Western European economies have undergone a major adjustment process over the last 25 years. They have had to adjust to the challenges of the effects of the oil shocks of the mid-1970s, to major effects of the process of European monetary and economic integration, to structural burdens of highly developed welfare states and decreasing labour market participation rates, and to an ever increasing degree of international penetration of markets, especially financial markets.

While processes of economic internationalization and financial liberalization have affected all advanced countries, Western European countries have faced a particular challenge. European economic integration processes have increasingly taken...

Economically speaking, it is not obvious why governments have started to use intervention into wage formation processes as a tool in economic policy-making. In the neo-classical world of economic policy, monetary and fiscal policies are the two main instruments a government can and should employ in order to strengthen economic stabilization during the business cycle. Wages and, in particular, the assumptions about the rigidity of wages have been important factors when assessing the potential of fiscal and monetary policies respectively. The Keynesian revolution in economic thought held out the prospect of full employment secured through the creation of aggregate demand...

Politically, the origins of negotiations between governments and trade unions lie in the new balance of class power that emerged in the settlement that followed World War II.³⁷ The promotion of Keynesian welfare state policies guaranteed trade unions the right to free collective bargaining while committing governments to ensure high employment levels. Combining full employment with secure and free collective bargaining rights raised the welfare expectations of workers and in turn created demand for institutional and political tools for adjusting these expectations to enable balanced economic growth. Collective bargaining institutions mediated between the welfare expectations of workers on the one...

In the following three chapters I examine three potential explanations for the attempts made by governments to influence wage formation processes as discussed in Chapters 2 and 3. The present chapter focuses on the shift in monetary policy since the 1970s. The core argument is that governments have tended to employ corporatist policy approaches in order to strengthen the credibility of their monetary policy, particularly in situations where the preconditions for a credible monetary policy were weak. Government intervention thus serves as a policy instrument of governments for conveying a new economic policy. The argument is supported by a strong...

So far, I have considered the link between corporatist government intervention and monetary regimes. In this chapter, I will extend the line of explanation to the capacity of the government itself, examining how political institutions influence the decision of governments to intervene in wage bargaining procedures. Generally speaking, political decisions tend to be directed to preserve thestatus quoand governments have to overcome inertia and opposition from other political actors against change, which can use institutional devices in order to block political decisions.⁷⁹ Governments are primarily under pressure to avoid the political costs of a deflationary policy and aim...

Wage formation processes are embedded in the institutions that regulate the labour market. They are influenced by market developments on the one hand and mediated by institutional factors on the other. Market factors put pressure on wage bargainers to take into account the effects on the economy of changes in wages. External shocks, rising prices and high levels of unemployment alter the conditions under which wages are formed. Institutional factors are particularly strong in the labour market since wages determine the well-being of the majority of citizens. Concerns about social justice and the distribution of income are thereby integrally linked...

I now turn to the 13 country cases to discuss the interaction between wage bargaining responsiveness and government intervention. The analysis builds on Chapter 6, in which the responsiveness of wage bargaining institutions was assessed. In this chapter I go a step further, examining the interaction between wage bargaining institutions and the behaviour of the government.

The case studies themselves aim to synthesize the extensive literature on each of the countries and to do so in a way that places particular emphasis on developing a greater understanding of why, and under what conditions, governments intervene in the wage bargaining process....

During the 1980s and 1990s, many observers assumed that corporatism in Western Europe had come to the end of its useful life. Economic internationalization, the changes in the labour market and the increase in unemployment after the oil shocks had changed the structure of European economies to such an extent that neither governments nor trade unions, it was believed, would be interested or able to engage in further forms of political exchange. Incomes policies had proven unsuccessful during the 1970s and forms of centralized wage bargaining seemed to lack support. To the surprise of many, the reality since has been...