June 2012

IZA DP No. 6658: Is the Erosion Thesis Overblown? Evidence from the Orientation of Uncovered Employers

revised version published as 'Is the Erosion Thesis Overblown? Alignment from Without in Germany' in: Industrial Relations, 2016, 55, 415-443

It is sometimes claimed that the coverage of collective bargaining in Germany is considerably understated because of orientation, a process whereby uncovered firms profess to shadow the wages set under sectoral bargaining. Yet importantly, at a time when collective bargaining proper has been in retreat, little is known of corresponding trends in the frequency of indirect coverage, still less of the degree to which wages are aligned in practice. Using nationally representative data for 2000-2010, this paper charts the extent of orientation in the uncovered sector, and tracks average wages across bargaining regimes as well as changes in wages from switches in regime. It is reported that orientation is growing with the decline in sectoral bargaining and that orienting firms do pay higher wages than their counterparts in the collective bargaining free zone. Yet in neither case – frequency nor remuneration – is the degree of 'compensation' recorded other than partial.