Centralized vs. Decentralized Wage Formation: The Role of Firms' Production Technology

Boris Hirsch (), Christian Merkl, Steffen Müller () and Claus Schnabel
Additional contact information
Boris Hirsch: Leuphana University Lüneburg
Steffen Müller: IWH Halle
Authors registered in the RePEc Author Service: Steffen Mueller

No 8242, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper is the first to show theoretically and empirically how firms' production technology affects the choice of their preferred wage formation regime. Our theoretical framework predicts, first, that the larger the total factor productivity of a firm, the more likely it is to opt for centralized wage formation where it can hide behind less productive firms. Second, the larger a firm's scale elasticity, the higher its incentive to choose centralized rather than decentralized wage setting due to labor cost and straitjacket effects. As firms in Germany are allowed to choose their wage formation regime, we test these two hypotheses with representative establishment data for West Germany. We find that establishments with centralized bargaining agreements indeed have economically and statistically significantly larger total factor productivities and scale elasticities than comparable establishments outside the centralized bargaining regime.

Keywords: collective bargaining; bargaining coverage; Germany (search for similar items in EconPapers)
JEL-codes: J50 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-06
New Economics Papers: this item is included in nep-cdm, nep-cse and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://docs.iza.org/dp8242.pdf (application/pdf)

Related works:
Working Paper: Centralized vs. decentralized wage formation: The role of firms' production technology (2014)
Working Paper: Centralized vs. decentralized wage formation: The role of firms' production technology (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp8242

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().