The Evolution of German Industrial Relations: Softening Institutions, Hardening Growth Model

The German industrial relations system has changed considerably in the past thirty years and has become much more flexible. All observers agree on this point. However, interpretations of events differ. For some, the German economy has reached a new state of equilibrium built around a coalition between large, export-oriented firms and core workers. Lucio Baccaro argues that while there is much to comment on this argument, it does not go far enough. The softening of Germany’s industrial relations institutions is deeper and affects the core as well. This has important consequences for the German growth model. While the German economy has always been export-oriented, it was never solely dependent on exports for growth. Industrial relation institutions such as pattern bargaining ensured the broad distribution of productivity increases. The crisis of these institutions, combined with a more liberal labor market regime, has generated competitiveness imbalances and is one of the causes of the current Euro crisis