Flexible wage systems benefits both employees and companies

Researchers have revealed the effects of a decade of decentralised wage negotiations in the private sector.

"Average wages rise when employees and managers negotiate on an individual basis, without a collective-bargaining agreement dictating fixed rates for all," Jakob Roland Munch, professor of economics at the University of Copenhagen, said.

This trend has been followed over a ten-year period and results indicate that the effect on wages has been positive.

The research shows that the average increase for Danes employed in the private sector and subject to decentralised wage bargaining is 5 percent higher than for employees whose wages are calculated on the basis of parameters such as seniority.

Among those who benefit the most are those with a long-term higher education and long-term work experience. For this group, wages have risen by 7percent, while those with shorter education and little work experience have seen their wages rise by 3percent.

A flexible wage system affords better opportunities to reward employees according to their abilities, which means that companies can adapt more easily to market demand.

The study is published in the Journal of Labor Economics.