Events & News


The Effect of Crisis on Labour’s Bargaining Power and Wage Employment Outcomes in Europe

Dr Matjaž Koman (Assistant Professor of Economics, University of Ljubljana)

9 March 2015 (Monday)
CIT Auditorium, Lvl 2 Computer Centre, 2 Engineering Dr 4, Singapore 117584, NUS



Seminar Report [PDF/Print]

The EU Centre in Singapore hosted a research seminar by Dr Matjaž Koman, Assistant Professor of Economics at the University of Ljubljana, on the effect of crisis on labour’s bargaining power and wage-employment outcomes in Europe. The paper studied the evolution of bargaining power of employees and management (owners) before and during the recent economic crisis in seventeen European countries.

Using the Svejnar bargaining model Dr Koman and his colleagues analysed the impact of labour market institutions on profit-maximizing behaviour of firms and the characteristics of the bargaining process in the firms before and during the crisis. The sample consisted of up to 41,000 companies from countries of Central, Southern and South-Eastern Europe.

The paper revealed that institutions play an important role in the behaviour of companies and societies. In general, the recent crisis increased the bargaining power of workers and decreased their risk loving. Employees were able to appropriate a larger part of the pie (value added) during the crisis than in the pre-crisis period.

Countries like Germany, Austria, Slovenia and Bosnia and Herzegovina (Republic of Srpska) exhibited a notable decrease in the bargaining power of workers during the crisis period. This could be explained by two actions, the social agreement not to raise wages if corporate results are not facilitating it and the state supported scheme for short-term working allowances to support employment despite the declining demand.

Dr Koman concluded from this study that when discussing the need for higher labour market flexibility and its influence on productivity, too often, the focus is given principally to the relaxation of various aspects of employment protection legislation. Other aspects such as the social protection system, market programs, active labour or lifelong learning do not receive much attention. If cooperative decisions were made at the corporate level and if it was a constituent part of broader actions in the context of the social bargaining, labour cost flexibility could be more easily achieved. In the four countries named previously, this approach resulted in increasing operating revenues and value added, shortly after the economies were hit by the crisis in 2009.This pattern was not observed in any other country in the study sample.

The study cautioned us that the reforms required by the International Monetary Funds or the World Bank may not always be the best way to get out of the economic crisis, and there need to be a more nuanced approach taking into consideration the existing institutions, and the nature of labour-firm relations.