Getting Together and Breaking Apart: The Decline of Centralised Collective Bargaining
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.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4464.
Date of creation: Sep 1993
Date of revision:
Publication status: published as Richard B. Freeman, Robert S. Gibbons. "Getting Together and Breaking Apart: The Decline of Centralized Collective Bargaining ," in Richard B. Freeman and Lawrence F. Katz, Editors, "Differences and Changes in Wage Structures" University of Chicago Press (1995)
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 S. Gibbons, 1995. "Getting Together and Breaking Apart: The Decline of Centralized Collective Bargaining," NBER Chapters, in: Differences and Changes in Wage Structures, pages 345-370 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.:
- Lindbeck, A., 1990. "The Swedish Experience," Papers 482, Stockholm - International Economic Studies.
- Horn, H. & Wolinsky, A., 1988.
"Bilateral Monopolies And Incentives For Merger,"
410, Stockholm - International Economic Studies.
- Calmfors, Lars & Horn, Henrik, 1986. "Employment Policies and Centralized Wage-Setting," Economica, London School of Economics and Political Science, vol. 53(211), pages 281-302, August.
- 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.
- Holmlund, Bertil & Zetterberg, Johnny, 1991.
"Insider effects in wage determination : Evidence from five countries,"
European Economic Review,
Elsevier, vol. 35(5), pages 1009-1034, July.
- Holmlund, B. & Zetterberg, J., 1989. "Insider Effects In Wage Determination: Evidence From Five Countries," Papers 1989a, Uppsala - Working Paper Series.
- Davis, Steven J. & Henrekson, Magnus, 2005.
"Wage-setting institutions as industrial policy,"
Elsevier, vol. 12(3), pages 345-377, June.
- Steven J. Davis & Magnus Henrekson, 2000. "Wage-Setting Institutions as Industrial Policy," NBER Working Papers 7502, National Bureau of Economic Research, Inc.
- Henrekson, Magnus & Davis, Steven J., 2000. "Wage-Setting Institutions as Industrial Policy," Working Paper Series 529, Research Institute of Industrial Economics.
- Davis, Steven J. & Henrekson, Magnus, 2000. "Wage-setting Institutions as Industrial Policy," Working Paper Series in Economics and Finance 352, Stockholm School of Economics, revised 05 Aug 2003.
- Lindbeck, A & Snower, D-J, 1996.
"Centralized Bargaining, Multi-Tasking, and Work Incentives,"
620, Stockholm - International Economic Studies.
- Lindbeck, Assar & Snower, Dennis J., 1997. "Centralized Bargaining, Multi-Tasking and Work Incentives," Seminar Papers 620, Stockholm University, Institute for International Economic Studies.
- Lindbeck, Assar & Snower, Dennis J., 1997. "Centralized Bargaining, Multi-Tasking, and Work Incentives," CEPR Discussion Papers 1563, C.E.P.R. Discussion Papers.
- Assar Lindbeck & Dennis Snower, 1996. "Centralised Bargaining, Multitasking and Work Incentives," Archive Discussion Papers 9624, Birkbeck, Department of Economics, Mathematics & Statistics.
- repec:iab:iabmit:v:28:i:3:p:383-390 is not listed on IDEAS
- Gerlach, Knut & Meyer, Wolfgang, 1995. "Tarifverhandlungssysteme, Lohnhöhe und Beschäftigung (Wage rate systems, wage levels and employment)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 28(3), pages 383-390.
- repec:iab:iabmit:v:36:i:4:p:649-660 is not listed on IDEAS
- Schnabel, Claus, 2005. "Gewerkschaften und Arbeitgeberverbände: Organisationsgrade, Tarifbindung und Einflüsse auf Löhne und Beschäftigung (Trade unions and employers' associations * densities, bargaining coverage and ef," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 38(2/3), pages 181-196.
- Brunello, Giorgio, 1998.
"Does centralised bargaining reduce individual effort?,"
European Journal of Political Economy,
Elsevier, vol. 14(2), pages 381-406, May.
- Brunello, G, 1996. "Does Centralised Bargaining Reduce Individual Effort?," ISER Discussion Paper 0426, Institute of Social and Economic Research, Osaka University.
- Wolfgang Pollan, 2004. "Pattern Bargaining and Wage Leadership in Austria," WIFO Monatsberichte (monthly reports), WIFO, vol. 77(3), pages 197-211, March.
- Brunello, Giorgio & Comi, Simona, 2000.
"Education and Earnings Growth: Evidence from 11 European Countries,"
IZA Discussion Papers
140, Institute for the Study of Labor (IZA).
- Brunello, Giorgio & Comi, Simona, 2004. "Education and earnings growth: evidence from 11 European countries," Economics of Education Review, Elsevier, vol. 23(1), pages 75-83, February.
- Norbert Berthold & Rainer Fehn, 2003. "Unemployment in Germany: Reasons and Remedies," CESifo Working Paper Series 871, CESifo Group Munich.
- Koeniger, Winfried & Leonardi, Marco & Nunziata, Luca, 2004.
"Labour Market Institutions and Wage Inequality,"
IZA Discussion Papers
1291, Institute for the Study of Labor (IZA).
- repec:iab:iabzaf:v:38:i:2/3:p:181-196 is not listed on IDEAS
- repec:wfo:wquart:y:2004:i:2:p:88-101 is not listed on IDEAS
- Jirjahn, Uwe, 2003. "Betriebsräte, Tarifverträge und betriebliches Lohnniveau (Works councils, wage agreements and the company wage level)," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 36(4), pages 649-660.
- Bosello, Francesco & Carraro, Carlo, 2001. "Recycling energy taxes: impacts on a disaggregated labour market," Energy Economics, Elsevier, vol. 23(5), pages 569-594, September.
- Richard Jackman, 1998. "European Unemployment: Why is it so High and What Should be Done About it?," RBA Annual Conference Volume, in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
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.