Over the past 50 years, declining union membership has strongly influenced bargaining interactions. In the mid-1950s, 35% of private sector employees were unionized, whose terms of employment were set by collective bargaining. When the United States moved from manufacturing to a service and employee industry and U.S. firms were directly affected by global competition from emerging countries, rising labour costs related to unionized personnel were detrimental to many firms. Companies close to the unions have hired law firms and employment advisers to keep their businesses union-free, and organized companies have begun to find ways to get rid of their unions. To reconcile these opposing views, Calmfors and Driffill (1988[8]) proposed the influential «Hump Shape» hypothesis, which suggested that both centralization and decentralization fared well in terms of employment, while the worst results were found in systems of average centralization, i.e. sectoral negotiations. In this incident, organized interests are «strong enough to cause major disruption, but not sufficient to bear a substantial portion of the costs to society of its action in its own interest» (Calmfors and Driffill, 1988). The Calmfors and Driffill paper had the advantage of not having to monotonously the relationship between the degree of centralization and the performance. This assumption is at the root of the critical attitude towards sectoral trading systems in the 1994 OECD Employment Strategy (OECD, 1994[9]), which recommended decentralisation of collective bargaining, as it is not possible to fully centralise bargaining systems9.

Blaschke and Kittel (2001[11]), Aidt and Tzannatos (2002[12]), Bassanini and Duval (2006[13]) and Eurofound (2015). This chapter assesses the role of collective bargaining in labour market performance in OECD countries. It is based on the detailed characterization of collective bargaining systems and practices presented in the previous chapter. Based on a rich mix of data from countries, sectors, businesses and workers, this chapter examines the link between different collective agreement conditions and employment, wages, wage inequality and productivity. It will then examine how large-scale worker and employer organisations, administrative enlargements, organized forms of decentralisation and wage coordination can contribute to a better balance between inclusion and flexibility in the labour market. Note: The results are based on Juhn-Murphy-Pierce redistricting, which uses workers without a collective agreement as a reference group and controls sex, age classes, education, industry, occupation, company size, contract type and job rent.