effects of centralized vs. decentralized bargaining structures on wages, inflation, strikes, the bargaining process, and the negotiation process

Topics: Negotiation, Collective bargaining, Labour relations Pages: 10 (3306 words) Published: March 25, 2014


Essay theme:

“Discuss the effects of centralized vs. decentralized bargaining structures on wages, inflation, strikes, the bargaining process, and the negotiation process”

Alina Tiltu
Course name: POLI 398X

Collective bargaining is a process that through negotiations establishes terms and conditions that are essential for employment. Collective bargaining facilitates coordination between unions and employers in wage setting and other aspects of industrial relations. Although collective bargaining has the general objective of supplementing or supplanting, the free market, it has not followed a uniform pattern of development in different national or industrial situations. Instead, a variety of institutional arrangements have evolved in implementing bargaining relationships between employers and employees organizations.1 These differences at the structural level of bargaining brought contrasting consequences in the labour market. The bargaining structure refers to the employers and unions that take part in these negotiations and are responsible for the final content of the collective agreement. The structure of bargaining is also important as it affects a broad range of aspects as: the bargaining outcomes, the roles of unions and management and the types of issues that are brought to the table.2 There are two structures of collective bargaining that are often implemented: centralized and decentralized. Centralized bargaining refers to agreements made at the group level involving many plants and is aimed to protect the working class in industry and at the national level, while decentralized bargaining occurs when agreements refer to just one plant. On the one hand, centralized bargaining is usually associated with lower and less persistent levels of unemployment, less wage dispersion and fewer strikes, whereas decentralized bargaining is associated with higher and more persistent levels of unemployment, more wage dispersion and more strikes. In the essay I will highlight the effects that this two bargaining structures have on wages, inflation, strikes, the bargaining process, and the negotiation process and their influence on the industrial relations system as a whole. 1. Arnold R. Weber, The Structure of Collective Bargaining and Bargaining Power: Foreign Experiences, (Journal of Law and Economics 1963), 117-151. 2. Katz, Harry C., Industrial and Labor Relations Review, (np: October 1, 1993), article. A phenomenon that is characteristic for many countries is the wage differentials. These wage differentials are those who can determine the degree of centralization of wage bargaining and also have influence on outcomes. In the centralized bargaining process the government has a great involvement, leading to the uniformity of wages, benefits, and other aspects of employment. The centralised wage bargaining is likely to yield real wage moderation and lower unemployment than decentralized bargaining structures because it internalises the negative external effect of bargaining outcomes on the unemployment rate.3 Also centralized bargaining arrangements moderate wage settlements, reduce work stoppages, labour costs and consequently reduce product pricing. Another benefit of the centralized structure is that it reduces wage dispersion. If firms trade off the losses from an increase in the wage bill against the gains that a higher relative wage yields in terms of higher individual effort, as postulated by the efficiency-wage hypothesis, centralised wage bargaining hinders effort by reducing inter-firm wage dispersion.4 Thus taking in consideration all these effects that centralized structure has on wages, I can state that centralization encourage wage equality between workers, without reducing their individual efficiency, and the main objectives of the unions that promote this structure is to improve the welfare and the job security of all workers. The centralized bargaining structure has also notable...

Bibliography: 1. Brunello Giorgio. European Journal of Political Economy 14, no. 2 Np: May 1998.
2. Daniels, Joseph P., and Nourzad, Farrokh, VanHoose, David D. “Openness, centralized wage bargaining, and inflation.” European Journal of Political Economy 22, no. 4 Np: December 2006.
3. Ferreiro Jesus. “Decentralized versus centralized collective bargaining: is the collective bargaining structure in Spain efficient?” Journal of Post Keynesian Economics 26, no. 4 Armonk: 2004.
4. Golden, Miriam A., and Londregan, John B. American Journal of Political Science 50, no. 1 Np: January 2006.
5. Groth Charlotta, and Johansson Åsa. European Economic Review 48, no. 6 Np: December 2004.
6. Katz, Harry C. Industrial and Labor Relations Review. Np: October 1, 1993.
7. Lawrence Mishel. “The Structural Determinants of Union Bargaining Power.“ Industrial and Labour Relations Review 40, no. 1 Np: October 1986.
8. Peirce Jon, and Bentham Karen Joy. Canadian Industrial Relations. Toronto: 2007.
9. Weber Arnold R. “The Structure of Collective Bargaining and Bargaining Power: Foreign Experiences.” Journal of Law and Economics. Np: 1963.
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