Wage Policy and Industrial Relations

This research unit covers a wide range of pay and industrial relations issues including incomes policy, corporate codetermination, the process of the wage finding and the roles of the parties involved.

Industrial relations in Germany are characterised by a dual system of representation. While employees are involved in decision-making in their company, wage agreements are concluded for the sector as a whole. The principle of free collective bargaining charges the representatives of employees and employers with the task of establishing general conditions. The aim is to distribute market incomes in such a way as to secure social cohesion and acceptance of the free market economy on the one hand, while preserving incentives, on the other. At the establishment level, Germany’s democratic works constitution is based on the principle of codetermination by works councils and workers’ representatives on supervisory boards. As representatives of the workforce, works councils are endowed with a statutory role in determining working conditions.

Sections of the Research Unit

  • Wage Policy: The researchers analyse the wage policy from a national and international perspective. It includes the development of wages and labour costs. A special topic is the question of price competitiveness. This is covered by comparing unit labour costs, productivity and hourly labour costs in an international perspective.
  • Industrial Relations: Topics in this policy area include issues of the collective bargaining process and co-determination. The researchers analyse conflict intensity in collective bargaining, industrial action and social partner relations. Analytical reports on industrial relations, working conditions and restructuring in Germany are, for example, prepared for the European Foundation for the Improvement of Living and Working Conditions – a tripartite European Union Agency based in Dublin.

Findings and Positions

  • Competitive wages and labour costs: In recent years Germany has been blamed to be too competitive for the Eurozone. Being called the “Sick man of Europe” in 1999, Germany was in need to revitalize its economy. This was realized by structural reforms, restructuring of enterprises and significant cutbacks in unit labour costs, mainly from 2003 to 2007.This helped the German economy to avoid lay-offs during the sharp downturn 2008/2009. Since 2010, unit labour costs are rising again putting German price competitiveness at risk once more. To minimize this risk, increases in labour costs need to be in line with productivity growth.
  • Fighting Poverty: The risk of poverty is closely related to the labour market. Immigrants, single parents and especially the unemployed are the groups most often hit by poverty. Alongside qualified child care, occupational qualification and the integration of immigrants, wages safe-guarding employment are thus crucial to tackle poverty.
  • Free collective bargaining: For the last sixty years free collective bargaining served as a strong pillar of the Social Market Economy in Germany. This principle grants employees and employers the right to negotiate salaries and working conditions without any state influence or interference. State interventions like national minimum wages weaken the collective bargaining autonomy.
  • One company, one agreement: In recent years, competition has been generated between different trade unions. While undercutting wages adds to wage dumping, overbidding shakes up wage demands. If these new developments are intensified, the collective bargaining system will be become more fragmented. In July 2015, the German federal government has presented a law in order to restore the principle of the bargaining unit. This law not only prevents a further fragmentation of collective bargaining. It also prevents that conflict-intensive organizational disputes between unions may have a negative impact on wage negotiations.
  • Sector level collective agreements: Collective agreements may be concluded centrally, based on sectors, or on the enterprise level. The advantage of sector-wide agreements is that a collective agreement creates a uniform peace clause for the whole sector. This peace clause creates planning reliability for the German manufacturing industries. A continuous process of customizing and modernising collective agreements is necessary to stabilise collective bargaining coverage.
  • Constructive social partnership and social dialogue: Constructive relationships between social partners, i.e. employer organisations, unions and government representatives, can help dealing with severe crisis as in 2008 and 2009, implement reform projects or open doors to debate common ground over newly arising issues (e.g. in such areas as demography, digitalisation or new forms of work organisation). Social partners actively contribute to the success of the German Social Market Economy.

Cooperative partners

  • European Industrial Relations Observatory (EIRO)
  • European Working Conditions Observatory (EWCO)
  • European Restructuring Monitor (ERM)


Hagen Lesch

Hagen Lesch

Head of the Research Unit Wage Policy and Industrial Relations

Tel+49 221 4981-778


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Helena Schneider

Consultant for Wage Policy and Collective Bargaining

Tel+49 221 4981-665


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Christoph Schröder

Christoph Schröder

Senior Researcher for Labour Costs, Working Hours, Income Distribution

Tel+49 221 4981-773


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Sandra Vogel

Sandra Vogel

Researcher for Industrial Relations

Tel+49 221 4981-746



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