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Unemployment, Wages and Collective Bargaining in the European Union


  • Hein, Eckhard
  • Schulten, Thorsten


The paper questions the predominant view on unemployment and wages in the European Union according to which high unemployment is primarily caused by labour market rigidities, i.e. social institutions and regulations which prevent ?market-clearing? real wage levels and structures. It is shown that the foundations of that view coming either from neo-classical or new-Keynesian theory are not convincing, neither theoretically nor empirically. Analysing the developments in the EU during the last four decades, no strictly inverse relationship between real wage growth and unemployment can be found. On the contrary, persistently high unemployment has had strong adverse effects on nominal wage growth and on the labour income share. Weakened labour union bargaining power and changing collective bargaining strategies have contributed to this result. It is therefore concluded that the current EU economic and employment policies aiming at further wage restraint, wage differentiation and decentralisation of collective bargaining are deeply misguided and have to be replaced by an alternative wage policy in Europe as part of a growth and employment oriented coordination of macroeconomic policies.

Suggested Citation

  • Hein, Eckhard & Schulten, Thorsten, 2004. "Unemployment, Wages and Collective Bargaining in the European Union," WSI Working Papers 128, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
  • Handle: RePEc:zbw:wsidps:128

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    References listed on IDEAS

    1. Eckhard Hein & Achim Truger, 2004. "Macroeconomic co-ordination as an economic policy concept - opportunities and obstacles in the EMU," Macroeconomics 0408011, EconWPA.
    2. Hein, Eckhard & Truger, Achim, 2004. "What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or macroeconomic mismanagement?," Darmstadt Discussion Papers in Economics 134, Darmstadt University of Technology, Department of Law and Economics.
    3. Eckhard Hein & Achim Truger, 2005. "What ever happened to Germany? Is the decline of the former european key currency country caused by structural sclerosis or by macroeconomic mismanagement?," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(1), pages 3-28.
    4. Hein, Eckhard, 2002. "Monetary policy and wage bargaining in the EMU: Restrictive ECB policies, high unemployment, nominal wage restraint and rising inflation," WSI Working Papers 103, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
    5. David Soskice & Torben Iversen, 2001. "Multiple Wage Bargaining Systems in the Single European Currency Area," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(4), pages 435-456, December.
    6. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    7. Eckhard Hein & Thorsten Schulten & Achim Truger, 2004. "Wage trends and deflation risks in Germany and Europe," Macroeconomics 0412008, EconWPA.
    8. Hein, Eckhard & Truger, Achim, 2005. "European Monetary Union: nominal convergence, real divergence and slow growth?," Structural Change and Economic Dynamics, Elsevier, vol. 16(1), pages 7-33, March.
    9. Hein, Eckhard, 2003. "Die NAIRU: Eine post-keynesianische Interpretation," WSI Working Papers 113, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
    10. Schulten, Thorsten, 2004. "Foundations and Perspectives of Trade Union Wage Policy in Europe," WSI Working Papers 129, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
    11. Dean Baker & Andrew Glyn & David Howell & John Schmitt, 2002. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2002-17, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    12. Christopher Allsopp, 2002. "The Future of Macroeconomic Policy in the European Union," Discussion Papers 07, Monetary Policy Committee Unit, Bank of England.
    13. Boeri, Tito & Brugiavini, Agar & Calmfors, Lars (ed.), 2001. "The Role of Unions in the Twenty-first Century: A Report for the Fondazione Rodolfo Debenedetti," OUP Catalogue, Oxford University Press, number 9780199246588, June.
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    Cited by:

    1. Seifert, Hartmut & Tangian, Andranik, 2007. "Flexicurity: Reconciling Social Security with Flexibility - Empirical Findings for Europe," WSI Working Papers 154, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
    2. Tangian, Andranik, 2012. "Statistical test for the mathematical theory of democracy," WSI Working Papers 179, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
    3. Tangian, Andranik & Seifert, Hartmut, 2006. "Globalization and deregulation : Does flexicurity protect atypically employed?," WSI Working Papers 143, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
    4. Tangian, Andranik, 2007. "Flexibility-Flexicurity-Flexinsurance: Response to the European Commission's Green Paper "Modernising Labour Law to Meet the Challenges of the 21st Century"," WSI Working Papers 149, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.
    5. Tangian, Andranik, 2008. "On the European readiness for flexicurity: Empirical evidence with OECD/HBS methodologies and reform proposals," WSI Working Papers 160, The Institute of Economic and Social Research (WSI), Hans-Böckler-Foundation.

    More about this item


    European employment policy; wage theory; wage trends; collective bargaining;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General


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