Trade Unions and Collective Bargaining to the Rescue of Low Pay Workers? The Case of Germany

by Chiara Benassi (King’s College London) and Tim Vlandas (University of Oxford)

With an average incidence of 16% of the workforce in OECD countries, low pay has been at the centre of political and academic debates on inequality and in-work poverty. Global macro-economic trends including automation, global competition and tertiarization have certainly contributed to the increase of low pay.

Our recent article in Work, Employment and Society shows that trade unions and bargaining coverage can act as important protections against low pay for those workers who are covered and, under certain conditions, also for those who are not.

The debated importance of trade unions and industrial relations
There is broad consensus that trade unions and collective bargaining play a crucial role for labour market inequalities. Yet their effects remain heavily debated.

On one side of the debate, research in sociology of work and employment relations, which mostly adopts a power resource approach, suggests that strong unions and collective bargaining protect the whole workforce from the risk of low pay and deliver homogenous labour market outcomes.

On the other side of the debate, the insider-outsider literature contends that unions and collective bargaining only benefit ‘labour market insiders’, contributing to wage segmentation. Because unions are mainly composed of workers on safe contracts with fairly high wages, they are argued to follow a logic of representation and to focus on improving the wages of insiders at the expense of outsiders.

The (crucial) German case
A critical case for the academic debate illustrated above is the German labour market. Germany has been at the centre of recent debates on labour market dualisation because the low pay sector has grown to unexpected levels, given that the country used to be considered a model of ‘social capitalism’.

Moreover, the role of industrial relations in the transformation of the German labour market is particularly controversial. Some scholars have argued that insider-focused unions have contributed to labour market segmentation. Yet, others have claimed that IR institutions have actually prevented the further expansion of low pay, which is rather imputable to their erosion.

Our article uses data from the German Socio-Economic Panel on around 12,000 respondents capturing whether individuals earn a low pay as well as relevant socio-demographic factors. Crucially, this dataset allows to capture both whether an individual is unionised and/or covered by a bargaining agreement and how unionised the sector in which they work is, as well as what share of the workforce in that sector is covered by a wage bargaining agreement.

As shown in figure 1 below, union membership and individual and sectoral bargaining coverage have distinct and significant effects on the probability of low pay. By contrast, the effect of sectoral union density is not statistically significant.

The analysis of the cross-level interaction between individual union membership and sectoral union density is presented in figure 2. We find some support for the insider-outsider approach because non-union members are more exposed to the risk of low pay in highly unionised sectors.  

In contrast, the risk of low pay decreases also for those workers who are not covered by collective agreements – although to a lower extent than for those who are covered – with the increase of sectoral bargaining coverage.

Figure 1: Multilevel logistic regressions of individual low pay on individual and sector industrial relations characteristics

Figure 2: cross-level interactions

Overall, the insider-outsider literature correctly predicts that non-union members are at a greater disadvantage in highly unionised sectors. On the other hand, the power resource approach is correct in expecting sectoral collective bargaining to benefit the whole workforce.

Our findings show, first, that sectoral collective bargaining coverage has a stronger negative effect on the individual probability of low pay than union density. Second, encompassing sectoral agreements are beneficial also to those workers who are not directly covered. These results support recent calls for strengthening institutional mechanisms for extending collective bargaining coverage independent of the level of unionisation.

Authors: Chiara Benassi (King’s College London) and Tim Vlandas (University of Oxford)

Publication: Trade unions, bargaining coverage and low pay: a multilevel test of institutional effects on low-pay risk in Germany, forthcoming in Work, Employment and Society. Pre-print version available here: