Paying More than Necessary? The Wage Cushion in Germany

23 Pages Posted: 21 Jul 2009

See all articles by Sven Jung

Sven Jung

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Claus Schnabel

University of Erlangen-Nuremberg; IZA Institute of Labor Economics

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Abstract

Using a representative establishment data set for Germany, we show that more than 40 percent of plants covered by collective agreements pay wages above the level stipulated in the agreement, which gives rise to a wage cushion between the levels of actual and contractual wages. Cross-sectional and fixed-effects estimations for the period 2001-2006 indicate that the wage cushion mainly varies with the profit situation of the plant and with indicators of labour shortage and the business cycle. While plants bound by multi-employer sectoral agreements seem to pay wage premiums in order to overcome the restrictions imposed by the rather centralized system of collective bargaining in Germany, plants which make use of single-employer agreements are significantly less likely to have wage cushions.

Keywords: wages, wage cushion, wage determination, bargaining, Germany

JEL Classification: J30, J31

Suggested Citation

Jung, Sven and Schnabel, Claus, Paying More than Necessary? The Wage Cushion in Germany. IZA Discussion Paper No. 4278, Available at SSRN: https://ssrn.com/abstract=1434612

Sven Jung (Contact Author)

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, DE Bavaria 91054
Germany

Claus Schnabel

University of Erlangen-Nuremberg ( email )

Institut für Wirtschaftsforschung
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D-90403 Nuernberg
Germany
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