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A Cartel Analysis of the German Labor Institutions and Its Implications for Labor Market Reforms

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  • Justus Haucap
  • Uwe Pauly
  • Christian Wey

Abstract

In this paper we apply standard cartel theory to identify the major institutional stabilizers of Germany's area tariff system of collective bargaining between a single industry union and the industry's employers association. Our cartel analysis allows us to demonstrate that recent labor policy reforms that intend to make labor markets more "flexible" further serve to stabilize the labor cartel while other pro-competitive proposals have failed. We argue that the pro-competitive recommendations failed exactly because of their destabilizing effects on insiders' incentives to stay in the labor cartel. We propose regulatory measures for injecting competition into Germany's labor markets that focus on the creation of new options for firms and workers outside the existing area tariff system; in particular, by liberalizing existing barriers for the establishment of a fully tariff-enabled union. Such an endeavor must go hand in hand with the institutionalization of a competition policy framework for labor market disputes as any destabilizing policy inevitably provokes counter measures of the incumbent labor cartel so as to protect their dominance vis-à-vis outsider competition.

Suggested Citation

  • Justus Haucap & Uwe Pauly & Christian Wey, 2006. "A Cartel Analysis of the German Labor Institutions and Its Implications for Labor Market Reforms," Discussion Papers of DIW Berlin 651, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp651
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    References listed on IDEAS

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    1. Justus Haucap & Christian Wey, 2004. "Unionisation structures and innovation incentives," Economic Journal, Royal Economic Society, vol. 114(494), pages 149-165, March.
    2. Siebert, Horst, 1997. "Labor market rigidities and unemployment in Europe," Kiel Working Papers 787, Kiel Institute for the World Economy (IfW Kiel).
    3. Justus Haucap & Christian Wey & Uwe Pauly, 1999. "The Incentives of Employers’ Associations to Raise Rivals’ Costs in the Presence of Collective Bargaining," CIG Working Papers FS IV 99-06, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
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    5. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer.
    6. Reinhard Selten, 1973. "A Simple Model of Imperfect Competition, where 4 are Few and 6 are Many," Center for Mathematical Economics Working Papers 008, Center for Mathematical Economics, Bielefeld University.
    7. Phlips,Louis, 1995. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521498715, October.
    8. Lesch, Hagen, 2006. "Ökonomik des Tarifrechts," IW-Analysen, Institut der deutschen Wirtschaft (IW) / German Economic Institute, volume 19, number 19.
    9. Eric Posner, 2003. "Four Economic Perspectives on American Labor Law and the Problem of Social Conflict," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(1), pages 101-116, March.
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    1. repec:bla:germec:v:10:y:2009:i::p:224-242 is not listed on IDEAS
    2. Thomas K. Bauer & Jochen Kluve & Sandra Schaffner & Christoph M. Schmidt, 2009. "Fiscal Effects of Minimum Wages: An Analysis for Germany," German Economic Review, Verein für Socialpolitik, vol. 10(2), pages 224-242, May.
    3. Luciano Fanti & Nicola Meccheri, 2014. "Capacity choice and welfare under alternative unionisation structures," Discussion Papers 2014/176, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    4. repec:zbw:rwirep:0079 is not listed on IDEAS
    5. Luciano Fanti & Nicola Meccheri, 2017. "Unionization Regimes, Capacity Choice by Firms and Welfare Outcomes," Manchester School, University of Manchester, vol. 85(6), pages 661-681, December.
    6. Arijit Mukherjee & Kullapat Suetrong, 2012. "Unionisation Structure and Outward Foreign Direct Investment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 266-279, June.
    7. Wei Ding, 2015. "Decentralized union-oligopoly bargaining when wages signal strength," Journal of Economics, Springer, vol. 114(3), pages 239-254, April.
    8. Göddeke, Anna & Haucap, Justus & Herr, Annika & Wey, Christian, 2011. "Stabilität und Wandel von Arbeitsmarktinstitutionen aus wettbewerbsökonomischer Sicht," DICE Ordnungspolitische Perspektiven 10, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. Baye, Irina & Pagel, Beatrice & Wey, Christian, 2016. "How to counter union power? Equilibrium mergers in international oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 16-29.
    10. Beatrice Pagel & Christian Wey, 2013. "Unionization Structures in International Oligopoly," LABOUR, CEIS, vol. 27(1), pages 1-17, March.
    11. Thomas K. Bauer & Jochen Kluve & Sandra Schaffner & Christoph M. Schmidt, 2008. "Fiscal Effects of Minimum Wages – An Analysis for Germany," Ruhr Economic Papers 0079, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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    More about this item

    Keywords

    Union; Collective Bargaining; Cartel Stability; Labor Market Reforms;
    All these keywords.

    JEL classification:

    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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