995. "Wage drift and minimum contractual wage: Theoretical interrelationship and empirical evidence for Italy," Labour Economics, Elsevier, vol. 2(4), pages 335-357, December.
  9. Muysken, Joan & van Veen, Tom, 1996. " Efficiency Wages and Local Wage Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(1), pages 119-27, March.
  10. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
  11. Schnabel, Claus & Zagelmeyer, Stefan & Kohaut, Susanne, 2005. "Collective bargaining structure and its determinants : an empirical analysis with British and German establishment data," IAB Discussion Paper 200516, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
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Citations

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Cited by:
  1. Oberfichtner, Michael, 2013. "Works council introductions: Do they reflect workers' voice?," Discussion Papers 83, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  2. John T. Addison & Alex Bryson & Paulino Teixeira & André Pahnke & Lutz Bellman, 2009. "The extent of collective bargaining and workplace representation: transitions between states and their determinants. A comparative analysis of Germany and Great Britain," LSE Research Online Documents on Economics 27779, London School of Economics and Political Science, LSE Library.
  3. Hirsch, Boris & Mueller, Steffen, 2014. "Firm leadership and the gender pay gap: do active owners discriminate more than hired managers?," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 47(1-2), pages 129-142.
  4. Brenzel, Hanna & Gartner, Hermann & Schnabel, Claus, 2013. "Wage posting or wage bargaining? : evidence from the employers’ side," IAB Discussion Paper 201315, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  5. Hirsch, Boris & Mueller, Steffen, 2010. "Temporary agency work and the user firm's productivity: First evidence from German Panel Data," Discussion Papers 68, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  6. Mosthaf, Alexander & Schnabel, Claus & Stephani, Jens, 2010. "Low-wage careers: are there dead-end firms and dead-end jobs?," IWQW Discussion Paper Series 01/2010, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).
  7. Hirsch, Boris & Schnabel, Claus, 2011. "Let's take bargaining models seriously: The decline in union power in Germany, 1992 - 2009," IWQW Discussion Paper Series 10/2011, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).
  8. John Addison & Paulino Teixeira & Jens Stephani & Lutz Bellmann, 2012. "Can German Unions Still Cut It?," GEMF Working Papers 2012-19, GEMF - Faculdade de Economia, Universidade de Coimbra.
  9. Maritza López-Novella & Salimata Sissoko, 2009. "Working Paper 12-09 - Salaires et négociation collective en Belgique : une analyse microéconomique en panel," Working Papers 0912, Federal Planning Bureau, Belgium.
  10. Maritza López Novella & Salimata Sissoko, 2013. "Understanding wage determination in a multi-level bargaining system: a panel data analysis," Empirical Economics, Springer, vol. 44(2), pages 879-897, April.

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