Productivity Growth, Wage Growth and Unions
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Kügler, A, Schönberg, U., Schreiner, R.C.
European Central Bank Conference Proceedings
This paper reviews trends in labor productivity, wage growth, unemployment and inequality over the past two decades in nine advanced countries. We focus on the two largest countries in the Eurozone, Germany and France, which experienced similar increases productivity over the past 20 years. In France wages grew in tandem with productivity, inequality declined and unemployment remains stubbornly high. In Germany, in contrast, wages largely stagnated (until 2008), inequality increased (until 2010), but unemployment is now at a record low. This paper argues that the divergent development of Germany and France is in part a consequence of an unprecedented decentralization of the wage setting process in Germany, from the sectoral level down to the level of the firm or the individual. In contrast, the distinctive characteristics of France’s system of industrial relations prevented France from a similar downward adjustment of wages.