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The erosion of union membership in Germany: determinants, densities, decompositions

Abstract

Unionization in Germany has declined considerably during the last two decades. We estimate the impact of socioeconomic and workplace-related variables on union membership by means of Chamberlain-Mundlak correlated random effects probit models, using data from the German Socio-Economic Panel. Drawing on the estimates, we project net union densities (NUD) and analyze the differences between East and West Germany, as well as the corresponding changes in NUD over time. Nonlinear Blinder-Oaxaca-type decompositions show that changes in the composition of the work force have only played a minor role for the deunionization trends in West and East Germany. In West-East comparison, differences in the characteristics of the work force reflect a lower quality of membership matches in East Germany right after German unification.

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Notes

  1. These numbers are based on the German Socio-Economic Panel, see Section 3 for details.

  2. Such contract extensions based on Section 5 of the German Collective Bargaining Act (Tarifvertragsgesetz) used to be of minor importance. In 2003, only 0.8% of all employees subject to social security contributions were covered by agreements that were binding by contract extension (BMWA 2004). Since the year 1996, however, minimum standards for working conditions (including, e.g., a minimum wage) may also be extended to all employees in one industry based on the job posting act (Arbeitnehmer-Entsendegesetz). So far, this has been applied in construction, for craftsman painters and building cleaners, and in postal services. At the same time, a considerable number of collective contracts have been modified during the last decade to include an explicit opening clause allowing for deviations from the terms of the contract under particular circumstances (Heinbach 2006).

  3. See Windolf and Haas (1989), Lorenz and Wagner (1991), and Goerke and Pannenberg (2004) for important empirical studies based on individual-level data. Goerke and Pannenberg (2004) test social customs theory and provide evidence that individual membership increases with a higher membership at the industry level. There also exist alternative approaches in the literature, see the surveys by Riley (1997) and Schnabel (2003) for studies using aggregate time series data to study long-run trends and business cycle effects, and Hassel (1999), Windolf and Haas (1989), and Frege (1996) for studies analyzing the impact of institutional regulations and interactions in social environments on union membership.

  4. A related strand of literature examines the erosion of collective bargaining coverage and the trend towards more decentralized wage setting. Based on firm-level data, Kohaut and Schnabel (2003a, b) find that firm size, age of the establishment, and skill level of the work force positively affect the probability of bargaining coverage beyond industry-specific effects. In addition, the existence of a work council and the fact that a firm pays wages above the collective agreement significantly reduce the propensity of a firm to abolish recognition of a collective agreement (Bispinck and Schulten 2003).

  5. See the working paper version of this paper (Fitzenberger et al. 2006), as well as Schnabel (2003) and Beck and Fitzenberger (2004), for detailed conceptual discussions of the various determinants.

  6. Blanchflower (2007) finds an inverted U-shape pattern of union membership in age across many countries. The pattern is partly explained by cohort effects, but even remains when cohort effects are removed. So it also reflects “a broader life cycle pattern” (p. 20), which would imply a number of different arguments, such as less need for unions among younger and older workers as compared to prime-age workers because union wage mark-ups are less favorable to young workers and statutory employment protection is higher for older ones. The inverted U-shape is also in line with increasing free-rider behavior in later years of the life cycle, with moves to (non-union) managerial positions in later years, or with quits from full-time union jobs in favor of part-time or marginal employment in years preceding (early) retirement.

  7. Our econometric specification controls for observable measures of professional status and firm-specific human capital (job status, tenure). Thus, the estimated effect of earnings partly reflects the impact of earnings due to the unobserved components of these two determinants.

  8. Summary statistics of all variables used are available in Section 2 of the online appendix.

  9. The discussion paper version of this paper (Fitzenberger et al. 2006) reports two additional specifications based on restricted sets of covariates available in two large-scale German labor market data sets (IAB employment sample, German Structure of Earnings Survey). The corresponding estimates may be used to predict NUD in labor market segments (cells) defined by industry, region, and/or individual socio-economic characteristics (Fitzenberger et al. 2008). Union density in a labor market segment can reflect the importance of unionism as it is not meaningful to estimate wage effects of individual union membership in Germany (Fitzenberger and Kohn 2005).

  10. Since we already control for age, education, professional status, and proxies for firm-specific human capital, a referee questioned the interpretation of the earnings effect conditional on all the other variables. In order to assess this point, we run quantile regressions of earnings to determine quintiles of the conditional earnings distribution for each individual, and we used dummy variables for these quintiles as alternative earnings measures in our membership estimation (detailed results are provided in Section 8 of the online appendix). The findings confirm the mostly positive and highly nonlinear effect of earnings given the other observed variables.

  11. Detailed estimation results are provided in Section 11 of the online appendix.

  12. It would also have been possible to analyze the change for West Germany over the even longer period 1985–2003. However, we opt for 1993–2003 in order to facilitate East-West comparisons in Table 1.

  13. It is well known that decompositions resulting from different counterfactuals do not necessarily yield identical results. Different approaches on how to deal with the non-uniqueness of decompositions have been proposed in the literature; see Oaxaca and Ransom (1994) and Silber and Weber (1999). Each of the decompositions relies on assumptions about the counterfactual of interest. Here, we report the two benchmark cases and we interpret possible differences in results.

  14. The finding is in contrast to a result of Beck and Fitzenberger (2004), who study union membership for an earlier time period. Rationalizing stability of regression coefficients over time, they conclude that the decline in union density in West Germany between the 1980s and 1990s was mainly driven by changes in the composition of the work force.

  15. This finding is somewhat in contrast to the results reported by Biebeler and Lesch (2007). Detailed results with estimated average marginal effects are provided in Section 7 of the online appendix.

  16. This is in line with the results reported by Biebeler and Lesch (2007).

  17. As the membership equation is less precisely estimated for East Germany compared to West Germany, the decomposition results using East German coefficients to evaluate the differences in characteristics (left column) are also less precise than the decomposition, which uses coefficients for West Germany (right column). We do not interpret the differences between the two columns because they are not significant. Based on coefficients for West Germany, both the characteristics effect and the coefficients effect tend to be somewhat larger in absolute value.

  18. Again, we put less emphasis on the less precisely estimated decomposition results based on coefficients from East Germany.

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Acknowledgements

We thank the editor and two anonymous referees for helpful comments, which led to major improvements of the paper. We are also grateful to Martin Biewen and participants of the EALE meeting 2006 in Prague and the International Symposium on Contemporary Labor Economics 2006 in Xiamen for fruitful discussions, as well as to Andrej Gill and Alexander Lembcke for excellent research assistance. The paper was written as part of the research project “Collective Bargaining and the Distribution of Wages: Theory and Empirical Evidence” within the DFG research network “Flexibility in Heterogeneous Labor Markets” (FSP 1169). Financial support from the German Science Foundation (DFG) is gratefully acknowledged. The usual disclaimer applies.

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Correspondence to Bernd Fitzenberger.

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Responsible editor: Christian Dustmann

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Appendix

Appendix

A.1 Data description

Table 2 Definition of variables
Table 3 Summary statistics, selected variables, West Germany
Table 4 Summary statistics, selected variables, East Germany

A.2 Sensitivity analysis of decompositions

Table 5 Decomposition of differences in NUD based on OLS results

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Fitzenberger, B., Kohn, K. & Wang, Q. The erosion of union membership in Germany: determinants, densities, decompositions. J Popul Econ 24, 141–165 (2011). https://doi.org/10.1007/s00148-009-0299-7

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Keywords

  • Union membership
  • Correlated random effects probit model
  • Decomposition analysis

JEL Classification

  • J51