The rules and institutions of collective bargaining are widely held to have an adverse effect on employment and thus on unemployment. These views are analysed, and it is argued that many industrial relations institutions provide a much greater degree of flexibility for firms than it is often realised. It is often forgotten that collective agreements involve the agreement of employers who are thus able to influence the rules that are fixed. Nevertheless, there are many areas where collective rules conflict with the needs for firms to raise productivity and to adapt to market changes. The paper then examines a number of the sources of flexibility in such areas as low inflation bargaining structures, industry agreements, workplace cooperation, and mechanisms for youth inclusion. It also reviews some of the developments in the area of flexibility agreements, and recent reforms of collective bargaining systems in a number of OECD countries, all features likely to increase the ability of firms to adjust in these countries. It conclude with a number of policy recommendations for further reform of industrial relations systems including the need to combine some form of macro-level coordination with greater flexibility at the enterprise level. This paper accompanies a similar paper by the same author on management practices and unemployment.

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David Marsden

May 1995     Paper Number CEPDP0240

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