Are German unions rocking the economy? A reappraisal of the supply-side political business cycle

Abstract

Drawing on German data we look for evidence of a supply-side political business cycle. The hypothesis suggests that centralized trade unions with political interests and some degree of monopoly power may fine-tune their collective wage bargaining strategies so as to help preferred or to harm rejected parties in power. The regression results confirm that between 1960 and 1988 German trade unions exercised additional wage pressure before general elections under a Christian Democratic incumbent drew closer, trade unions pursued a restrictive wage policy to promote the government' chances for re-election.