1 9. Jahrgang (1 993), Heft 4 Wirtschaft und Gesellschaft 
tain new skills and to accept new responsibilities. While social de�
mocrats view coordinated wage setting as cooperative behavior aimed at 
attaining the public goods of low inflation and full employment, conser�
vative parties perceive the same institutions as collusive practices who�
se real purpose is to protect the unions' monopolistic position in the la�
bor market. 
Each side of this debate can point to empirical studies supporting its 
claims. The social democratic belief in the advantages of centralized or 
coordinated wage setting has been upheld in a large number of studies. 
McCallum (1983,  1986), Crouch (1985),  Bruno and Sachs (1985) ,  Bean, 
Layard and Nickeil (1986) ,  Tarantelli (1986) ,  Newell and Symons (1987),  
Jackman (1990), Jackman, Pissarides and Savouri (1990), Soskice (1990) 
and Layard, Nickeil and Jackman (1991)  are just some of the empirical 
studies that have found evidence associating centralized or corporatist 
bargairring institutions with real and/or nominal wage restraint and su�
perior macroeconomic performance. 
Yet, those who believe in the benefits of greater decentralization and 
competition in the labor market can find at least partial support for their 
views as well. Calmfors and Driffill (1988) and Freeman (1988) present 
evidence that the relationship between centralization and economic per�
formance is hump-shaped rather than monotonic. Both studies conclude 
that countries with both very decentralized wage setting and highly cen�
tralized wage setting achieve reasonably low levels of unemployment. 
The countries that experienced the worst unemployment, according to 
the hump-shaped hypothesis, are those with partially centralized wage�
setting institutions. In a similar vein, Lange and Garrett (1985) ,  Garrett 
and Lange (1986), Hicks (1988) and Alvarez, Garrett and Lange (1991)  
find that countries with decentralized unions and conservative govern�
ments, as well as countries with centralized unions and social democra�
tic governments, have done relatively better than countries with one but 
not the other. Finally, there is the argument of revealed preference. Why, 
it might be asked, if centralized wage setting leads to greater wage mo�
deration, are employers in many countries vigorously promoting greater 
decentralization of bargaining? 
Given the small number of cases and the large number of factors that 
plausibly affect economic performance, the credibility of empirical evi�
dence on the advantages or disadvantages of different wage setting insti�
tutions depends on the strength of the theory explaining the results. In 
this paper, we concentrate on what econorriic theory has contributed to 
the debate. Our purpose is to review the the?retical literature on the im�
pact of different systems of collective barg9
    

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