TABLE OF CONTENTS

Abstract   1

1  Introduction  2

1.1  Structure of the Thesis  3

1.2  Theoretical Framework  4

1.3  Definitions  10

1.4  Research Question and Model  13

1.4.1  Case Selection  15

1.4.2  Model  16

1.4.3  Operationalization and Methodology  18

1.4.4  Connection between Theory and Model  21

1.4.5  Criticism of Method  25

1.5  State of Literature  26

2  The German Collective Agreement System  30

2.1  The Operation of the German Collective Agreement System  31

2.1.1  Collective Bargaining, Collective Agreements  35

2.1.2  Collective Agreements and Law  38

2.1.3  Declaration of General Applicability  39

2.1.4  Arbitration and Labor Dispute  40

2.1.5  Labor Dispute and Law  41

2.2  Actors in the German Collective Agreement System  42

2.2.1  Trade Unions in Germany  42

2.2.2  Employers Associations  45

2.2.3  Role of the Government  47

2.2.4  Role of Jurisdiction  49

3  Sources of German Unions’ Bargaining Power  50

3.1  Unions' Function and Membership  50

3.1.1  Structural Pluralization of Workforce  50

3.1.2  Membership Decline and Legitimacy  51

3.1.3  Unions' Function  53

3.1.4  Finances and Transaction Costs  54

3.1.5  The Public Property Problem  54

3.2  Employers Associations  55

3.2.1  Company Size  55

3.2.2  Degree of Employers Organization  56

3.3  The Legally Prescribed Role of Unions  

and  Employers' Associations  56

3.3.1  Ambiguity of Governmental Self-Restraint  57

3.3.2  Political Ideology of the Governing Party  57

3.3.3  The Courts' Adherence to  

the  Market-Correcting Approach  58

3.4  Socio-economic Environment  59

3.4.1  Assessment of the Overall Economic Situation  59

3.4.2  (Un-)Employment Rate  60

3.4.3  Relevance of Represented Branch and Workforce  61

4  Asymmetric Integration of Economic versus Social Policy  62

4.1  Sectoral Asymmetry  62

4.2  Insertion of a Supranational Layer  64

4.3  The Prominence of the ECJ  67

5  Effects of European Integration  69

5.1  Unions' Function and Membership  69

5.1.1  Structural Pluralization of Workforce  69

5.1.2  Industrial Relations in a Multi-level System  70

5.1.3  Transnational Coordination  71

5.1.4  Membership Decline and Legitimacy  72

5.2  Employers and Employers' Associations  73

5.2.1  Internationalization of employers  73

5.2.2  Management Principles  74

5.2.3  Changed Opportunity Structures  75

5.3  Changes in the Political System  76

5.3.1  Effects on National Policy  76

5.3.2  Supply-Orientated Wage Policy  76

5.3.3  Decreasing Bond to Common Policies  77

5.3.4  Influence of the ECJ  78

5.4  Socio-economic Environment  79

5.4.1  Overall Economic Situation  79

5.4.2  (Un-)Employment Rate  80

5.5  Wage Ratio as Indicator  81

6  Conclusion  83

7  Abbreviations  86

8  Literature  87

Abstract

German trade unions' influence in industrial relations at the national level is curbed by the side effects of European integration. Supranationalization implies the transfer of regulatory power from the national to the supranational level. In the various policy areas, integration and supranationalization proceed at different speeds with regard to scope and level. This also applies to the neighboring policy areas of economic and labor policy. However, due to the overlap of these two policy areas, the asymmetrical integration of economic policy vis-a-vis labor policy leads to shifts in the German collective bargaining system, thus circumscribing the scope of German trade unions' action. More specifically, sectoral asymmetry leads to asymmetric political localization of the policy areas: Regulations in the economy are mainly taken at the EU level, whereas labor and social affairs remain national competences. Furthermore, the insertion of a supranational layer is accompanied by a policy-theoretical change of the highest governmental and judicial authority from a hitherto (social-democratic) market-correcting consensus to a now marketmaking approach. This shift causes respective shifts at the national level as well. Additionally, the European Court of Justice possesses supreme judicial competence in both economic and social policy and hence is able to negate national particularities that conflict with EU law. Moreover, EU institutions are able to regulate national labor and wage policy, since there is a broad overlap between economic and wage policies. Supranational regulations in economic policy can thereby influence and constrain national wage policy. Finally, because of Economic and Monetary Union, the exchange rate mechanism is no longer applicable as a tool of economic policy, which entails high incentives for regulating labor costs by wage policy alone.

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1 Introduction

In 2003, the German federal state Niedersachsen (Lower Saxony) commissioned a general contractor to build a local prison. The contract included an obligation for the general contractor and his subcontractors to comply with the local sectoral collective agreement. Having found out that a foreign subcontractor had paid less than the local minimum wage, the federal state government imposed the contractual penalty. The subcontractor appealed to the European Court of Justice (ECJ) which reversed the judgment with the explanatory statement that the local sectoral collective agreement was not generally applicable. The ECJ stated that the public procurement law in Lower Saxony infringed European law (legal case Rüffert - C-346/06; Wenten 2008) because it contradicted the Posting of Workers directive (RL 96/71/EG), and it interfered with the freedom of services (article 49 EC-Treaty). Furthermore, the ECJ found Lower Saxony’s justification of their procedural method to be inapplicable because Lower Saxony’s argument based on the protection of workers’ rights would refer only to workers in public construction sites and not to construction workers in general (Asshoff 2008: 1; Pechstein 2008: 3). This judgment of the ECJ was severely criticized, not only by public opinion but also by politicians, trade union representatives and the International Labor Organization ILO (Last, Dähne 2008; Wenten 2008:3ff., Pechstein 2008). The main criticism was that basic social protection mechanisms had been made subordinate to minimum working conditions, and that the ECJ had exceeded its competencies. However, the decision of the ECJ remained.

How does an EU organization come to annul accepted national policy, thus neglecting relevant aspects of national social policy? This thesis investigates the impact of European integration on national systems of industrial relations. Specifically, it explores the effects of the asymmetry between economic and social integration ¹ at the EU level on the bargaining power of German trade unions in collective bargaining on the national level. The argument to be developed in the chapters that follow is that European integration weakens several sources of German trade union bargaining power. This argument builds on a growing literature that exam- ¹ Theprecise focus in my thesis is on labor and wage policy. However, the policy area is social policy, and I

view labor and wage policy as a component of social policy.

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ines the impact of European integration on trade union power (see, most prominently, Streeck 2008 and Hoepner 2008), but it goes beyond these analyses by demonstrating empirically how and in what ways the asymmetry between economic and social integration shapes German unions' bargaining positions in their relations with employers and with the state.

1.1 Structure of the Thesis

This thesis analyzes the effects of asymmetric European integration on German trade unions' bargaining position in industrial relations at the national level. I start out with a thorough description of the German collective agreement system. Subsequently I analyze the sources of German trade unions' bargaining power. In a second step I demonstrate the integration asymmetry of economic versus social policy at the EU level and the longitudinal development of the wage ratio. Finally, I derive the influence of asymmetric integration on the sources of union power and draw my conclusions by comparing asymmetry, wage ratio and the shifts in union power resources.

In chapter 2 I describe the operation and specificities of the German collective agreement system and point out their (weak) legal foundation set by custom and practice. Furthermore, I outline the roles of the actors involved. In chapter 3 I develop four central factors which will serve as indicators. I regard German trade unions' bargaining power as a function of those four factors: (1) unions' function and membership, (2) the existence and density of employers’ associations (3) the legally prescribed role of unions and employers' associations and (4) aspects of the socio-economic environment. These factors contribute to the system's special vulnerabilities due to its weak legal embedding and the customary roles of the actors involved. In addition to these vulnerabilities I point to hitherto structural change and tertiarization which function as debilitating factors. In chapter 4 I depict the developing integration asymmetry of economic versus social policy by comparing the respective sectoral integration steps according to the respective transfer of regulatory powers to the European level. In chapter 5 I explain how the asymmetric integration affects the four factors. Additionally, I use the development of the

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wage ratio from 1991 to 2007 as an indicator. The conclusions will be discussed in chapter 6.

1.2 Theoretical Framework

My concepts, perception and interpretation of the problem are influenced by two theories: my understanding of European integration is based on supranationalism; ² my basic economic assumptions are taken from Marx’ macroeconomic ‘Critique of Political Economy’ (Marx 1957).

Rationalist supranationalism is a macro-theory that is rooted in neo-functionalism (Rittberger, Schimmelfennig 2005: 31) and implies a rationalist explanatory model including utility-maximizing and strategic agents (Rittberger, Schimmelfennig 2005: 36ff., Nölke 2005: 154f.). Supranationalism views the European Union ³ as a political system, with the process of European integration developing a momentum of its own that cannot be controlled by national governments (Rittberger, Schimmelfennig 2005: 31). The theory assumes that the intensity of transnational activity is the driving force behind European integration (Stone Sweet, Sandholtz 1997: 299). While intergovernmentalism views European member states and national governments as central players in the process of European integration, supranationalism points out the role of societal actors and supranational organizations, with particular reference to the relevance of decisions of the European Court of Justice within this process (Stone Sweet, Sandholtz 1997: 299). National governments comport reactively and gradually lose the capacity to control policy outcomes (Nölke 2005: 145f., 157; Stone Sweet, Sandholtz 1997: 299f.).

Supranationalism can be divided into two strands: constructivist and rationalist. While constructivist supranationalism focuses on identity questions and socialization processes within institutions at the European level ⁴ , rationalist supranational-

² Centralauthors for supranationalism are Alec Stone Sweet and Wayne Sandholtz, e.g. Stone Sweet, Sand-

holtz 1997.

³ I refer to European Union due to general language usage, although I mainly point to European Community

as the forerunner and subdomain of the European Union.

⁴ A more detailed description on constructivist supranationalism can be found found at Rittberger, Schim-

melfennig 2005: 31ff or Risse, Thomas (2004): Social Constructivism and European Integration, in: A. Wie-

ner and T. Diez (eds.): European Integration Theory,Oxford, pp. 159-176.

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ism sees societal groups and supranational organizations as rational and autonomous but interacting actors. They act within a given institutional framework (Rittberger, Schimmelfennig 2005: 32). The scientific interest of supranationalism is empiric-analytic (Nölke 2005: 159). Rationalist supranationalism explains the process of European integration along three central factors: (1) Transnational societal exchange activities co-evolve and interact with the emergence of (2) supranational organizations ⁵ , which hold sufficient autonomous capacity in order to bring forward the integration agenda. The evolution of (3) supranational norms stimulates further transnational interaction (Nölke 2005: 157, Stone Sweet, Sandholtz 1997: 304f.). The integration process develops a momentum caused by intensifying transnational interaction and interrelations, unintended side-effects and processes of institutionalization (path-dependency) (Rittberger/Schimmelfennig 2005: 33, Stone Sweet, Sandholtz 1997: 306). Once achieved, integration steps are almost irreversible and lead to further integration (Nölke 2005: 161).

Supranationalism raises the question of why the integration level of different sec-tors in European integration varies in scope and time. The answer to this phenomenon lies in the fact that supranationalism draws a continuum from intergovernmental regulation (low integration) to supranational regulation (high integration) (Stone Sweet, Sandholtz 1997: 302f ) and distinguishes functional, political and institutional spillover processes. Increasing integration becomes apparent in a rise in regulative power of supranational organizations, driven by functional spillover. Europeanization of certain sectors provides benefits for some national actors. However, these benefits remain limited due to integration restrictions of the affected or a neighboring sector. In order to allocate further profits, the benefiting actors demand additional integration thus exerting pressure on national or supranational organizations, which can entail further and hitherto unintended integration steps (functional spillover) (Rittberger/Schimmelfennig 2005: 34f., Stone Sweet, Sandholtz 1997: 306).

⁵ By supranational organizations I refer mainly to the EU Commission (COM) and the European Court of Jus-

tice (ECJ).

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Alongside functional spillover, the orientation of societal actors changes, which entails political spillover: During intergovernmental regulation societal actors are

oriented towards national governments because they serve as intermediaries between national interest groups and EU organizations. An increase in supranationalization however enhances infrastructure and communication channels hence interest groups find direct access to EU organizations. Furthermore, due to the increase of the regulatory power of EU organizations, it is rational for national interest groups to appeal directly to them instead of remaining their focus on national governments (Nölke 2005: 151, Rittberger/Schimmelfennig 2005: 35). Therefore the orientation of (benefiting) national interest groups shifts from national government to supranational organizations. Consequently, there is institutional spillover defined by activities of supranational organizations at the EU level which secure the entanglement among the sectors and encourage functional and political spillover. Here they prefer to serve the interest of transnational actors and actors who benefit more from supranational rather than national regulations in specific policy domains (Rittberger, Schimmelfennig 2005: 35, Stone Sweet, Sandholtz 1997: 305). In return, they receive support and hence legitimacy from the benefiting national actors thus increasing their authority. To sum up, cooperation between national interest groups, that benefit from European integration, and supranational organizations is mutually beneficial hence rational.

The underlying economic concepts and principles of the arguments in this thesis are drawn from Marx’ macroeconomic ‘Critique of Political Economy’, in which he describes the contradictory interests of labor and capital. For production, the capitalist offers the means of production which are non-labor factors (capital and land), whereas the workers provide labor. The output (or value of the produced goods) is significantly higher than the value of the resources hence there is value added which according to Marxian theory should be shared in a fair way between the capitalist and the worker. Since the surplus value produced by human labor exceeds the adopted means, the entrepreneur is interested in hiring wage workers in order to generate and gain the surplus value (Marx 1957: 175f.). Although the worker is compensated for skill and working hours, there remains a gap between the value of what a worker produces and his wage which equals the surplus value.

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In other words, according to Marx: Worker's compensation = wage (w) Wage (w) = sum of skill (s) and working hours (h)

A worker produces output: Output (o) = wage (w) + value added Value added = surplus value

For the entrepreneur, the surplus value means profit (Marx 1957: 293f.) whereas for the worker, it represents his share in the acquired surplus. Hence the central conflict between labor and capital is the question of a fair distribution of the surplus value between the two parties since the gain of the one entails a reduction in the standard of living of the other. Despite a formal equality of wage worker and entrepreneur (Marx 1957: 127), the balance of power between the two parties is asymmetric. The worker’s need for work is existential whereas the entrepreneur has enough capital at his disposal to sustain his existence. To acquire profits the entrepreneur in turn needs a workforce as well, but he or she can choose from a vast pool of employment-seeking workers whereas job opportunities for workers are relatively rare. Secondly, the price of labor is determined according to the model of supply and demand (Marx 1975). In general, many workers compete with each other for relatively scarce jobs thus reducing the value of labor of the individual. Furthermore, labor gets partly replaced by machines thus reducing the entrepreneurs need for a workforce (Marx 1957: 264f.). Thirdly, the entrepreneur partly influences the conversion of workers’ skill and time into commodities and their value. Since the entrepreneur provides them with means to work, he determines which goods to produce and finally he is in charge of defining the price of the commodities (Hoffmann 2006: 18ff., Artus 2001: 20ff.; Marx 1957: 352f.). Fourthly, since the entrepreneur is the seller of the commodities, he has immediate access to the surplus value and is in charge of the distribution of the revenue. Additionally the entrepreneur can reduce wages in order to increase the surplus value by lowering production costs (Marx 1957: 319f.). In sum, the relation between wage worker and entrepreneur is unequal and the wage worker is, to a large degree, dependent on the entrepreneur (Marx 1957: 293f.). Due to the asymmetric struc-

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ture in the power relations between workers and entrepreneurs, workers are in a structurally inferior position and are at risk of exploitation. At the same time, labor and capital continuously struggle for a fair distribution of the surplus value but are unequally equipped in terms of power resources (Artus 2001: 21f., Hoffmann 2006: 18ff.).

In this unbalanced conflict of interests, trade unions serve as the collective representative of wage workers. They reduce rivalry among workers through collectivization in order to balance the structural weakness of wage workers and strive for an improvement of wages and working conditions. ⁶ At the same time, trade unions function in a system-sustaining way, in the sense that their cooperation with entrepreneurs implies acceptance of the system (Neumann 2003: 418). Hence there are several advantages for entrepreneurs from cooperation with trade unions: They represent a ‘contact person’ for entrepreneurs in order to (efficiently) bargain with workers collectively and to negotiate working conditions. Collective agreements record the compromise on the price of labor thus homogenizing the general wage level (which entails a harmonization of wage costs for employers) and providing a stable basis for entrepreneurs’ calculation of wage costs. Additionally, the temporary peace obligation stabilizes and structures industrial relations. Thus trade unions are not simply opponents to employers, but create advantages for employers as well, such as the harmonization of competitive conditions for entrepreneurs (Artus 2001: 24). To sum up, Marx’ ‘Critique of Political Economy’ conceptualizes the general conflict underlying the problem described in this thesis.

The theoretical foundation of my thesis is therefore based on Marxian concepts and the mechanisms described in rationalist supranationalism. The theory of supranationalism is applicable to the case described here since the problem deals with two overlapping policy domains, namely economic and labor policy, which show different integration levels. Whereas the economic domain is characterized primarily by supranational regulation, labor policy regulations are mainly intergovernmental (Rittberger, Schimmelfennig 2005: 41). Relevant actors in my research

⁶ „Gewerkschaften als Interessenkoalition der Lohnarbeitenden […] wirken als ‚Verkaufsagenturen der Ware

Arbeitskraft‘ - sowohl was die Preisfestlegung betrifft als auch die Vernutzungsbedingungen.“ (Artus

2001: 23)

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are national interest groups of which some (employers and their representatives) appeal to supranational organizations. The advanced integration of the economic area is reflected, for instance, in the strong authority of the ECJ which is able to impose unpopular decisions on the German national government. Interdependence between the two policy domains leads to the fact that supranational decisions from the highly integrated economic policy domain are applied to the mainly intergovernmentally regulated hence weakly integrated labor policy domain, causing externalities that are rejected by the respective national actors but that cannot be stopped. However, concerning functional spillover, I see the effect to be opposite to the original supranationalist definition because the benefiting economic ac-tors explicitly do not demand further integration of the affected neighboring sector labor policy since further integration of this sector would restrain profits (Hoffmann 2006: 167f.)

The application of supranationalist theory to the problem analyzed in this thesis involves drawbacks which are formulated in the neo-Gramscian critique. To begin with, the supranationalist approach ignores the dichotomous relation between capital and labor. Second, supranationalism focuses on the fact of asynchronous integration neglecting consequences with regard to the content (Nölke 2005: 161f.) but content often matters by showing the consequences of asynchronous integration. Third, supranationalism neglects the fact that labor and social policy are of high domestic importance whereas economic policy implies parallel interests and transnational activities by definition. Despite these drawbacks I see supranationalism as the suitable theory due to its emphasis on transnational actors and transnational activity, the consideration of asymmetric integration and spillover effects of interrelated policy domains and the prominence of EU organizations, particularly ECJ. The missing aspects are included with reference to the Marxian ‘Critique of Political Economy’. I account for the contradictory interest constellation of labor and capital, the workers' structural weakness and the necessity of trade unions. Furthermore, I distinguish national interest groups along the labor-capital-cleavage and with respect to transnational activity. However, I do not employ all Marxian concepts. For example, I do not share the Marxist and neo-Gramscian assumption of the capitals ‘claim to power’ (Bohle 2005: 199ff ), instead I view economic actors

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according to rationalist supranationalism as self-interested utility maximizers who adapt their strategies to the newly emerging (market-making) structural changes due to Europeanization in order to increase their benefits. Nevertheless, uncontrolled liberalism results in dysfunctional markets and market failure, hence governmental market-correcting regulations are needed (May 2006: 386).

1.3 Definitions

Trade unions are autonomous syndicates representing the interests of wagedependent employees in their relations with employers, economy and state. In a (neo-)corporatist system, the primary responsibility of trade unions is the codetermination of social and economic policy. At the same time, unions protect their members through the collectivization of social risks (Esser 2003: 65f.). Through collectivization trade unions gain control over labor supply and thereby form a counterweight to the power of private capital in the bargaining between the social partners for collective agreements, which is binding for the social partners. In Germany, during the years of the economic miracle, trade unions grew strong and achieved high wage agreements, mainly because of their bargaining power due to full employment (Streeck 1999: 15f.). However, since the 1970s, manifold structural change led to a decline of trade unions’ bargaining power, partly caused by the internationalization of economy and work life (Artus 2001: 78ff.). 7

Since the conflictual path of collective bargaining is costly for both sides, the German collective agreement system is institutionalized along the concept of neo-corporatism. Neo-corporatism is defined as a mainly consensual bargaining process, where the social partners (employers' and workers' representatives) exchange views and negotiate wages and working conditions (bipartite social dialogue). In tripartite social dialogue, the bargaining on and organization of the industrial relations encompass the government, trade unions and employers’ representation. The general idea of neo-corporatism is a system of concerted action around the bargaining for workers' fair share of the produced added-value and negotiations on labor conditions. According to the classical neo-corporatist approach,

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the government urges trade unions to restrain their wage demands based on the argument that the prosperity of the enterprise would be beneficial for employees as well as for workplace security and moderate but continuous wage increases. Entrepreneurs highly favor the neo-corporatist approach since wage restraint has kept production costs at a comparatively low level (Streeck 1984: 293). Critics reply that neo-corporatism basically means that legislation and political administration are influenced or even dominated by the interests of business enterprises and employers’ organizations, whereas the influence of trade unions is small (Gold 1998: 108).

The German collective agreement system which I describe in detail in chapter 2 is not entirely neo-corporatist. In contrast to the classical neo-corporatist ideology the German bipartite system is not fixed but based on a voluntary agreement where the role of German trade unions can change from bargaining partner into an anti-capitalist countervailing power (Esser 2003: 76). This happened for example in the 1960s and 1970s when trade unions gave in to members' frustration and pressure and pursued tough bargaining. At that point, the benefits of neo-corporatism for capital started to decrease (Streeck 1984: 293).

The term bargaining power is used to refer to the capacity of the social partners to assert their demands or to defend against the demands of the antagonist. Fur-thermore, bargaining power is revealed in the capacity to maintain established achievements in further collective agreements. In this thesis I view the bargaining power of trade unions as a function of several determining factors (unions' function and membership, employers associations, approach of government and jurisdiction, socio-economic environment) which I develop in chapter 3 and as an indica-tor for effective functioning of the German collective agreement system.

I assess the German collective agreement system as functional if there is approximate power equilibrium among the social partners (trade unions and employers or their representative organizations). The aspired power equilibrium in industrial relations is attained in case of symmetric bargaining power of the social partners

⁷ In chapter 3 I reflect on these structural changes when developing determinants of German unions' bargain-

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and visible in pareto-optimal outcomes, where the collective bargainers' benefits in the long term outweigh the losses from the adjusted result. However, this equilibrium is prone to disturbance henceforth instable. Therefore I view this equilibrium as fluctuating due to continuous changes in the power relation of trade unions and employers’ associations.

Market-failure means that markets may fail to achieve the optimal outcome because of dysfunctional mechanisms. Market-making policy focuses on market liberalization in order to promote the self-regulatory power of the market, thus ig-noring (and tolerating) dysfunctional developments like a growing social gap. In contrast, market-correcting policy visualizes a downward spiral hence governments actively intervene ⁸ in markets in order to improve the market outcome for people or groups of people who are structurally disadvantaged (Happe 2009: 216, 256).

Transaction costs define costs which accrue parallel to production costs. These are costs through acquisition of information, surveying activities or enforcing entitlements (Obinger et al. 2006: 422).,

With the term tertiarization I refer to the relevant shifting of the economic core area from industry to the service sector, concerning both creation of value and employment.

My understanding of vertical integration is based on Rittberger and Schimmelfennig (2005: 40) who see vertical integration in a gradual formal transfer of regulatory powers to the European level. With asymmetric integration I refer to the fact that in the European governance system economic policy and labor policy are institutionalized to different degrees hence the vertical integration of the two neighboring policy areas differs in speed and scope.

Within the theory of supranationalism, spillover effects describe externalities from one policy domain to another due to interdependence between the two neighbor-

ingpower.

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ing, and possibly overlapping policy domains which show differences in their level of integration. Spillover occurs when regulations in the higher integrated policy domain entail effects and co-regulations in the related low-regulated policy domain. At times this happens unintentionally, and in these cases it is a matter of externalities. In my thesis, particularly negative externalities are of critical relevance because they lead to effects contrary to the interest constellation of the (main) actors in the labor policy domain as we see in the problem described in this thesis. The unintended spillover from the economic policy domain develops a momentum as described in supranationalist theory that cannot be controlled by the German national government (Stone Sweet, Sandholtz 1997: 305f.).

Externalities are unintended (sometimes even unnoticed) side effects. The term 'externalities' draws attention to the fact that an individual may have an effect or impact on third parties which are not directly involved. The adaptation of an actors' behavior may unintentionally change conditions or outcomes of another actor. These effects may be positive or negative (Happe et al. 2009: 115; Schreiber 2000: 160). An example for negative externalities could be car exhausts polluting the environment. A positive externality could be the closure of an airport which entails a drastic reduction in noise pollution.

I use the term 'EU organizations' with reference to Stone Sweet, Sandholtz 1997: 304 in the sense of “governmental structures at the European level, which produce, execute and interprete” EU rules, hence EU organizations refer to the EU Commission and the European Court of Justice.

1.4 Research Question and Model

German trade unions have the sole right to represent workers in wage bargaining which underlines their status as a public actor. However, trade unions’ actions are carried out under the scrutiny of various requirements and prone to destabilization. Since the 1980s structural changes in Germany (and Europe) have led to changes

⁸ Governmental interventions may be for example regulations, taxes or wage and price controls.

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in the employers’ structure ⁹ , the structure of the workforce ¹⁰ and the structure of labor contracts. ¹¹ Additionally, Europeanization and internationalization enlarge the available workforce and introduce the application of foreign regulations which may constrain the cruising range of trade unions. ¹² In this extremely changing environment, effective collective bargaining became difficult for the trade unions. Changing conditions tend to weaken the trade unions and strengthen the employers. Trade unions no longer have sufficient bargaining power at their disposal to conclude satisfactory wages. But when trade unions are no longer able to negotiate an appropriate share of the surplus value for their members, social dialogue becomes dysfunctional because it fails to provide fully employed workers with wages that allow them to earn a living. In Germany, from 1975 to 1998 there was a continuous increase of the working poor whose income is below 50% of national average income (Bieback 2000: 207). In 2006, about 1 million of the people in paid work received complementary unemployment benefit ('Arbeitslosengeld II'). Almost 40% of them worked full time, but could not live on the income (BMAS 2007, 5f.). I argue that lack of trade unions’ bargaining power is harmful for social balance and contributes to a growing social gap. Accordingly, membership to trade unions appears pointless to employees since trade unions are seemingly no longer able to represent their interests effectively. As a consequence, trade union membership declines and the collective bargaining system starts to erode (self-enforcing process).

In this thesis I examine the position of trade unions in the German collective bargaining system. I view the bargaining power of trade unions as an indicator for an autonomously functioning social dialogue. I argue that the German collective agreement system is strongly threatened and out of balance.

⁹ Tertiarization involves changes in the size of enterprises, pluralization of business organization and a shift

from producing sector to services. All these changes entail a relevant diversification of workforce structure

(Funk 2003: 16ff., Schroeder 2003: 7).

¹⁰ The typical clientele of trade unions was for a long time the male industrial worker in a fulltime job. However,

since the 1980s, the workforce has been pluralized. Now it includes not only more and more women, but al-

so part time and temporary workers as well as clerks and employees in the service sector (Schroeder

2003: 7, 9).

¹¹ Since the 1980s there is an ongoing shift from standard employment relationship (unlimited period, full time)

to parttime and temporary contracts (Eichhorst et al. 2010: pp. 6ff.).

¹² If, for example, a foreign investor buys a German enterprise and includes it in the international business

organization, then workers' representation and management standards are affected.

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1.4.1 Case Selection

I chose Germany as a case because German wage policy plays an important role in the political economy of Europe. Due to its economic capacity, Germany constitutes approximately one-third of the entire EU-GDP and its export oriented industries play a significant role in the EU economy. The German trade unions have comparatively high membership numbers and are thoroughly institutionally embedded in the German wage bargaining system. Hence the German collective bargaining results - based on master contracts - form a central reference for dimensions to other European countries (Schroeder, Weinert 2003: 442).

However, the legal framework of the German collective agreement system at the national level is quite thin; it functions primarily according to customary law which means that wage agreements are produced within a sensitive power equilibrium. ¹³ Since the German collective agreement system neither provides an explicit legal regulation (like for example the Code du Travail in France) nor statutory minimum wage (like in France or in Great Britain), a potential downward spiral of wages due to trade unions' weakness in bargaining remains a threat. The introductory example shows that this risk is increasing due to interventions on the part of European organizations. In contrast to countries like Sweden or Denmark with a collective bargaining coverage of more than 90 %, the moderate coverage of Germany collective bargaining (around 70 %) ¹⁴ leads to an interpretation by EU organizations as the representation of special interests and entails rejection of respective collective agreements as long as general applicability has not been declared. At the same time, the instrument of general applicability in Germany is based on several preconditions which I describe in chapter 2 ¹⁵ and therefore is more the exception than the rule. Hence the German collective agreement system is quite susceptible to being overruled by EU organizations. At the same time it does not provide stabilizing elements such as laws or a statutory minimum wage when collective bargaining breaks down. This contributes to the growing social gap in German society.

¹³ This equilibrium is described more detailed in chapter 2.

¹⁴ From 1995 to 2003, in West-Germany the proportion of employees covered by collective agreements

dropped from 72 % to 62 % (Schnabel 2005, 190).

¹⁵ The institution of the declaration of general applicability is prone to erosion as well. These developments

are described in chapter 3.

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1.4.2 Model

This thesis demonstrates how the asymmetric integration of economic policy versus social and labor policy at the EU level curbs trade unions' leverage by changing the regulatory environment, thus causing a relevant shift in the German collective bargaining system (see figure 1). This balance is already affected by structural change and tertiarization (see chapter 3). Now, because of Europeanization, the scope of action of German trade unions gets even more affected because EUpolicy not only affects politics at the EU-level, but also at the national level. The lack of social integration at the EU level restricts the latitude of German trade unions on the national level. Indeed, the tremendous changes in the working field of trade unions originate partly in structural change and tertiarization. However, I argue that European integration introduces various changes in the regulatory environment by direct effects since European integration establishes a new political and judicial decision-making level because of supranationalization (see figure 2). In particular, the political, legal and judicial changes caused by European integration affect legislation, jurisdiction as well as custom and practice in Germany in an unbalanced way and to varying degrees. I view these changes as direct effects while recognizing indirect ones since European integration affects structural change and tertiarization as well.

Figure 1:

Position of Trade Unions in the German Collective Agreement System (role model)

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