Both employees and companies benefit from flexible wage systems

Aug 03, 2013

Research from the University of Copenhagen has revealed the effects of a decade of decentralised wage negotiations in the private sector. In an article in the Journal of Labor Economics, researchers conclude that wages have risen for all employees and that companies are now better able to retain key personnel.

"Average wages rise when employees and managers negotiate on an individual basis, without a collective-bargaining agreement dictating fixed rates for all," explains Jakob Roland Munch, professor of economics at the University of Copenhagen.

For the first time, this trend has been followed over a ten-year period – and results indicate that the effect on wages has been positive. The research shows that the average increase for Danes employed in the and subject to decentralised wage bargaining is 5% higher than for employees whose wages are calculated on the basis of such as seniority.

"The examples we have unearthed in the private sector show clearly that the average wage rises under decentralised bargaining," says Professor Munch. "We didn't expect such a large difference. Even those at the bottom of the hierarchy win under a . Many other countries in Europe organise wage negotiations in a similar manner, so they may be interested in and inspired by our results." The other two researchers involved in the project are Professor Christian Møller Dahl of the University of Southern Denmark, and Assistant Professor Daniel le Maire, also from the University of Copenhagen.

Flexible wage systems reward abilities

Among those who benefit the most are those with a long-term and long-term work experience. For this group, wages have risen by 7%, while those with shorter education and little have seen their rise by 3%.

A flexible wage system affords better opportunities to reward employees according to their abilities, which means that companies can adapt more easily to market demand.

"Globalisation and technological progress affect companies differently and create a need for restructuring. For example, flexible wage systems make it easier for companies facing growing demand to retain key employees, while under threat of outsourcing can end up keeping their jobs at a lower wage," Munch continues.

"One fairly obvious interpretation of the positive effect revealed by our study is that a decentralised system means companies are better placed to cope with changes to market conditions and are therefore more productive.

Our research concerns the private sector, but the principles are transferrable to other sectors," he stresses.

"Our research sends a signal that decentralisation actually makes it possible to identify areas in which more flexible wage bargaining makes units function more efficiently. It is easy to envisage the same effects in parts of the public sector, where wage bargaining is currently relatively centralised," the professor concludes.

Explore further: Study shows how California employers avoid paying lawful claims to workers

add to favorites email to friend print save as pdf

Related Stories

More female managers do not reduce wage gap

Dec 16, 2011

Are wage differences between men and women decreasing as more women attain managerial positions? A new Swedish report from the Uppsala Center for Labor Studies (UCLS) at Uppsala University and the Institute for Labour Market ...

State workers underpaid, new study finds

Mar 12, 2013

A comparison of public sector workers in Illinois with their peers in the private sector shows a general wage and salary penalty for state and local government employees, according to research by a University of Illinois ...

Recommended for you

Which foods may cost you more due to Calif. drought

4 hours ago

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

20 hours ago

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 3

Adjust slider to filter visible comments by rank

Display comments: newest first

BSD
1 / 5 (8) Aug 03, 2013
What's this got to do with science?
Have we got to have economics and business bullshit in every forum on the Internet?
Ridakulous
5 / 5 (5) Aug 03, 2013
Economics is science. You may not care for the implications of these results, but it is science.
kochevnik
1.5 / 5 (6) Aug 03, 2013
Well, a dismal pseudoscience at least...

More news stories

Can new understanding avert tragedy?

As a boy growing up in Syracuse, NY, Sol Hsiang ran an experiment for a school project testing whether plants grow better sprinkled with water vs orange juice. Today, 20 years later, he applies complex statistical ...

Crowd-sourcing Britain's Bronze Age

A new joint project by the British Museum and the UCL Institute of Archaeology is seeking online contributions from members of the public to enhance a major British Bronze Age archive and artefact collection.

Roman dig 'transforms understanding' of ancient port

(Phys.org) —Researchers from the universities of Cambridge and Southampton have discovered a new section of the boundary wall of the ancient Roman port of Ostia, proving the city was much larger than previously ...

Cosmologists weigh cosmic filaments and voids

(Phys.org) —Cosmologists have established that much of the stuff of the universe is made of dark matter, a mysterious, invisible substance that can't be directly detected but which exerts a gravitational ...