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dr. Wiemer Salverda (AIAS). AIAS lunch seminars.

Event details of The bite and effects of wage bargaining in the Netherlands: 1995 - 2005
Date 18 January 2007
Time 11:15 -12:15

dr. Wiemer Salverda (AIAS)

Halfway the last decade 1995-2005 Dutch economic and employment growth decreased dramatically, tumbling down the ranking of EU member states. The change is often blamed on immoderate wage growth, or labour-cost growth to be precise. This paper examines that claim, first by looking at the evolution of the economy and of wages in an international comparison and then by considering the contribution of collective bargaining to the evolution of wages, paying particular attention to low pay. The examination is part of an exercise to determine the ‘bite’ of institutions. Collective bargaining is the core institution of wage formation in many countries and its effect on wages should be studied directly and not be taken at face value from the very high coverage rate of 80% of employees.

The international comparison is drawn to three other successful and relatively small European economies - the Irish, Danish and Austrian ‘tigers’ -, the three major European economies and the US. All those countries have experienced a considerable setback of the economy and the labour market but with some variation. That variation does not match the trends of labour-cost. In a careful consideration of the two components of unit labour costs: wages and productivity, their mutual relationship appears to be as balanced in the Netherlands as elsewhere. Real wages continued to lag behind productivity growth, but both at a lower level than in many other places.

Though wages are not the driving factor of the change it is still worthwhile to consider the contribution of collective bargaining - and thereby trade union behaviour - to their growth. For a host of reasons the two are not necessarily identical, if only because individual bargaining and employer behaviour has a role to play. The gap of ‘incidental wages’ or wage drift is not easily measured and traditional approaches of CBS or CPB are deficient. The AVO dataset allows an adequate treatment (for the private sector). In all years 1995-2005 the drift is positive and bargained wages lag significantly behind productivity growth with very little difference between the first and the second half of the decade. Of total gross labour costs no more than 40% of the annual change relates to collective agreements. Nevertheless it is amazing that wages are trailing productivity as the Dutch trade unions do base there wage demands on (expected) productivity growth. However, the CPB’s official expectations are shown to have systematically underestimated productivity growth.

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