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


  • Justus Haucap
  • Uwe Pauly
  • Christian Wey


This paper offers a cartel explanation for the stability of German collective bargaining institutions.We show that a dense net of legal safeguards has been yarned around the wage setting cartel. These measures make deviation by cartel insiders less attractive and simultaneously erect entry barriers for alternative unions. As we argue many recent labor policy measures, which make wages more flexible, serve to further stabilize the labor cartel, while truly pro-competitive proposals have not been implemented exactly because of their destabilizing effects.We propose policy measures that remove entry barriers and facilitate outside competition by alternative collective bargaining organizations.
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Suggested Citation

  • Justus Haucap & Uwe Pauly & Christian Wey, 2007. "A Cartel Analysis of the German Labor Institutions and its Implications for Labor Market Reforms," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(3), pages 503-516, September.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200709)163:3_503:acaotg_2.0.tx_2-9

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    References listed on IDEAS

    1. Justus Haucap & Christian Wey, 2004. "Unionisation structures and innovation incentives," Economic Journal, Royal Economic Society, vol. 114(494), pages 149-165, March.
    2. repec:mhr:btrord:urn:isbn:9783161459610 is not listed on IDEAS
    3. Reinhard Selten, 1973. "A Simple Model of Imperfect Competition, where 4 are Few and 6 are Many," Center for Mathematical Economics Working Papers 008, Center for Mathematical Economics, Bielefeld University.
    4. 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 101-101, March.
    5. Siebert, Horst, 1997. "Labor market rigidities and unemployment in Europe," Kiel Working Papers 787, Kiel Institute for the World Economy (IfW).
    6. 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).
    7. 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.
    8. Phlips,Louis, 1995. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521498715, March.
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    Cited by:

    1. Thomas K. Bauer & Jochen Kluve & Sandra Schaffner & Christoph M. Schmidt, 2009. "Fiscal Effects of Minimum Wages: An Analysis for Germany," German Economic Review, Verein für Socialpolitik, vol. 10, pages 224-242, May.
    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. repec:zbw:rwirep:0079 is not listed on IDEAS
    4. repec:bla:manchs:v:85:y:2017:i:6:p:661-681 is not listed on IDEAS
    5. Arijit Mukherjee & Kullapat Suetrong, 2012. "Unionisation Structure and Outward Foreign Direct Investment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 266-279, June.
    6. Wei Ding, 2015. "Decentralized union-oligopoly bargaining when wages signal strength," Journal of Economics, Springer, vol. 114(3), pages 239-254, April.
    7. Göddeke, Anna & Haucap, Justus & Herr, Annika & Wey, Christian, 2011. "Stabilität und Wandel von Arbeitsmarktinstitutionen aus wettbewerbsökonomischer Sicht," DICE Ordnungspolitische Perspektiven 10, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    8. Baye, Irina & Pagel, Beatrice & Wey, Christian, 2016. "How to counter union power? Equilibrium mergers in international oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 16-29.
    9. Beatrice Pagel & Christian Wey, 2013. "Unionization Structures in International Oligopoly," LABOUR, CEIS, vol. 27(1), pages 1-17, March.
    10. 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.

    More about this item

    JEL classification:

    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies


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