Productivity Growth, Wage Growth and Unions

Abstract

This paper reviews trends in labor productivity, wage growth, unemployment and
\ninequality over the past two decades in nine advanced countries. We focus on the two
\nlargest countries in the eurozone, Germany and France, which experienced similar
\nincreases in productivity over the past 20 years. In France wages grew in tandem with
\nproductivity, inequality declined and unemployment remains stubbornly high. In
\nGermany, in contrast, wages largely stagnated (until 2008), inequality increased (until
\n2010), but unemployment is now at a record low. This paper argues that the divergent
\ndevelopment of Germany and France is in part a consequence of an unprecedented
\ndecentralization of the wage-setting process in Germany, from the sectoral level down
\nto the level of the firm or the individual. In contrast, the distinctive characteristics of
\nFrance’s system of industrial relations prevented France from a similar downward
\nadjustment of wages