Contract Innovation in Germany: An Economic Evaluation of Pacts for Employment and Competitiveness

Pacts for employment and competitiveness are an integral component of the ongoing process of decentralization of collective bargaining in Germany, a phenomenon that has been hailed as key to that nation's economic resurgence. Yet little is known about the effects of pacts on firm performance. The evidence largely pertains to employment and is decidedly mixed. This article investigates the association between pacts and six outcome indicators using a framework in which the controls comprise establishments that negotiated over pacts but failed to reach agreement on their implementation. An extensive set of robustness checks are run to test the sensitivity of the key findings of the model. There is no suggestion of pacts negatively impacting any of the selected measures of establishment performance. Rather, the evidence points to some positive short‐ and medium‐run effects on firm average wages and possibly employment and innovation as well.