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Brett Meyer, Columbia University, Political Science

Labor Market Polarization and the Decline of Coordination in German Labor Market Institutions

Contrary to the prediction of the prominent Varieties of Capitalism paradigm in political science, historically strong trade unions in Western European social market economies have become weaker just as in Anglo-American liberal market economies. This project has two parts, addressing respectively an important cause of this decline and the consequences of decline for unions’ preferences to set wages for low-wage workers through a legal minimum wage as opposed to collective wage contracts.

In the first part, I argue that technological change and resultant labor market polarization are important factors for explaining the decline in union strength. The declining cost of computing power allows firms to replace workers performing routine tasks with machines. This results in labor market ‘polarization,’ an increase in the ratio of low- and highwage jobs to formerly middle-wage jobs as middle-wage jobs were disproportionately rich in routine tasks. Decreasing similarity in the skill profiles of workers undercuts broad-based support for unions as high-wage workers resist union attempts to level wage differences across firms and workers. Specifically, I argue that probability of firm withdrawal from union contracts will increase and contract coverage at the national level will decrease with higher differences in routine task intensity across occupations and test these propositions using data on German firms and on country-level union contract coverage.

The second part of this project concerns how such changes affect unions’ preferences for the existence of a legal minimum wage alongside union-employer wage contracts. Most social market economies lack a legal minimum wage in large part because historically strong trade unions have opposed this. But the German Trade Union Confederation has recently begun to support a legal minimum wage due to its declining organizational strength and resulting inability to sustain wage growth in low-wage sectors. This position was originally quite controversial amongst unions representing higher wage workers in industry and has not been adopted by trade unions in Scandinavian countries. I argue that a decline in organizational strength can explain German unions’ support for a legal minimum wage and that the reason that unions in the Scandinavian countries have not changed their preferences is that legal institutions and their internal structure better allow them to share organizational strength than within the German trade union movement.