Browsing by Author "Kuuskoski, Kasperi"

In the context of collective bargaining, decentralization refers to the process in which national and sectoral wage agreements lose prominence as the primary institution of wage-setting, and are replaced by negotiations conducted at the firm or establishment level. In the Finnish context, the collective bargaining institution has faced a gradual decentralization process during the 21st century, exemplified by the loss of prominence of the previously common national income policy agreements, and the transformation of some key sectoral agreements into groups of firm-level agreements. In this thesis, I analyze the decentralization of collective bargaining in Finland both through qualitative institutional exploration and quantitative empirical analysis. I first present the Finnish bargaining institution and its decentralization process in detail, comparing it to its international equivalents and drawing insights from these comparisons. I then move on to empirically analyze how local bargaining provisions in collective agreements affect wages using high-quality individual-level panel data matched with a novel collective agreement dataset. Theoretical literature has shown that decentralized or local bargaining can have various effects. Based on theoretical considerations, the balance of bargaining power between employers and employees can influence the effects to a great degree. If unions carry most of the bargaining power, local bargaining is likely to lead to higher average wages, rent-sharing and reduced wage dispersion. If firms have the edge with bargaining power, local bargaining is expected to increase wage dispersion and weaken the link between firm profits and wages. Evidence from empirical studies on the effects of local bargaining is relatively scarce. Most studies show that local bargaining is associated with a small positive premium on average wages. In addition, there is substantial evidence of a relationship between local bargaining and the increase of rent-sharing. However, the evidence on the effects on wage dispersion is mixed. I find that local bargaining has steadily increased in prevalence during the 21st century, though its distribution across industrial and occupational lines is uneven. Controlling for unobservable heterogeneity using a fixed effects approach, I find that local bargaining provisions in Finnish collective agreements are generally associated with a small premium in wages. The estimated effects are small enough to likely not affect economic outcomes in a large way. Specifically, local installments that do not institute fallback clauses specifying minimum increases in cases where negotiations fail, are associated with a wage premium of 0.5–1.7%. The existence of fallback clauses leads to outcomes resembling the absence of local bargaining. Finally, I find that local bargaining clauses enforcing primarily local wage negotiations lead to mixed outcomes. If negotiations are conducted over the size of the increase, the effect is positive, but if they are conducted over the execution of the increase, the effect is negative.