A new government action plan aimed at strengthening collective bargaining has been deemed to be based on a questionable fundamental assumption, according to the Institute for the German Economy (IW), an employer-affiliated organization. This assessment comes following a report published in the Handelsblatt, which cited an IW study.
The institute’s findings conclude that simply having more collective agreements does not automatically result in a higher wage share-that is, a larger proportion of the nation’s income going to employees. This casts doubt on a central hope supporting the government’s initiative, which seeks to raise the current collective coverage of nearly 50% up to the European Union’s target of 80%.
IW economist Christoph Schröder substantiated this theory by comparing more than 20 European nations. He noted that while France achieves nearly 100% collective coverage and Germany sits at 49%, countries like Estonia have less than one percent. Crucially, despite these huge differences in coverage, the three countries’ wage shares remain relatively similar. Conversely, the three nations reporting the highest wage shares-Latvia, Croatia, and France-show collective coverage ranging from 33% to almost 100%.
A historical review provides no contrary evidence. For instance, in Denmark, collective bargaining coverage increased significantly between 2002 and 2018, yet the wage share simultaneously fell by six percentage points. In starkly different cases, the pattern was reversed in the United Kingdom and Estonia.
The ultimate conclusion of the study is that the political expectation of significantly shifting the distribution between labor and capital simply by increasing collective bargaining coverage is empirically unsupported. According to the IW, the wage share is driven less by collective bargaining negotiations and more by productivity, capital intensity, and overall economic dynamics. Furthermore, the IW reports that the German wage share currently stands at 70%, putting it higher than in several countries where more than 80% of employees are already covered by collective agreements.
