2.2.1 Centralisation
In general, centralisation means that workers or employers unite/merge in order to bargain collectively or to accomplish their goals on the labour market.
Aggregation of individuals to groups or of groups to lager ones can occur along several dimensions and in several ways. We start by a short character-isation of the dimensions and modes of aggregation and then proceed with a characterisation of the directly (and indirectly) involved groups.
3His conclusions are accordingly much more pessimistic than the conclusions of his colleagues. His article ends with an extremely pessimistic judgement of the possibilities to measure centralisation of wage bargaining. On page 1172 he writes “Many indicators of institutional structure used in empirical research do not measure the concepts stressed by theory. Union density captures neither the scope nor the intensity of union influence and union coverage does not capture bargaining power. Indexes of corporatism obscure more than they reveal, and should be supplanted by explicit modelling of and tests for institutional interactions.
2.2.2 Dimensions and Modes of Centralisation
A closer look at the issue reveals that centralisation is a multidimensional phenomenon. Bargaining can take place at several levels. The most im-portant ones are profession, firm, industry, sector, region and nation. The economic analysis of centralisation effects is complicated by the fact that these effects may depend heavily on the considered dimension (e.g. central-isation with respect to occupation may have other effects as centralcentral-isation along industry borders.) We will give examples for such differences int the sections below. In some countries (e.g. France and Italy), unions are sep-arated along religious or ideological lines, implying that we could consider ideology and even religion as possible dimensions of centralisation.4 It should be clear that the latter dimensions of centralisation do not lend themselves to simple economic explanations.
Especially empirical work on centralisation effects is complicated im-mensely by the fact that centralisation can be realised in many ways and that the dominant level of wage setting is not always reflected in a correspond-ing organisational structure of the bargaincorrespond-ing parties. Merger of bargaincorrespond-ing units (unions, employer organisations) is a self-suggesting way to centralise bargaining, but it may be supplanted by informal coordination. While wage setting takes place formally at the regional level in Germany, wages are set effectively at the industry level, since some agreements are often adopted by most other regional units.
The variety of forms and faces of centralisation is increased by the fact that the resulting or intended wage structure is not necessarily correlated with the level of bargaining. For example, the highly centralised bargaining system in Austria generates higher wage dispersion than more decentralised bargaining institutions in France and Italy. We will give a more detailed discussion of these issues in section 2.5.1.
2.2.3 The Relevant Groups
Unions and Employers
The relevance of unions and employer organisations in wage setting is self-evident. Almost all economic thinking concentrates, however, on the role of unions.5 This bias translates directly to empirical research, i.e. only union
4Denominational unions [‘Richtungsgewerkschaften’], e.g. the ‘Katholischer Arbeit-nehmer Bund (KAB)’, exist in Germany too, but they have almost no impact on wage setting.
5Rare exceptions are Soskice (1990), Swensson & Pontusson (2000), Katz (1993), The-len (2000), and Artus (2001). TheThe-len & Artus aren’t economists, however!
concentration and density is considered in most studies.6 The argument, that only unions determine the bargaining level and employers react passively by matching union organisation structures, is not valid empirically since, for example central wage bargaining was initiated and propagated by employers’
associations in Sweden, and the exit of members from employers’ associations seems to be the driving force for decentralisation in Germany.
We cannot go into the details further, since considerable investigations we could refer to, simply don’t exist.7
2.2.4 ‘Third’ Parties
Nonmembers Besides unions and employers’ associations, other parties may influence bargaining outcomes (and the viability of centralised wage set-ting) though they don’t participate actively in the negotiations. The most important of these groups seem to benonmemebers of unions and employers’
associations. The role of non-unionised workers is considered extensively in many theoretical models, e.g. Shister (1943), Farber (1983), Blair & Craw-ford (1984), Burda (1990) and empirical investigations8. We will consider such models in more detail in section 6.
As already noted above, employers abstaining from collective bargaining, are ignored largely (or only mentioned in marginal notes) in the theoretical literature. This is hard to comprehend, since the strategic situation on the employer side is different in many respects from its counterpart on the union side.
The Government Besides unions and employers, also the government and the public may have specific interests in collective bargaining outcomes and try to influence them. Governments influence wage bargaining indirectly (e.g. by setting legal restrictions through regulations of negotiation proce-dures and peace clauses or by providing a legal frame for the enforcement agreements) or participate directly in bargaining.9 Several empirical studies (Farber & Western, 2002; Card, 1998; Freeman & Pelletier, 1990; Machin,
6An obvious reason for this ignorance is that employers’ associations are much more silent about membership than unions.
7Economists cannot, however, claim to stand in the tradition of their often cited pre-cursor and founder Adam Smith who showed an extreme attitude in this respect. In Smith (1776) he writes on page 70: “We rarely hear, it has been said, of the combination of mas-ters; though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the object. Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate.”
8See Farber (1986) for a survey.
1997) account for this explicitly. For example, Farber & Western (2002) and Machin (1997) find significant influence of Ronald Reagan’s and Margaret Thatcher’s anti-union campaigns. On the other hand, the commonplace that the ideological orientation (left/right) of the government affects bargaining outcomes directly, cannot be confirmed in the majority of empirical studies.
The Public Though the public is neglected widely in the literature, it may be relevant in practice, and – more importantly here – its impact on wage setting may depend on the degree of centralisation. The relevance of the public (opinion) can be derived from the observation that wage negotiations are reported and commented extensively in the mass media. – Or that a considerable number of economists ‘participate’ in bargaining by appealing (in a normative way) to the parties in public.10
If unions care about the public opinion, centralisation effects may ex-ist. In decentralised wage setting, especially if contracting is staggered, local strikes neither affect local public live and consumption, nor have a noteworthy impact on aggregate variables. Then the public opinion should be a minor concern, since individual local negotiations will not cross the stimulus thresh-old of the mass media. A transition from centralised to more decentralised wage setting consequently would remove pressure from the bargaining parties (and economists would loose targets of their consultation activities).