Regulation & delegation : public sector wage-setting systems and the two models of state-led wage restraint in Western Europe

Abstract

Systematic variation in the outcomes of public sector wage-setting (PSWS) persists in Europe. PSWS is generally analyzed as a problem of inter-sectoral wage-coordination in political economy literature. To do justice to PSWS’ unique features, this article advances a state-centered theoretical framework which treats PSWS by political employers as fiscal policymaking characterized by the common-pool problem and special-interest politics. Drawing on insights from public economics scholarship, the article thus argues that systematic public sector wage restraint occurs within states where the governance of PSWS is structured according to two models which I term the delegation and regulation models of PSWS. Through a combination of six case studies, elite interviews and archival research, the article shows that variation in PSWS hinges on the various capacity of state institutions to minimize special-interest politics’ externalities across countries. These findings advance our understanding of PSWS and the role of the state in public policymaking.