European Rigidity Versus American Flexibility? The Institutional Adaptability of Collective Bargaining

Abstract

According to the unified theory, higher unemployment in Europe as compared to the United States is caused by higher wage rigidity, which, in turn, results from more “inflexible” labor market institutions. Focusing on wage coordination, the empirical analysis shows that the variety of bargaining patterns across European countries and during the period1971to 1998contradicts a simple U.S.-Europe juxtaposition. Although some countries have to cope with excessive wage growth, many others do not trigger higher average wage growth and some coordination forms even show better performance than the United States. Secondly, contrary to the contention of rigidity, the labor market actors in most European countries are responsive to the performance of their bargaining system; they tend to adapt their system if wages seem to overshoot. Hence, the rigidity of Europe thesis does not hold in a more detailed cross-national and long-term analysis of institutional changes in wage bargaining.

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