September 2015

IZA DP No. 9323: Pacts for Employment and Competitiveness as a Role Model? Their Effects on Firm Performance

revised version published as 'Contract innovation in Germany: An Economic Evaluation of Pacts for Competitiveness' in: British Journal of Industrial Relations, 2017, 55(3), 500-526.

Pacts for employment and competitiveness are an integral component of the ongoing process of decentralization of collective bargaining in Germany, a phenomenon that has been hailed as key to that nation's economic resurgence. Yet little is known about the effects of pacts on firm performance. The evidence largely pertains to employment and is decidedly mixed. The present paper investigates the association between pacts and a wider set of outcomes – wages, employment, investment, productivity, innovation, and survivability – in a RDD framework where the controls comprise establishments that negotiated over pacts but failed to reach agreement on their implementation. An extensive set of simulations are run to test for robustness of the key findings of the model. There is no evidence of pacts negatively impacting any of the selected measures of establishment performance. Indeed, the positive effects reported for wages, productivity, and innovation are sustained in simulations.