The Theoretical Arguments for Decentralised Pay Setting Arrangements
One of the major determinants of the drive to decentralise the systems for setting the pay of public sector workers in Australia, Sweden and the UK during the nineteen nineties was developments in the private sector of the economies of these three countries. A very limited theoretical literature has analysed the determinants of the institutional arrangements for pay setting in the private sector of industrialised economies. There has been some analysis of the impact of collective bargaining on economic performance but this has taken collective bargaining arrangements as exogenous even though it has been recognised that these arrangements have changed through time. There has been virtually no discussion of the determinants of pay setting arrangements in the public sector and more specifically of the determinants of decentralisation in the non-market, public sector of these industrialised economies. 1 Beyond the familiar debate about the association between bargaining structure and macroeconomic performance (see Calmfors and Driffil, 1988, Soskice, 1990 and Flanagan, 1999) there has been no detailed analysis of the relative advantages and disadvantages of centralised and decentralised bargaining arrangements, at the microeconomic level in either the public or private sectors. The focus of this chapter is therefore upon a more detailed theoretical analysis of the determinants of and advantages and disadvantages of decentralised wage setting in the public sector.