Bargaining Structure, Corporatism and Macroeconomic Performance

Centralization of wage bargaining Lars Calmfors and John Driffill The structure of labour markets is increasingly perceived as a determinant of the macroeconomic performance of a country. This article focuses on one aspect of labour markets, the degree of centralization of wage setting. The main conclusion is that extremes work best. Either highly centralized systems with national bargaining (such as in Austria and the Nordic countries), or highly decentralized systems with wage setting at the level of individual firms (such as in Japan, Switzerland and the US) seem to perform well. The worst outcomes with respect to employment may well be found in systems with an intermediate degree of centralization (such as in Belgium and the Netherlands). This conclusion is reasonably well supported by the available empirical evidence. It is also logical. Indeed, large and all-encompassing trade unions naturally recognize their market power and take into account both the inflationary and unemployment effects of wage increases. Conversely, unions operating at the individual firm or plant level have very limited market power. In intermediate cases, unions can exert some market power but are led to ignore the macroeconomic implications of their actions. These conclusions challenge the conventional wisdom which asserts that the more ‘corporatist’ is an economy, the better is its economic performance.