The Erosion of the German System of Industrial Relations

The paper assesses current trajectories of change in the German system of industrial relations by analysing the co‐determination and collective bargaining systems. It argues that two parallel developments undermine the institutional stability of the German model. First, the institutional base of the German industrial relations system, which has served as the pre‐condition of its past success, has been shrinking during the last two decades. This is due to a decline in coverage by the two major industrial relations institutions: the works council system and wage agreements. Today fewer than 15 per cent of German plants are covered by both a valid collective agreement and a works council. Second, increasing decentralization pressures within collective bargaining tend to undermine the division of labour between co‐determination and collective bargaining. The dynamics of an institutional erosion of the German industrial relations institutions and the decentralization of collective bargaining disturbs the fine‐tuning of the mediating process between macroeconomic steering capacity and co‐operative workplace industrial relations. This tendency has been aggravated by the effects of German unification. The current institutional developments of the German industrial relations system leave serious doubts about the future of a successful model of co‐operative modernization.