Since there is scant evidence on the role of industrial relations in wage cyclicality, this paper analyzes the effect … of collective wage contracts and of works councils on real wage growth. Using linked employer-employee data for western … Germany, we find that works councils affect wage growth only in combination with collective bargaining. Wage adjustments to …

their preferred wage formation regime. Our theoretical framework predicts, first, that the larger the total factor … productivity of a firm, the more likely it is to opt for centralized wage formation where it can hide behind less productive firms …. Second, the larger a firm's scale elasticity, the higher its incentive to choose centralized rather than decentralized wage …