ICLE Issue Brief Examines Lessons for the US from German Sectoral Bargaining

PORTLAND, Ore. (Oct. 4, 2022) – Germany’s system of “sectoral bargaining”—in which unions representing all workers in a given sector bargain over the terms of employment for all firms in that sector—has drawn growing interest from some quarters in the United States. But a new issue brief from the International Center for Law & Economics (ICLE) examines the legal and practical issues that would arise should U.S. policymakers seek to import the German model to these shores.

Advocates for sectoral bargaining argue that it is better for workers and can even protect the economy from adversarial labor-market disputes, claims that were examined in an earlier ICLE issue brief by Matthias Jacobs of Bucerius Law School and Matthias Münder of the law firm Schramm Meyer Kuhnke.

But as ICLE Senior Scholar Julian Morris and Director of Innovation Policy Kristian Stout note, the proportion of German employees working under a sectoral-bargaining agreement has fallen by more than 35% since 1996, with the reduction driven by the changing nature of work and increasing exposure of German markets to international competition.

“In an environment of international competition, Germany’s model required all manner of tweaks in order to make it ‘work.’ Even then, Germany’s rate of economic growth has been considerably lower than that of the United States,” Morris and Stout write, adding that the gap in per-capita output between Germany and the United States has increased from less than $2,000 in 1991 to more than $10,000 in 2021.

Nonetheless, proposals for German-style sectoral bargaining have proliferated in recent years. California recently passed the Fast Food Accountability and Standards Recovery Act (FAST Act), which applies important features of European sectoral-bargaining models to the state’s fast-food sector. Sectoral-bargaining proposals have also been floated in Illinois, Connecticut, and New York State, and several candidates in the 2020 U.S. Democratic Party presidential primaries forwarded proposals for labor-market reforms that were based explicitly on such ideas.

Sooner or later, Morris and Stout write, such proposals are bound to run headlong into U.S. antitrust law, which broadly prohibits competitors from coordinating their behaviors in ways that set prices or cause anticompetitive harm to consumers. Any attempt to bring sectoral bargaining to the United States would therefore need either an explicit statutory exemption from Congress or to qualify for one of the existing non-statutory exemptions, the authors argue.

“As the United States heads further into unstable economic times, it would be unwise to adopt a bargaining model that would make its labor market less flexible and more subject to the disruptive effects of competition from overseas and from new technology,” Morris and Stout write.

The full white paper is here. Journalists interested in interviewing ICLE scholars about the law & economics of sectoral bargaining should contact ICLE Editor-in-Chief R.J. Lehmann at [email protected] or 908-265-5272.