TRENDS IN COLLECTIVE BARGAINING AND ECONOMIC PERFORMANCE IN THE OECD COUNTRIES

Franz Traxler, Department of Sociology, University of Vienna

Introduction

This overview of bargaining trends and the performance of bargaining systems is based on data on 20 OECD countries, covering the time period from 1970 to the late 1990s and strongly draws from related findings documented in Traxler et al. (2001). As far as the trends in collective bargaining are concerned, the focus is on two dimensions of the bargaining system: the degree of centralization of bargaining, and attempts at macro-coordination of bargaining. The definition of these two concepts may be summarized as follows:

Centralization of collective bargaining: bargaining level at which collective agreements are formally concluded

Macro-coordination of collective bargaining: synchronization of the distinct bargaining units across the economy for the sake of macro-economic/macro-social goals

Trends in Collective Bargaining

Bargaining centralization is a popular concept, although its operationalization is more difficult than conventional wisdom suggests. These difficulties come from the fact that a multi-level bargaining system exists in most countries, such that the degree of and change in centralization cannot easily be measured on a one-dimensional scale. For reasons of cross-national comparability, this analysis concentrates on the trends in the most important bargaining level. According to our operationalization, the most important bargaining level covers the largest number of employees and formally binds lower bargaining levels.

As table 1 shows, the majority of countries has not seen any change in the most important bargaining level. In a smaller group of countries, there have been short-term fluctuations in this level. In all these cases, this involved the predominance of the central level which was repeatedly supplanted by a lower level, namely the industrial level. Finally, there is a group of countries which witnessed a lasting, unidirectional change in the prevalent bargaining level.

With the exception of Ireland, this meant a decentralization in all other countries. There are two variants of decentralization: the shift from the central level to the industry level, and the move from the industry level to the company level. The former has been more frequent than the latter. It is only the UK and New Zealand which underwent a decentralization of bargaining to the company level.

Hence, there is no clear-cut, general trend in bargaining centralization. Stability on the one hand and a rather moderate decentralization from the central to the industry level are the prevailing tendencies. Most essentially, multi-employer bargaining in the form of either central bargaining or industry-level bargaining has maintained its predominant status in all countries but the UK and New Zealand, aside from the countries where single-employer bargaining has prevailed all the time since the end of World War II (i.e. Japan, Canada, the USA).

This observation seems to contradict conventional wisdom which suggests more thoroughgoing decentralization processes over the last decades. This contradiction is a matter of conceptualization rather than reality. So far, we have limited our considerations to the most important bargaining level, thus leaving aside what has happened with regard to the other, supplementary levels. In principle, one certain bargaining level may preserve its predominance, while the other bargaining levels undergo alterations. This has indeed happened in almost all countries where the central or industry level has remained prevalent. Put more precisely, these changes below the most important bargaining level have assumed the form of what is often called organized decentralization (Traxler 1995). This means that the focal collective agreement concluded at the predominant level delegates certain bargaining issues to regulation at lower level within a binding framework, set by the focal collective agreement. In the context of organized decentralization, agenda setting and control over the lower level thus remain with the focal collective agreement. As regards comparative classification, this implies that organized decentralization does not cause a change in the most important bargaining level.

Organized decentralization has become wide-spread, mainly in the form of a delegation of issues from the industry level to the company. This happened in two waves. From the mid-1980s onwards, working time has become the subject of organized decentralization, while wages have become so since the early 1990s.

The second dimension of this analysis, macro-coordination of bargaining, is aimed at synchronizing the distinct bargaining units across the economy. One has carefully to distinguish between centralization and coordination of bargaining. This is because decentralized forms of coordination are established in many countries in that bargaining is coordinated across the economy, without collective agreements being concluded at the central level (Soskice 1990). We will come back to this issue when looking at the forms of bargaining coordination in greater detail below.

As regards the development of coordination activities, one can identify three main patterns (table 2). The vast majority of countries is characterized by persistent attempts at macro-coordination. It is, however, important to note that the form of coordination has varied across countries as well as over time (Traxler et al. 2001). In this respect, the main divide is between voluntary and state-imposed forms of coordination. State-imposed coordination was wide-spread in the late 1970s and early 1980s, when corporatist incomes policies in combination with Keynesian demand management encountered growing difficulties. Since the mid-1980s voluntary coordination has seen a renaissance, mainly in the form of tripartite national pacts (Fajertag and Pochet 1997; 2000). Finland and Sweden constitute a second group, since these two countries record a long but discontinuous tradition of coordination, since coordinated bargaining broke down for certain time periods. Finally, all Anglo-Saxon countries but Australia and Ireland moved from coordinated to uncoordinated bargaining.

If we consider the trends in centralization and coordination of bargaining altogether, then we observe a tendency towards polarization. On the one hand, there is a group of countries which moved to uncoordinated bargaining on the basis of fully decentralized, single-employer settlements. On the other hand, there is a second group of countries which has sustained multi-employer bargaining at either central or industry level and which at the same time has embarked on organized decentralization.

The main reason for this polarization is that the economic developments, namely competition in markets, have imposed ambivalent requirements on the industrial relations actors. On the one hand, intensified market competition has magnified the need for flexibility in the companies. This fosters the decentralization of bargaining to the company level. On the other hand, intensified market competition has also caused growing mutual externalities and growing interdependencies among all actors. This stimulates attempts at bargaining coordination. Organized decentralization can be seen as an effort to reconcile the conflicting requirements for decentralization and coordination of bargaining.

This raises the question of why certain countries have adopted organized decentralization, whereas certain others have taken the road to fully decentralized, uncoordinated bargaining. The answer to this question points to the divide between single- and multi-employer bargaining which parallels the observed polarized development. From a cross-nationally comparative perspective, the predominance of multi-employer bargaining in the national bargaining system significantly correlates with attempts at macro-coordination (Traxler 2000).[1] This is because multi-employer settlements give the bargaining outcomes macro-economic relevance in terms of their impact on employment and inflation. This sets a very strong incentive for all industrial relations actors to seek cooperation with one another. This contrasts with the situation in countries where single-employer bargaining prevails. In this situation, none of the numerous single-employer settlements can have a notable impact on the economy, such that coordination efforts will not pay.

The Economic Performance of the Bargaining System

This brings us to the impact of collective bargaining on economic performance. The economic performance of collective bargaining refers to the structural capacity of the bargaining system for internalizing such negative wage externalities as inflation and unemployment. The key argument is that institutional differences in the bargaining systems constitute differences in the structural capacity for internalizing wage externalities which are manifested in long-term differentials in labour cost growth, inflation and unemployment. This line of reasoning raises the question of what institutional properties of the bargaining system matter in terms of performance. In principle, any of our two dimensions of analysis (p. 4) may matter: that is, centralization and coordination of bargaining. Mainstream reasoning on the performance of collective bargaining has concentrated on bargaining centralization. The most influential version of this kind of reasoning has been the so-called hump-shape hypothesis by Calmfors and Driffill (1988) who claim that extreme degrees of centralization and decentralization perform best. However, the explanatory power of all accounts concentrating on centralization is strongly questioned by more recent empirical studies, including those published by the OECD which all could not detect any kind of a robust association between bargaining centralization and performance (e.g. OECD 1994; 1997, Golden 1993, Traxler and Kittel 2000, Traxler et al. 2001).

This lack of compelling empirical evidence can be traced to several conceptual weaknesses of all concepts centring on centralization (Soskice 1990, Traxler 2002, Traxler et al. 2001). The most important weaknesses are as follows.

First, the debate does not systematically differentiate between centralization and coordination and thus tends to ignore decentralized forms of coordination. This is an essential shortcoming, since – from a theoretical point of view – it is coordination that constitutes the capacity for internalizing wage externalities, while centralization is just a special form of coordination.

Second, debates on centralization do not fully capture the scale of cooperation problems arising from macro-coordination. Related debates concentrate on what may be called the horizontal coordination problem, while ignoring the vertical problem of coordination. Horizontal coordination is devised to synchronize the distinct bargaining units that are differentiated by distinct types of jobs and sectoral affiliations. The problem of horizontal coordination arises from uncertainty of each bargaining unit about whether the others will either join the coordination efforts or defect, by taking a free ride. The vertical problem of coordination results from the fact that the rank-and-file does not directly participate in collective bargaining but is present in this process only indirectly via certain representatives. Generally speaking, this creates a compliance problem. In the worst case, this results in a lack of compliance of the local level with higher-level coordination activities. It is important to note that the horizontal and the vertical problem of coordination impose conflicting requirements on the bargaining units. This is because attempts at horizontal coordination increase the problems of vertical coordination, since many special interests of the rank-and-file must be filtered out in the course of macro-coordination.

Finally, there is a third important weakness of concepts focusing on bargaining centralization, since they tend to ignore the role of the state in industrial relations. The role of the state is of utmost importance, when it comes to resolving the vertical problem of coordination. The reason for this is that collective bargaining and the bargaining parties are voluntary institutions which can hardly bind their rank-and-file by fiat. Hence, they need support from the state as a third party.

When taking account of all the weaknesses outlined so far, one arrives at a typology of coordination which differentiates between three main types of horizontal coordination and two types of vertical coordination (table 3).

A wide-spread type of horizontal coordination is voluntary peak-level coordination, in the course of which the peak associations of business and labour have the leading role in the coordination process. There are variants of this type which differ in whether horizontal coordination takes place on a bipartite, tripartite or unilateral basis. Second, horizontal coordination by pattern bargaining rests on the leading role of a certain bargaining unit or a cartel of contiguous bargaining units below peak level. The third type of horizontal coordination is authoritatively imposed by the state.

As regards vertical coordination, we distinguish between high and low governability depending on whether labour law either provides for the legal enforceability of collective agreements and the peace obligation or does not.[2]

Figure 1 shows how these types of coordination differ in economic performance. The best performing systems are pattern bargaining and peak-level coordination, provided that peak-level coordination is based on high governability. However, peak-level coordination performs worst, if bargaining governability is low. In comparison to pattern bargaining and peak-level coordination, state-imposed coordination and uncoordinated bargaining record an average performance. The most notable finding of this analysis is that the performance of peak-level coordination really contrasts, depending on whether bargaining governability is high or low. This underscores that making the rank-and-file and local bargaining comply with macro-coordination is most difficult, when the coordination activities are performed at peak level. Hence, state support is most strongly needed in this case.

Performance

Degree of bargaining centralization

* inter-associational coordination, intra-associational coordination, state-sponsored coordination

Monetary policy may act as an intervening variable with regard to the performance effects of coordination. In principle, monetary policy may either accommodate to inflationary wage policies or may be non-accommodating. The latter means that the monetary authorities (i.e. normally the central bank), when regarding bargaining as inflationary, threaten to tighten monetary policy or actually do so when the bargainers do not moderate wage increases in response to their threat. The tightening of monetary policy aims to contain inflation and may also dampen economic growth and employment, something which in turn tends to discipline the bargainers. Since a non-accommodating monetary policy may thus cause real economic costs (in terms of a decline in growth and employment) as a side effect, an important question is whether the distinct types of coordination differ in their ability to respond to the signals of the monetary authorities.

Table 4 summarizes the main findings on this question. Most importantly, uncoordinated bargaining is the only bargaining mode which is not responsive to monetary policy[3]. In contrast to uncoordinated bargaining, a shift from an accommodating to a non-accommodating monetary policy significantly dampens labour cost increases and inflation in all cases of coordinated bargaining. This shift causes a significant increase in unemployment only in the case of uncoordinated bargaining as a consequence of its lack of responsiveness.

Hence, the main divide in terms of responsiveness to monetary policy is between coordinated and uncoordinated bargaining. Again, this follows from the differences of bargaining in macro-economic importance. Coordinated bargaining matters in macro-economic terms, such that there is an incentive for the bargaining parties to anticipate the effects of their bargaining policy. Conversely, the monetary authorities can deliberately target coordinated bargaining systems. All this does not apply to a situation of uncoordinated bargaining. An intentional interaction between monetary policy and collective bargaining for the sake of performance is possible only in the case of coordinated bargaining.

* p ≤ 0.05, ** p ≤ 0.01, *** p ≤ 0.001

There are three main conclusions which can be derived from the above findings on performance.

First, the vertical problem of coordination is especially severe in the case of all forms of peak-level coordination and can be overcome only by state support.

Second, the lack of capacity for vertical coordination may be compensated by a non-accommodating monetary policy, insofar as this policy enables peak-level coordination to embark on effective wage moderation even when bargaining governability is absent.

Third and finally, coordination is superior to non-coordination of bargaining, in particular when a non-accommodating monetary policy is pursued. Coordinated bargaining in turn can be implemented only when multi-employer bargaining at either central or industry level prevails in the national bargaining system.

References

Calmfors, L. and J. Driffill (1988): “Bargaining Structure, Corporatism and Macro-economic Performance”, Economic Policy, 6:13-61.

Fajertag, G. and P. Pochet (eds.) (1997): Social Pacts in Europe. Brussels: ETUI and OSE.

Fajertag, G and P. Pochet (eds.) (2000): Social Pacts in Europe – New Dynamics. Brussels: ETUI.

Golden, M. (1993): “The Dynamics of Trade Unionism and National Economic Performance”, American Political Science Review, 87:439-454.

OECD (1994): The OECD Jobs Study, Part II. Paris: OECD.

OECD (1997): “Economic Performance and the Structure of Collective Bargaining”, in OECD, Employment Outlook. Paris: OECD.

Soskice, D. (1990): “Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries”, Oxford Review of Economic Policy, 6:36-61.

The Japan Institute of Labour (1996): Shunto Wage Offensive. Tokyo: The Japan Institute of Labour.

Traxler, F. (1995): “Two Logics of Collective Action in Industrial Relations?”, in C. Crouch and F. Traxler (eds.): Organized Industrial Relations in Europe: What Future? Aldershot: Avebury.

Traxler, F. (2000): “The Metamorphoses of Corporatism: From Classical to Lean Patterns”, Paper presented at the 12^th Annual Meeting on Socio-Economics, London School of Economics, July 7-10, 2000.

Traxler, F. (2002): “Bargaining (De)Centralization, Macro-economic Performance and Control over the Employment Relationship”, forthcoming in British Journal of Industrial Relations.

Traxler, F. and B. Kittel (2000): “The Bargaining System and Performance: A Comparison of 18 OECD Countries”, Comparative Political Studies, 33:1154-1190.

Traxler, F., S. Blaschke and B. Kittel (2001): National Labour Relations in Internationalized Markets. A Comparative Study of Institutions, Change and

[1] There is one exception to this rule: Japan, where predominant single-employer bargaining combines with macro-coordination. This is possible as a result of the unique institutional context that fosters coordination, namely elaborate inter-firm networks and concentrated bargaining dates (i.e. the Shunto offensive) (The Japan Institute of Labour 1996). The network-style interdependencies among the bargaining units within and across sectors as well as the concentration of all bargaining on a short time period in spring equip the overall process with macro-economic weight.[]

2 This does not rule out the possibility of other state-based provisions for ensuring compliance of the rank-and-file (e.g. compulsory arbitration). However, they strongly differ in nature across countries, such that a common denominator cannot easily be found for the purpose of a comparative analysis. At any rate, the legal enforceability and the peace obligation of collective agreements on which the operationalization of bargaining governability rests have proved very powerful predictors for cross-national differences in economic performance (Traxler and Kittel 2000, Traxler et al. 2001).[]

3 For this analysis, monetary policy was operationalized as money supply of M1 (Traxler et al. 2001).