Wage Moderation and Rising Unemployment

Why, at the onset of a downturn in economic activity and an upswing in unemployment (in the early 2000’s), did the leading trade unions in Germany decide to demand-and in some cases strike for- larger wage increases and denounce a government-led policy of wage moderation, rather than strengthen their adherence to such a policy? Two (related) explanations of this apparently nonrational behavior were offered by German unionists at an informal conference on union policy-making in Germany, Japan, and the U.S. In the first place, it was claimed that at the grass roots union members might be expected to accept wage restraint only if they are convinced that they would be punished for failure to do so (e.g. to accept subcontract wages in marginal enterprises) or if acceptance would be virtually certain to ensure reward in the form of increased job security and employment (e.g. by the adoption of more expansionist fiscal or monetary policies). And second, some of the union participants at the conference claimed that the failure of real wages to grow as rapidly as productivity tends to engender feelings of unfair on inequitable treatment among unionists, which, if allowed to persist, could override the requirements of rational self-interest in pursuing wage policies aimed solely at maximizing the net wealth of the membership.