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Wage Moderation and Rising Unemployment

Listed author(s):
  • Ulman, Lloyd
  • Gerlach, Knut
  • Giuliano, Paola

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.

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Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt6cf9726r.

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Date of creation: 25 Jan 2005
Handle: RePEc:cdl:indrel:qt6cf9726r
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  1. Jennifer Hunt, 1999. "Has Work-Sharing Worked in Germany?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 117-148.
  2. Franz Wolfgang & Pfeiffer Friedhelm, 2003. "Zur ökonomischen Rationalität von Lohnrigiditäten aus der Sicht von Unternehmen / The Rationale for Wage Rigidity: Employers' Viewpoint," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 223(1), pages 23-57, February.
  3. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
  4. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
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