IDEAS home Printed from
   My bibliography  Save this paper

The Incentives of Employers’ Associations to Raise Rivals’ Costs in the Presence of Collective Bargaining


  • Justus Haucap
  • Christian Wey
  • Uwe Pauly


This paper explores the role that employers’ associations may play in centralized wage bargaining processes. It thereby adds to the literature on labor markets, in which the relationship between union behavior and unemployment has been explored quite extensively, while employers’ associations have been almost escaped economic analysis so far. The paper shows that employers’ associations may possibly foster a wage increase due to their potential incentives to raise rivals’ costs. In a simple model, it is shown that employers’ associations can use standard wages as a barrier to entry to product markets if producers differ in labor productivity. We identify conditions, under which unions will prefer entry deterring standard wages compared to a system of competitive wage determination, and the paper shows that there may be cases in which a centralized union acting in a wage revenue maximizing manner may actually prevent minimum wages from raising above certain levels. Depending on the exact parameter values unions may then offset the adverse effects employers’ federations can have on the industry’s employment rate. Starting from our formal model we argue that minimum wage legislation might actually be favored by employers’ federations. Furthermore, we show that the German labor law provides for a mechanism to set minimum wages by the industry itself: Wage agreements between unions and employers’ associations can be made legally binding for the entire industry through a so-called Allgemeinverbindlicherklärung. As a final example we analyze the incentives the West German employers’ association had to implement high wages in Eastern Germany in order to avoid competition from labor-inefficient, but low-wage East German firms. ZUSAMMENFASSUNG - (Die Anreize von Arbeitgeberverbänden zur strategischen Kostenerhöhung bei kollektiven Lohnverhandlungen) Diese Arbeit untersucht die Rolle von Arbeitgeberverbänden in zentralisierten Lohnverhandlungen. Der Beitrag ergänzt die existierende Literatur über Arbeitsmärkte, in der zwar die Beziehungen zwischen Gewerkschaftsverhalten und Arbeitslosigkeit ausgiebig analysiert werden, die Rolle der Arbeitgeberverbände jedoch fast durchweg im verborgenen bleibt. Die Arbeit zeigt, daß Arbeitgeberverbände unter Umständen bestrebt sind, Lohnerhöhungen durchzusetzen, um die Lohnkosten von nicht-organisierten Konkurrenzunternehmen überproportional zu erhöhen. In einem einfachen Modell wird bewiesen, daß ein Arbeitgeberverband Anreize hat, allgemein verbindliche Löhne als ein Instrument zur Errichtung von Markteintrittsbarrieren zu benutzen, wenn die nichtorganisierten Unternehmen eine niedrigere Arbeitsproduktivität aufweisen. Des weiteren wird die Rolle einer Gewerkschaft untersucht, die die Lohnsumme ihrer Mitglieder maximiert. Es werden die Parameterkonstellationen spezifiziert, so daß die Gewerkschaft einen Lohn präferiert, der unter dem marktzutrittsverhindernden Lohn liegt, den der Arbeitgeberverband durchsetzen möchte. Auf der Grundlage des Modells argumentieren wir, daß Arbeitgeberorganisationen unter Umständen für die Implementierung von Minimallöhnen eintreten. Als weitere Anwendungen des Modells diskutieren wir die Allgemeinverbindlicherklärung (AVE) von Tarifvereinbarungen in Deutschland und die Bereitschaft der westdeutschen Arbeitgeberverbände nach der Wiedervereinigung Deutschlands, die rasche Angleichung des ostdeutschen Lohnniveaus an das Westdeutschlands zu befürworten.

Suggested Citation

  • 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).
  • Handle: RePEc:wzb:wzebiv:fsiv99-06

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Justus Haucap & Uwe Pauly & Christian Wey, 2007. "A Cartel Analysis of the German Labor Institutions and Its Implications for Labor Market Reforms," Ruhr Economic Papers 0009, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. A. Mukherjee & U. Broll & S. Mukherjee, 2008. "Unionized labor market and licensing by a monopolist," Journal of Economics, Springer, vol. 93(1), pages 59-79, February.
    3. Mukherjee, Soma & Broll, Udo & Mukherjee, Arijit, 2007. "Licensing by a monopolist and unionized labor market," Dresden Discussion Paper Series in Economics 09/07, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    4. 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.
    5. Mukherjee, Arijit & Wang, Leonard F.S., 2013. "Labour union, entry and consumer welfare," Economics Letters, Elsevier, vol. 120(3), pages 603-605.
    6. Arijit Mukherjee, 2007. "Note on a generalized wage rigidity result," Economics Bulletin, AccessEcon, vol. 10(12), pages 1-9.
    7. Arijit Mukherjee & Kullapat Suetrong, "undated". "Unionisation structure and strategic foreign direct investment," Discussion Papers 07/22, University of Nottingham, GEP.
    8. repec:ebl:ecbull:v:10:y:2007:i:17:p:1-8 is not listed on IDEAS
    9. repec:zbw:rwirep:0009 is not listed on IDEAS
    10. Kraft, Kornelius & Rammer,Christian & Gottschalk, Sandra, 2012. "Minimum wages and competition: The case of the German roofing sector," ZEW Discussion Papers 12-083, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    11. Arijit Mukherjee, 2007. "Irrelevance of productivity difference: A case with labor union," Economics Bulletin, AccessEcon, vol. 10(17), pages 1-8.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wzb:wzebiv:fsiv99-06. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jennifer Rontganger). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.