The Rise in Orientation at Collective Bargaining Without a Formal Contract

While firm participation in collective bargaining between unions and employers’ associations has been decreasing in Germany over the last two decades, orientation at collectively bargained wages has increased in popularity. Orientation implies that employers claim to set wages according to collective agreements but they are not formally bound by the respective bargaining contract, and in fact, I observe that they pay significantly lower wages than firms that are formally covered. Dynamic nonlinear panel estimation applied to establishment‐level data shows that this orientation is a stepping stone into formal participation. However, the decline in formal participation and the opposing rise in orientation are mostly due to a changing establishment composition rather than to behavioral transitions.