Variable Payment Schemes and Industrial Relations: Evidence from Germany

This paper examines the empirical determinants of piece rates and profit sharing schemes. Establishment data from Germany confirm the importance of industrial relations climate. The presence of collective agreements makes profit sharing less likely. Yet, the presence of works councils makes both piece rates and profit sharing more likely within the sector covered by collective agreements. The use of teams makes piece rates more likely within the uncovered sector. Additional hypotheses regarding expected tenure, production technology, and firm strategy are confirmed. The results from Germany are explicitly compared with those from several other countries.