Wage Setting, Social Pacts and the Euro — a New Role for the State – By Anke Hassel
| DOI | http://doi.org/10.1111/j.1467-8543.2007.00621_1.x |
| Date | 01 June 2007 |
| Author | John Kelly |
| Published date | 01 June 2007 |
BOOK REVIEWS
Wage Setting, Social Pacts and the Euro — a New Role for the State by Anke Hassel.
Amsterdam University Press, Amsterdam, 2006, 334 pp., ISBN 90 5356 9197,
€44.95
The revival of union–government agreements on wage restraint during the past 20
years has presented a continuing puzzle for traditional corporatist theory. In the
1970s, it was argued that social democratic governments engaged in negotiations with
powerful and militant union movements in order to secure their support for wage
restraint in the struggle to contain inflation. Many union leaderships were willing to
participate in such negotiations because they were keen to extend their influence into
issues such as welfare and public spending that could not be addressed through
collective bargaining with employers. The mass unemployment and union member-
ship decline of the 1980s seemed to have put paid to the experiments in corporatist
policy making, but it is now clear this was a brief interregnum and that union–
government agreements — or social pacts as they have come to be known — have
become more, not less, widespread since the early 1980s. The aim of Hassel’s original
and wide-ranging book is to explain why this has happened.
The premise of her argument is that the systems of wage determination developed
throughout Western Europe in the middle of the twentieth century became increas-
ingly dysfunctional after the oil price hikes of the 1970s ushered in an era of higher
inflation and unemployment and increased international competition. Both conser-
vative and social democratic governments responded by progressively abandoning
their Keynesian commitment to full employment and increased public spending as
they came under the influence of the monetarist approach to controlling inflation. Yet
even high interest rates and rising unemployment were often unable to control the
continuing growth of either nominal or real wages. According to Hassel, this is
because tight monetary policy has to be accompanied by two other conditions if it is
to be effective in restraining wage growth. First, wage negotiators have to see the new
policy as credible and be convinced that unaffordable wage settlements will actually
lead to higher unemployment. Second, wage negotiators have to adjust their expec-
tation that wages should always rise in response to prices and adopt the view that
affordability, based on competitiveness, must become the principal criterion for deter-
mining wage growth. Increased government intervention in wage bargaining is there-
fore designed to reinforce the impact of a tight monetary policy and convince wage
bargainers that high wage settlements will result in job losses. Such intervention,
argues Hassel, is more likely under certain institutional and political conditions. For
example, in the wage bargaining institutions of Austria and Germany, negotiators
have proved to be highly responsive to unemployment and wages have adjusted fairly
quickly with relatively little intervention by the central government. By contrast,
British Journal of Industrial Relations
45:2 June 2007 0007–1080 pp. 433–456
© Blackwell Publishing Ltd/London School of Economics 2007. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
wages in Belgium and the Netherlands have proved to be very ‘sticky’ and govern-
ments have intervened in wage determination both through social pacts and through
legislation. Hassel also uses Lijphart’s (1999) distinction between consensus and
majoritarian democracies to argue that coalition governments in fragmented party
systems are more susceptible to pressure from the social partners and are therefore
more likely to intervene and try to reach agreement in order to legitimate their
policies. By contrast again, single-party governments in majoritarian democracies,
such as the UK, are less susceptible to social partner influence and therefore see less
need to secure legitimation from the social partners.
The argument of the book is set out in the opening chapters, followed by a lengthy
discussion of the main dependent variable, the government intervention index. This
five-point scale runs from no intervention at one end through consultation and
participation in negotiations to social pacts and legislation at the other end. The key
independent variables — monetary policy and its effects, the responsiveness of wage
bargaining systems and the role of political institutions — are then explored in three
central chapters. In each case we are presented with quantitative evidence, often in
the form of cross-tabulations and scatter plots, designed to explore the associations
between variables. In looking at wage bargaining institutions, Hassel argues that
their responsiveness is itself influenced by four factors: the degree of co-ordination
within the bargaining system, the presence of factions within unions, the existence of
wage indexation and the degree of market exposure of the wage pacesetters. A
lengthy penultimate chapter then rounds off the account with case studies of 13
countries, namely the EU15 minus Greece and Luxembourg for reasons of data
unavailability.
Wage Setting, Social Pacts and the Euro offers the most sophisticated analysis to
date of the re-emergence of social pacts in Western Europe. The book is theoretically
grounded and its argument carefully built on a model of political economy that
assigns centrality to the wage expectations of the actors. It offers a new measure of
government intervention and systematically uses this to test the strengths and weak-
nesses of the model using a substantial amount of quantitative data. While noting the
impact of the Maastricht convergence criteria, the book argues these reinforced rather
than inaugurated the longer standing economic pressures on governments to inter-
vene in wage determination. Pacts therefore pre-dated the Maastricht Treaty and have
continued to be signed in the years since European Monetary Union.
As always with wide-ranging studies, there is a host of further questions thrown up
by the argument and the evidence. It would have been interesting, for example, to see
the results of a multivariate analysis because repeated bivariate testing yields results
that are not always easy to interpret. While the case studies provide a thick description
that illustrates rather than tests the model, most of them are only a few pages in length
and I was not sure they did full justice to what is, after all, a complex model. The
distinction between the consensus and majoritarian democracies throws light on
differences between countries, but I was not sure how far it advances our understand-
ing of within-country variation in government intervention over time. The clear focus
on wages allows the construction of a tight theoretical framework, but at the same
time it leaves open the big question of how one accounts for the non-wage items that
are to be found in most social pacts. The focus on real-wage growth also left me
wondering how well the argument would hold up if it were refocused on unit labour
costs, as the latter are arguably at least as important in the determination of com-
petitiveness. That Hassel’s book raises these and other questions demonstrates that it
is both an original and a highly thought-provoking study. Wage Setting, Social Pacts
434 British Journal of Industrial Relations
© Blackwell Publishing Ltd/London School of Economics 2007.
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