The Effects of the Decentralization of Collective Bargaining on Wages and Worker’s Well-being

Summary This report analyses the effects of the decentralization of collective bargaining on the incidence of wage increases, wage dispersion and worker’s well-being in Finland. This project is funded by the Finnish Work Environment Fund. We use linked employer-employee panel data for the 2005–2013 period, matched with information on collective agreements, sickness absence and mental health disorders. Our regression results from models with high-dimensional individual and firm fixed effects show that decentralized bargaining leads to 1–2 percent higher wage increases. Decentralized bargaining decreases wage dispersion among blue-collar employees and slightly increases it among white-collar employees. We argue that these differences reflect the different preferences of the employee groups. We also show that decentralization is positively related to objectively measured indicators for worker’s well-being, such as decreased job quits and long-term sickness absence. However, there is some evidence to show that decentralized bargaining could lead to increased mental health problems among blue-collar workers. Whether the mechanism between bargaining systems and worker’s well-being is explained by actual or relative wages needs to be explored further.