Beyond collective agreements: The rise of the wage cushion in Germany

André Rieder and Claus Schnabel

No 133, Discussion Papers from Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics

Abstract: Representative establishment data reveal that over 60% of German plants covered by collective agreements pay wages above the level stipulated in the agree- ments, creating a wage cushion between actual and contractual wages. While collective bargaining coverage has fallen over time, the prevalence of wage cushions has increased, particularly in eastern Germany. Cross-sectional and fixed-effects analyses for 2008-2023 indicate that in western Germany the presence of a wage cushion is mainly related to plant profitability, unemployment, vacancies, and the business cycle. Plants which apply collective agreements at the firm rather than the sectoral level are less likely to have wage cushions since firm-level agreements make it easier to explicitly take firm-specific conditions into account. In eastern Germany, however, the explanatory power of these variables is much lower. Against the backdrop of falling bargaining coverage, the increasing prevalence of wage cushions suggests that the traditionally rigid German system of wage determination has become more flexible and differentiated.

Keywords: wage determination; collective bargaining; wage cushion; Germany (search for similar items in EconPapers)
JEL-codes: J30 J31 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-bec, nep-eur, nep-lma and nep-tra
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Working Paper: Beyond Collective Agreements: The Rise of the Wage Cushion in Germany (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:faulre:330331

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