Lower coverage but stronger unions? Institutional changes and union wage premia in central Europe

In this paper Iga Magda (Warsaw School of Economics and Institute for Structural Research (IBS)), David Marsden (Centre for Economic Performance, London School of Economics and Political Science) and Simone Moriconi (Dipartimento di Economia e Finanza, Università Cattolica di Milano and Centre for Research in Economic Analysis, Université du Luxembourg) use the national samples from the European Structure of Earnings Survey (ESES) to analyze the evolution of the wage premium of firm- and industry-level agreements in the Czech Republic, Hungary, and Poland (the CE3) around the time of their accession to the EU. We find that despite a generalized reduction in union coverage in these countries, the union wage premium after accession to the EU became bigger and statistically more significant. This is particularly the case for Poland and Hungary, where in the years immediately following EU accession a wage premium associated with industry-level agreements emerged which mostly applied to low-income workers ages 30 and older. We interpret these findings in terms of the institutional reforms that occurred in the CE3 between 2002 and 2006. These reforms, which were prompted by the EU Commission’s requirements for EU accession, increased the social partners’ ability to bargain and enforce wage agreements, and made industry-level unions more effective in guaranteeing the protections provided by labor standards.