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Paying More than Necessary? The Wage Cushion in Germany

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  • Sven Jung
  • Claus Schnabel

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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Suggested Citation

  • Sven Jung & Claus Schnabel, 2011. "Paying More than Necessary? The Wage Cushion in Germany," LABOUR, CEIS, vol. 25(2), pages 182-197, June.
    • Handle: RePEc:bla:labour:v:25:y:2011:i:2:p:182-197
    DOI: j.1467-9914.2010.00514.x
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    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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