Internalization v. Decentralization: An Analysis of Recent Developments in Pay Bargaining

It is commonly assumed, particularly within the human resource management literature, that decentralized bargaining, performance‐related pay and individualized wage‐setting arrangements represent a further extension of the internal labour market and a source of efficiency gains in production. Drawing on new data on company pay policies, this paper advances an alternative interpretation of recent innovations in pay and bargaining. It is argued that moves to fragment bargaining and reward systems threaten to undermine the organizational principles of internal labour markets and may, therefore, raise the costs of managing the employment relationship.