Collective wage setting when wages are generally binding - An antitrust perspective

This paper explores the anticompetitive product market effects that wage ag reements between employers' associations and labor unions can have when wag es are generally binding. In particular, it is shown that both employers' a ssociations and unions may have a common interest in increasing the standar d wage rate if coverage extension rules can be used to raise rivals' costs. This may help to explain why both employers' associations and labor unions appear to oppose the removal of the coverage extension rule provided for i n Germany's labor law, the so-called Allgemeinverbindlicher-klarung (AVE). Consequently, the paper argues that coverage extension rules should be a su bject matter of antitrust policy, not only for their labor market implicati ons, but also for their effects on product markets. The paper also shows, h owever; that there are constellations where unions actually prefer a wage r ate below the entry deterring limit wage. In these cases, a strong labor un ion can serve as an efficiency enhancing countervailing power to employers' associations. (C) 2001 Elsevier Science Inc. All rights reserved.