Operationalisation Issues

Wie ist denn der Begriff des Spiels abgeschlossen? Was ist noch ein Spiel und was ist keines mehr? Kannst du die Grenzen angeben? Nein. Du kannst welche ziehen: denn es sind noch keine gezogen. (Aber das hat dich noch nie gest¨ort, wenn du das Wort “Spiel” angewendet hast.) Wittgenstein (1990),§ 68 Empirical tests of centralisation theories and estimation of centralisation ef-fects pose a considerable number of problems, mainly because it does not allow to abstract from particularities of the economic environment. Mixing all special case consideration and econometric problems with the theoreti-cal argumentation would overload the presentation. Therefore we decided to shift some empirical aspects of the debate to a separate section.

The considerations in the theoretical part above show that centralisation may influence the level as well as the structure (distribution) of wages.¹²⁴ The effects are transmitted through wages to employment (unemployment) and inflation. Most empirical studies estimate and test the indirect rela-tion between centralisarela-tion and unemployment for two reasons. Firstly, it is much easier to obtain internationally comparable data for unemployment than for wages¹²⁵. Secondly, wage levels and the distribution of wages de-pend on other economic conditions, as for example investment and technol-ogy (productivity growth). These other effects have to be eliminated in order to obtain pure (partial) effects of centralisation on wages. This is difficult especially if centralisation effects are computed by comparison of different countries. But cross-country comparisons are the main source of empirical evidence since centralisation levels are extremely sticky (i.e. change slowly over time – if they change at all).¹²⁶ These problems drop to a good deal if instead the relation between centralisation and employment/unemployment rates are analysed, since markets should clear (at least in the medium and long run) independently of technology and other factors.¹²⁷ Expressed in a

124The analysis of synchronisation in section 2.4.6 suggests also influences on the dynam-ics (speed of adjustment to shocks). We will streak this issue in some marginal notes.

125The main points are that wage data are available only for manufacturing in many countries and that international differences of labour income taxation my hamper compa-rability significantly.

126Rare exceptions, i.e studies exploiting time-variation of bargaining levels (Hibbs &

Locking, 2000 and Bell & Freeman, 1988 are reported in section 2.5.5.

more technical way, specification problems are sailed around by estimating reduced forms.

Nevertheless, heavy hurdles remain on the way to an identification of cen-tralisation effects, because it requires an operational definition and measure-ment of centralisation. As sketched already in section 2.2.2, centralisation is a multidimensional phenomenon. We will explain this in more detail in the following section.

2.5.2 Dimensions and Modes of Centralisation

In the simplest case centralisation can be measured as the level of bargaining.

Possible levels are occupation, plant, firm, region, branch, industry, sector, and the nation.¹²⁸ Of course, this scheme suffices only if all bargaining is conducted exclusively at one level and there are only one union and one em-ployer/employers’ association at this level. (Note that ‘centralisation’ is used both as generic term summarising all dimensions of centralisation, and in a special meaning denoting the bargaining level.) Otherwise, if bargaining is conducted at more levels simultaneously, a considerable number of combi-nations results. A typical combination in Germany is to partition collective wage agreements into umbrella agreements (Manteltarifvertr¨age) and special agreements. Umbrella agreements, usually negotiated at the industry level, settlegeneral issues of the labour relation as dismissal notice periods, work-ing time, length of payed leave etc., while special agreements fix wage rates at the regional or firm level. Besides that, bargaining levels may differ between industries.¹²⁹

In negotiations not taking place at the lowest level, workers and employers may be represented in principle by more than one union/employers’ associ-ation. In the United Kingdom firms bargain often with several occupational unions. Even in Germany some professions were represented by compet-ing unions, for example the Deutsche Angestellten-Gewerkschaft (DAG) and the Gewerkschaft ¨Offentliche Dienste, Transport und Verkehr ( ¨OTV).¹³⁰The number of unions/employers’ associations is captured by the term ‘concentra-tion’, ‘coordination’ captures the degree to wich competing unions coordinate

127The market clearing argument is challenged by some economist. We do not want to step into that discussion here.

128In some countries, e.g. Italy and France, unions are split furthermore at ideological or religious dimensions. To the best of our knowledge there exist no attempts to explain this in the economic literature.

129E.g. Sisson (1987) reports that national level bargaining was established in France in the 1950sonly in chemicals and clothing.

130The situation changed when both unions merged (together with other unions) to VER.DI.

their bargaining strategies. The measurement of coordination appears much more challenging than the measurement of centralisation and concentration.

This is so because coordination can be realised either by writing binding con-tracts, or tacitly, and tacit collusion detracts itself from observation. Even visible forms of coordination appear in manifold forms. Vertical (creation of umbrella organisations) as well as horizontal forms (associations) are pos-sible. Even similar forms do not necessarily imply a similar distribution of power. While umbrella organisations in the highly centralised countries pos-sess sweeping powers, i.e. are able to sign binding contracts on behalf of their member organisations and have control over strike funds, their func-tions in decentralised countries (e.g. the USA) are reduced to services for and exchange of information between the member organisations. The term

‘centralisation’ bears a third meaning special meaning. If it is related exclu-sively to unions or employers’ associations, it indicates the power of umbrella organisations .

Finally, the union and employer side show different degrees of concentra-tion. Unions membership is (in principle) atomistic. employers’ associations are dominated by large firms since financial contributions depend on the wage bill.¹³¹ A fact often neglected in empirical research is that unions and employ-ers’ associations may show different levels of centralisation or coordination.

for example, Calmfors & Driffill (1988) neglect coordination/centralisation at the employer side to a large extent in the definition of their centralisation index by arguing that high coordination/centralisation on the union side provokes matching degrees on the employer side. Soskice, 1993 and Layard et al. (1991) show that this logic does not apply for Japan and Switzerland.

In these countries (especially in Japan), loosely coordinated unions face a tightly coordinated cartel of employers.

Even this lengthy list does not exhaust all relevant aspects of centralisa-tion. Already at the beginning of the centralisation debate in the eighties especially contributions from political science (Schmitter, 1981; Lehmbruch, 1984; Crouch, 1993) pointed to the importance of social partnerships be-tween unions and employers’ associations. Also governments participate in various ways directly (e.g. by compulsory arbitration/settlement or indexa-tion) or indirectly (by providing a legal framework)¹³² in bargaining. Burda (1997) tries to formalise the point that inconspicuous details of the interac-tion between government and the bargaining parties may have considerable influence on the outcomes. He sketches a simple game where the strategies of

131This does not imply always that voting rights are weighted by contributions. Never-theless the exit threat of large firms is more powerful.

132The legal framework comprises (inter alia) legal regulations of work councils, peace clauses, and legalisation of lock-outs and political strikes.

unions and government are interrelated via unemployment benefits financed out wage taxes. More specifically, the union determines wages given unem-ployment replacement ratio and tax rates, and the government determines the replacement ratio and (implicitly) the tax rate. It is clear that the out-comes depend on the structure of interaction between the parties, i.e. on whether they play a Cournot game or a Stackelberg game or optimise their goals jointly. Burda concludes that the level of bargaining alone delivers no sufficient information. Newer contributions (Skott, 1997; Cukierman &

Lippi, 1999; Iversen, 1999) put also central banks into the set of relevant agents.

A further aspect, making the measurement of centralisation more diffi-cult, regards the relation between organisational structures and goals: They can be largely independent, i.e. centralised organisations may settle flexible wage agreements in highly centralised negotiations. A often cited example are the bargaining institutions in Austria which generate a significantly more dispersed wage structure than several countries with intermediate levels of bargaining. In the last decade also German wage setters reduced (in a co-ordinated manner!) the tightness/frequency of regulations in collective wage agreements. Bundesministerium (2001, 2001) and Freter (1998) report a sig-nificant increase of opening and hardship clauses as well as lowered wages for entrants (Einsteiger-Tarife) in German collective wage agreements. Oppolzer

& Zachert (2000) observe a more subtle form of passive but ‘intentional’ de-centralisation: Their poll under work councils members and managers reveals intentional undershooting of wage standards in firms which known to local union representatives, but not punished. This form of decentralisation is not captured by indicators of centralisation covering only the structure of bargaining and bargaining organisations.