Flexible wage deals can boost competitiveness, protect jobs, study says

Study: Flexible Wage Agreements Can Improve Competitiveness and Protect Jobs

Impact of Flexible Wage Agreements on Competitiveness and Employment

Key Findings from the Rockwool Foundation Berlin Study

BERLIN, Oct 29 (Reuters) - Greater flexibility in collective wage agreements can strengthen competitiveness and protect jobs, but only if workers retain effective safeguards, according to a study by the Rockwool Foundation Berlin seen by Reuters on Thursday.

Germany's Approach to Wage Flexibility

• Germany expanded clauses allowing firms - with employee representatives' consent - to depart from sector-wide agreements on pay, hours and other terms from the mid-1990s.

• The share of manufacturing agreements containing such provisions rose from less than 5% in 1995 to around 60% by 2004.

• "Wage restraint resulting from increased flexibility already contributed to Germany's improved competitiveness after 1995," says co-author Christian Dustmann, director of RFBerlin.

Italy's Experience with Rigid Bargaining Systems

• In Italy, a more rigid bargaining system encouraged some companies to leave employer associations or sign agreements with smaller unions. That reduced wages by between 2% and 3% and lifted the likelihood of workers staying employed by 3 to 4 percentage points.

Regional Differences in Italy

• There were regional differences: in the more productive north, the fall in wages went hand in hand with greater employment stability. In the south, where employers have greater market power, the wage losses were greater – without any gain in job security.

Balancing Flexibility with Worker Protection

• “The challenge, therefore, is not simply to make wage-setting more flexible, but to combine this with effective wage protection for workers,” said Dustmann.

(Reporting by Maria MartinezEditing by Linda Pasquini)