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What can we Learn from Bargaining Models about Union Power? The Decline in Union Power in Germany, 1992–2009

Authors

  • Boris Hirsch,

    1. University of Erlangen–Nürnberg
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  • Claus Schnabel

    1. University of Erlangen–Nürnberg and IZA
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    • We would like to thank John T. Addison, Laszlo Goerke, and Christian Merkl as well as three anonymous referees and the editor of this journal for many helpful comments and suggestions. The same applies to Michael Oberfichtner who also provided excellent research assistance. We are indebted to Frank Hechtner for providing data on the progressivity of the German income tax system. We further appreciate the comments received at the research seminar at the University of Erlangen–Nürnberg and the research workshop of the Bavarian Graduate Program in Economics in Augsburg.

Abstract

Building on the right-to-manage model of collective bargaining, this paper tries to infer union power from the observed results in wage setting. It derives a time-varying indicator of union strength taking account of taxation, unemployment benefits, and the labour market situation and confronts this indicator with annual data for Germany. The results show that union power did not change much from 1992 to 2002 but fell markedly (by about one-third) from 2002 to 2007 in the aftermath of substantial labour market reforms.

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