Pattern Bargaining in Germany: Does It Exist and Why It Matters for EMU

In Germany, restraint in public sector wage setting ever since the start of the European Economic and Monetary Union (EMU) has been explained through the presence of a specific type of inter-sectoral wage co-ordination in the industrial relations system, i.e. export-sector-led pattern bargaining. Pattern bargaining is often understood in the literature as the institutional comparative advantage which underpins the transmission of wage moderation from the export sector to the sheltered one, of which the public sector is usually taken as a proxy. This paper has a twofold ambition. First, as a literature-assessing exercise, I review pertinent literature in industrial relations and comparative political economy. Second, as a theory-testing exercise, I perform hoop tests to verify whether the pattern bargaining hypothesis can really account for public sector wage restraint in post-reunification Germany. I argue that pattern bargaining starts to unravel approximately around 1995/1996. As a consequence, it can not account for wage restraint during EMU, as widely believed. Wage restraint in the German public sector is a phenomenon which predates the single currency. It appears to be not directly linked to the role of the Bundesbank as the anti-inflationary gate-keeper. Also, it is not necessarily co-ordinated to wage bargaining in the exporting industries. These findings challenge core tenets of a long-lasting scholarship in comparative political economy and industrial relations. Most importantly, they open a new interesting research agenda on public sector wage setting centered on the need to bring in fiscal federalism and the politics of fiscal policy.