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

- Analyze the union wage premium in the Czech Republic, Hungary, and Poland around the time of their accession to the EU.
- The union wage premium after accession to the EU became bigger and more significant for Poland and Hungary.
- Institutional reforms increased the social partners' ability to bargain and enforce wage agreements.
- In the Czech Republic, several factors attenuated the effect of bargaining coverage upon wages.

In this paper we 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 for Poland and Hungary, particularly for industry-level agreements. 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. Results are less conclusive for the Czech Republic, probably due to factors that attenuate the effect of bargaining coverage upon wages, e.g. a smaller effect of institutional reforms, a greater use of mandatory extension mechanisms, the more radical firm restructuring during transition in that country.