HAVE EMPLOYEES IN GERMANY RECEIVED FULL WAGE COMPENSATION AFTER A CUT IN STANDARD HOURS?*

Thorsten Schank

Manchester School, 2006, vol. 74, issue 3, 273-293

Abstract: The effect of standard hours on the hourly wage rate is important in assessing whether work‐sharing is likely to be a successful policy. Furthermore, it determines whether unions have achieved their goal of keeping the monthly income of employees constant after a cut in standard hours (income compensation) or whether employees experience reductions in monthly income (income sharing). However, the standard hours elasticity of the hourly wage rate has rarely been estimated. This study reports evidence for Germany, 1995–99, using the IAB Establishment Panel. The results imply income compensation for plants with a bargaining agreement, but income sharing for plants without a bargaining agreement. No evidence is found for the Calmfors and Driffill hypothesis that postulates that wage demands are more moderate if unions operate at the firm level than if bargaining takes place at the industry level.

Date: 2006
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