Collective Bargaining in Germany: Trends and Challenges

ABSTRACT This paper examines the evolution, institutional structure, and challenges of collective bargaining in Germany. Collective bargaining addresses labor market imperfections, redistributes productivity gains, and shapes working conditions. Germany's system centers on industry‐level agreements, complemented by firm‐level agreements and voluntary adoption by formally uncovered firms (“orientation”). Historically, it has fostered cooperative labor–management relations while retaining flexibility during downturns. We document long‐term declines in union density and bargaining coverage, partly offset by orientation, with especially low coverage among low‐wage workers. Finally, we discuss the future of collective bargaining, the growing role of the statutory minimum wage, and comparisons with the US.