Does Local Bargaining Lead to Larger Wage Increases? The Impact of Decentralization of Collective Bargaining on the Level And Dispersion of Wages

There has been a strong tendency towards decentralization of collective bargaining in European countries. This means that wage negotiations have moved closer to the individual enterprise. Centralized collective bargaining systems have traditionally been seen to reduce wage inequality, which has attracted the attention to the effects of decentralization on both the level of wages and wage dispersion. European studies show the decentralization leads to higher wage increases. This is an unambiguous finding in the literature. However, the results on wage dispersion are much more varied and no clear results emerge. In Finland, the decentralization of collective bargaining has taken place through so-called local pots. These are wage increases that can be allocated locally. The results of a new Finnish study show that wage increases have been higher when the contract has included local pots. The local pots have increased the dispersion of wage increases for white-collar employees and reduced it for blue-collars. This difference in the outcomes is likely due to different preferences concerning wage dispersion and local bargaining between these two employee groups.