Flexible wage deals can boost competitiveness, protect jobs, study says
SPY•A study says flexibility in collective wage agreements can strengthen competitiveness and protect jobs if workers retain effective safeguards. In Germany, manufacturing agreements with flexibility clauses rose from less than 5% in 1995 to around 60% by 2004.
1. Germany’s flexibility clauses
Germany expanded clauses allowing firms, with employee representatives’ consent, to depart from sector-wide agreements on pay, hours and other terms from the mid-1990s. The share of manufacturing agreements containing such provisions rose from less than 5% in 1995 to around 60% by 2004. Co-author Christian Dustmann said wage restraint from increased flexibility had contributed to Germany’s improved competitiveness after 1995.
2. Italy’s employment effects
In Italy, a more rigid bargaining system encouraged some companies to leave employer associations or sign agreements with smaller unions. This reduced wages by 2% to 3% and increased the likelihood of workers staying employed by 3 to 4 percentage points. In the more productive north, lower wages coincided with greater employment stability; in the south, where employers have greater market power, wage losses were greater without a gain in job security.
3. Safeguards for workers
Dustmann said the challenge was to combine more flexible wage-setting with effective wage protection for workers.
