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Wage Cyclicality Under Different Regimes of Industrial Relations


  • We thank three anonymous referees of this journal and Thomas Beißinger, Hans Ludsteck and participants of the 2010 Annual Congress of the Verein für Socialpolitik in Kiel as well as participants of workshops at the LMDG center of Aarhus University, at the University of Hohenheim and at the Kiel Institute for the World Economy for their helpful comments.


We analyze the effect of collective wage agreements and of works councils on the cyclicality of real wages. Using employer–employee data for western Germany (1995–2004), we find that wage adjustments to positive and negative shocks are generally not symmetric. Wage growth increases in all industrial relations regimes when unemployment is falling, but this inverse relationship is weaker when unemployment is rising. Moreover, in plants with individual-level bargaining, wages do not adjust at all to rising unemployment. Works councils increase wage growth only in firms covered by sectoral agreements, but they do not affect the cyclicality of wages.