Wage Relativities, Welfare State Development, and the Labor Union Support for Wage Restraint

This article deals with the postwar ability of European economies to produce wage settlements under which unions deliver real wage restraint and moderate their wage demands in exchange for welfare state development. The article illustrates how the scope for such settlements depends on organized labor’s willingness to support the welfare state’s redistributive consequences. In doing so it critically examines the view that the welfare state during the first decades of the postwar period functioned as the “cornerstone” of government attempts to obtain real wage restraint. The article demonstrates that this view not only misinterprets the causal relationship between wage bargaining and welfare state development, but also mistakenly presupposes labor union support for welfare state expansion. The analysis also takes issue with the popular tendency to view wage competition among unions as the outcome of a mere coordination failure that can best be dealt with under conditions of centralized wage bargaining. It does so by illustrating that such competition often results from genuine conflicts of interest over the distribution of labor market earnings – conflicts that may preclude the emergence of stable centralized wage bargaining institutions in the first place.