Understanding wage restraint in the German public sector: does the pattern bargaining hypothesis really hold water?

• Published date: 01 May 2020
• DOI: http://doi.org/10.1111/irj.12288
• Date: 01 May 2020
• Author: Donato Di Carlo

Understanding wage restraint in the

German public sector: does the pattern

bargaining hypothesis really hold water?

Donato Di Carlo

ABSTRACT

German public sector wage restraint has been explained through the presence of a

specific type of inter-sectoral wage coordination in the industrial relations system—

that is, export sector-led pattern bargaining. First, as a literature-assessing exercise,

this paper reviews the literature in industrial relations and comparative political econ-

omy (CPE) and finds that (i) the origins and mechanics of inter-sectoral wage coordi-

nation through pattern bargaining have never been laid out clearly; (ii) that the

mechanisms of the pattern bargaining thesis have never been tested empirically; and

(iii) that the CPE literature reveals an export-sector bias. Second, as a

theory-testing exercise, hoop tests are performed to verify the pattern bargaining hy-

pothesis. The key finding is that Germany cannot be considered a case of export

sector-driven pattern bargaining, opening a new research agenda for the study of pub-

lic sector wage setting centred on public sector employment relations, public finance,

public administrations and the politics of fiscal policy.

1 SETTING THE SCENE

This paper has both a literature-assessing and a theory-testing ambition. It deals with

the study of export sector-led pattern bargaining as a specific type of inter-sectoral

wage coordination institution. The ultimate contribution the paper provides is an em-

pirical falsification of the widespread belief according to which wage restraint in the

German public sector

1

can be explained through the features of this structure for

the coordination of collective bargaining.

Germany is famously championed for featuring an export sector-led pattern-

bargaining type of wage coordination across different bargaining units in the various

sectors of its economy.

2

This pattern bargaining system has long been acclaimed in

industrial relations and comparative political economy (CPE) scholarship for its al-

leged capacity to ensure the transmission of wage restraint from the export-oriented

industries to those sheltered from competition in international markets. In this sense,

the pattern bargaining thesis has been exploited to account for the trajectory of wage

restraint observable in the German public sector over the last thirty years. Further-

more, the structural characteristics of wage setting in Germany have also been at

the heart of recent debates on the institutional causes of the divergence of wage and

❒Donato Di Carlo, Max Planck Institute for the Study of Societies, Cologne, Germany.

Correspondence to: Donato Di Carlo, Max Planck Institute for the Study of Societies, Cologne, Germany.

E-mail: dicarlo@mpifg.de

Industrial Relations Journal 51:3, 185–208

ISSN 0019-8692

© 2020 The Authors. Industrial Relations Journal published by Brian Towers (BRITOW) and John Wiley & Sons Ltd

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribu-

tion and reproduction in any medium, provided the original work is properly cited.

price inflation among the members of the European Economic and Monetary Union

(EMU).

Thus, in this paper, I ask whether the pattern bargaining thesis really explains wage

restraint in the German public sector. In trying to answer this question, I present

empirical evidence related to the post-reunification period up until the financial crisis:

1991–2010. For reasons which will soon become clear, I have not been able to recon-

struct the origins of inter-sectoral pattern bargaining in Germany. Hence, I simply as-

sume here that this institution existed before German reunification in 1990.

The paper develops the following two-tiered argument: (i) empirical evidence

points to the fact that, as of the mid-1990s, Germany is not a case of export

sector-led pattern bargaining wage coordination. Hence, (ii) we cannot maintain that

wage restraint in the German public sector ensues from this specific type of

inter-sectoral wage coordination. The implication of (i) and (ii) is that we currently

do not possess an understanding of either what the relevant institutional constellation

is or the processes within it that ensure wage restraint in the German public sector.

The paper shows that pattern bargaining cannot be the primary driver for it and sug-

gests that this is more likely to be a case of functional equivalence: other features of the

German institutional structure, so far unaccounted for, must concur to produce this

pattern of restraint.

The remainder of the paper is organised as follows. Section 2 begins with descrip-

tive statistics on wage restraint in Germany inside the EMU. Section 3 presents the

accepted CPE explanation for wage restraint in the German public sector. Section 4

endeavours to test empirically the validity of the pattern bargaining thesis in relation

to the phenomenon of wage restraint in the German public sector. Section 5 attempts

to reconstruct the intellectual origins of the pattern bargaining thesis to try to under-

stand why and how such a prominent thesis has failed. Lastly, the concluding section

wraps up the findings and discusses elements for an alternative research agenda on

public sector wage setting.

2 WAGE RESTRAINT IN THE GERMAN PUBLIC SECTOR UNDER THE

EMU

This section presents data aimed at showing the peculiar trajectory of wage restraint

in the German political economy. Since the launch of the EMU in 1999, restraint has

occurred in both the manufacturing sector and in the ‘sheltered’public services. The

deflationary wage dynamics have added up to be drivers behind the remarkable

downward trajectory of unit labour costs (ULCs), which many scholars have

identified as the root cause of macroeconomic imbalances in the EMU crisis

(Collignon, 2009; Scharpf, 2011; Flassbeck and Lapavitsas, 2013; Hall, 2014; Höpner

and Lutter, 2014; Johnston et al., 2014; Johnston and Regan, 2014; Iversen

et al., 2016).

From the perspective of the EMU—an economic system rooted in price stability—

relatively stable ULC inflation is required in order to avoid structural divergence of

members’price inflation in the medium to long run. This divergence, in fact, can no

longer be absorbed through adjustable exchange rates (Carlin and Soskice, 2014,

ch. 12). Given the absence of pan-European wage coordination, the European Com-

mission adopted what is known as the Golden Rule of Wage Bargaining

3

as the formal

policy guideline for national social partners: wage setting shall be based on the Euro-

pean Central Bank’s (ECB) inflation target plus average productivity in the economy.

186 Donato Di Carlo

© 2020 The Authors. Industrial Relations Journal published by Brian Towers (BRITOW) and John Wiley & Sons Ltd