Contract Innovation in Germany: An Economic Evaluation of Pacts for Employment and Competitiveness

AuthorKatalin Evers,Paulino Teixeira,John T. Addison,Lutz Bellmann
Publication Date01 Sep 2017
British Journal of Industrial Relations doi: 10.1111/bjir.12219
55:3 September 2017 0007–1080 pp. 500–526
Contract Innovation in Germany:
An Economic Evaluation of Pacts
for Employment and Competitiveness
John T. Addison, Paulino Teixeira, Katalin Evers
and Lutz Bellmann
Pacts for employment and competitiveness are an integral component of
the ongoing process of decentralization of collective bargaining in Germany,
a phenomenon that has been hailed as key to that nation’s economic
resurgence. Yet little is known about the eects of pacts on firm performance.
The evidence largelypertains to employment and is decidedly mixed. This article
investigates the association between pacts and six outcome indicators using a
framework in which the controls comprise establishments that negotiated over
pacts but failed to reach agreementon their implementation. An extensive set of
robustness checks are run to test the sensitivity of the key findings of the model.
There is no suggestionof pacts negatively impacting any of the selected measures
of establishment performance.Rather, the evidence points to some positive short-
and medium-run eects on firm average wages and possibly employment and
innovation as well.
1. Introduction
Company-level pacts for employment and competitiveness, or in-plant
alliances, are a feature of a contractual innovations in a number of western
European countries (e.g. Sisson and Artiles 2000). They are an aspect of the
decentralization of collective bargaining, conventionally associated with the
forces of globalization. However, if pacts are to be described as concession
JohnAddison is at the Darla Moore School of Business, and Durham University Business School.
Paulino Teixeirais in the Faculty of Economics at the University of Coimbra. Katalin Evers is at
the German Federal Agency forMigration and Refugees. Lutz Bellmann is in the Department of
Economics at the Universityof Erlangen-Nuremberg and the Institute for Employment Research
of the German Federal Labour Agency.
2016 John Wiley & Sons Ltd.
Pacts for Employment and Competitiveness 501
bargaining they are a version with a quid pro quo frommanagement unlike the
archetypal US variant of the 1980s.
German pacts for employment and competitiveness (B¨
undnisse f¨
ur Arbeit
und Wettbewerbsf¨
ahigkeit) are distinctive in that they are an outgrowth of
pronounced decline in unionism and sectoral collective bargaining coverage
in that nation since the early 1990s (Addison et al. 2014) against a backdrop
of the perceived inflexibility of sectoral bargaining. One response to this
inflexibility was to take the form of opening clauses, allowing firms to
deviate from the normatively binding terms of collective agreements. Pacts
were however to outgrow opening clauses and have been described as ‘fast
becoming part of a new “normal” regulatory instrument’ at a time when
‘collective bargaining standards are becoming guidelines that give firms
considerable leeway to come to company-specific solutions’ (Seifert and
Massa-Wirth 2005: 238). Pacts are then no longer limited to companies in
crisis, although it is also true that general opening clauses that can be used
independently of the specific economic situation have become more common.
However, if we are observing something of a paradigm shift in company-level
strategies regarding flexibility, there is still controversy as to whether such
decentralization is in fact ‘organized’ or not (Haipeter and Lehndor 2009).
This article will eschew consideration of the problems of articulation and
control in the bargaining process and instead focus on six (micro) economic
outcomes: wages, employment, investment, productivity, innovation and
survivability. Further, we oer a dierent counterfactual to that typically
used in the standard dierence-in-dierences treatments. Our counterfactual
is made up of those establishments in which negotiations over a pact were
initiated but not brought to successful fruition. Since we have no way of
knowing whether those establishments that signed a pact were actually on
the brink of not signing an agreement and whether those that did not do
so were suciently close to concluding an agreement, we shall necessarily
have recourse to an extended set of robustness checks that control for a
variety of factors, including the introductionof alternative control groups and
dierent estimation techniques.We also present a simulation exercisein which
participation of establishments in the selected treatment and control groups is
To anticipate our results, there seems to be no evidence of pacts negatively
impacting any of the selected measures of establishmentperformance. Rather,
the results suggest the presence of positive short- and medium-run eects on
firm average wages and possibly on employment and innovation too.
2. Econometric evidence1
Econometric evidence on the eects of pacts is patchy. In two early studies of
employment using the 2003 Works Council Survey, H¨
ubler (2005a, b) reports
that establishmentsthat had signed pacts or planned to do so in the near future
had a significantly lower probability of stable or rising employment than did
2016 John Wiley& Sons Ltd.

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