Deal or no deal: why do social pact proposals fail?

Abstract:

Since 1980, over one-quarter of social pact proposals have failed to result in social pact agreements. In order to explain this high failure rate, the social pact formation process is broken down into two stages. In the first stage, governments decide whether to propose a pact. In the second stage, governments and labour unions decide whether to complete a pact agreement.

Using data on social pacts in Western Europe, the article finds that pact proposals are likelier in the presence of moderately centralised unions, high unemployment, and large budget deficits; but that pact agreements are likelier when employers’ associations are centralised, and labour unions have a high degree of organisational centralisation, low membership fractionalisation, and represent a small share of workers. It is submitted that the inability of moderately centralised unions to complete a social pact agreement may be a primary cause of the high failure rate of social pact proposals.