Collective bargaining,minimum wages and public procurement in Germany: Regulatory adjustments to the neoliberal drift of a coordinated market economy

Abstract

This article analyses different types of labour clauses in public procurement regulation that have been enacted in Germany, a coordinated market economy that has experienced a ‘neoliberal drift’ including the decline of the traditional governance of labour and contracting out. Based on an analysis of relevant regulations adopted by the 16 Germany federal states, the article corroborates insights into the prominent role of left parties advocating for labour clauses in public procurement on a much broader empirical foundation than previous research. It adds to scholarly knowledge by revealing that the relative comparative advantage of regions with lower wage levels inhibits labour clauses in federal political systems. It finds that centre-right parties are willing to stipulate certain labour clauses in order to protect small-and medium-sized enterprises, which are core parts of their electoral support base.

Keywords

Germany minimum wage multi-level governance political parties public procurement regulation

Introduction

Over the last few decades, the regulation of public procurement has gained increased importance as a mechanism of labour governance. During this period, advanced economies have witnessed the processes of marketisation in general and contracting out more specifically, leading to the increased importance of contracting out for services (Kuhlmann and Bouckaert, 2016; Vincent-Jones, 2006). Contracting out has been linked to the deterioration of working conditions and remuneration, and increased workloads (Benjamin, 2016; Campbell and Peeters, 2008; Dube and Kaplan, 2010; Flecker and Hermann, 2011), contributing to the exacerbation of ‘the vulnerable position of workers employed in […] low-wage service segments’ (Grimshaw et al., 2014: 1). In Germany, the regulation of working conditions and wages in the public sector has traditionally been dominated by collective agreements and regulations that were better than those in the private sector. The trend towards outsourcing has increased the importance of individual contracts, which has caused employees to be in a weaker position. To mitigate the drawbacks of contracting, such as low wages and precarious working conditions, public procurement has increasingly considered social and labour aspects (Sack, 2012; Sarter, 2015) and has ensured that labour standards are set ‘through the combination of traditional labour law mechanisms and lesser understood contract law mechanisms’ (Holley, 2014: 672).

Strategic public procurement can be used as a tool to promote the adoption of specific employment standards (Donaghey et al., 2014: 247). While public procurement has progressively been subject to regulation that addresses detrimental working conditions and low wages in public sector contracts, mainly in the Anglo-Saxon context (Erridge, 2007; Howe and Landau, 2009; McCrudden, 2004, 2007), scholars have indicated that there is a gap in knowledge on the impact of contracting on the regulation and governance of employment, working conditions, and remuneration (Donaghey et al., 2014: 247; Ravenswood and Kaine, 2015: 545). In particular, gaps in knowledge exist regarding labour clauses in coordinated market economies and how they adjust to institutional change.

This article aims to address this knowledge gap by considering how public procurement interacts with the regulation of labour via contractual arrangements from a multi-level perspective. The article examines the strategic use of pay clauses in public sector procurement in a once exemplary coordinated market economy (Hall and Soskice, 2001) that has faced a neoliberal drift since the 1990s (Streeck, 2009). Drawing on an empirical study of all 16 German sub-national jurisdictions (federal states, or Länder) in two time periods (1999–2008 and 2008–2014), for a total of 38 cases, this article shows the adjustment of legal regulations to the changing institutional context of procurement (Knill et al., 2009). It also highlights regional differences in pay clauses when they are utilised and the role of parties in defining the regulatory dimension of the procuring state.

The contributions of the article include the following. While most of the research in the field addresses the introduction of labour clauses in liberal market economies, the article turns to the context of a coordinated market economy that has experienced neoliberal institutional changes. Based on a mid-size sample, which is new in the research, this article first corroborates insights into the prominent role of left parties advocating for labour clauses in public procurement on a much broader empirical fundament than previous research. Second, it adds to the knowledge in the field by revealing that the relative comparative advantage of regions with rather low wage levels inhibits labour clauses in federal political systems. This has not been disclosed and validated in the research before to the best of our knowledge. Third, the article exposes for the first time the role of centre-right parties in regions with relatively high wage levels. Centre-right parties are willing to stipulate certain labour clauses in order to protect small- and medium-sized enterprises, which are central to their electoral support bases.

This article starts with a brief outline of the existing literature on the relationships among contracting out, public procurement and labour, and outlines three institutional changes in the governance of labour. Due to these changes (which include privatisation in the public sector), it is questioned whether Germany can still be considered as a classical coordinated market economy (Addison et al., 2017).¹ The article analyses the regulatory dimension of the (sub-national) state by considering legislative changes in the 16 German federal states prior to 2008. Labour clauses during this period (if introduced) were mainly regarding compliance with collective bargaining agreements that were instituted to protect the traditional governance of labour. The article then explores the changes in labour clauses that have occurred since 2008, including the introduction of minimum wages in public procurement. This development contributed to a national statutory minimum wage, which was instituted for the first time in 2015. The conclusion discusses the importance of institutional changes for the introduction of different labour clauses and argues that these can be explained by both regional economic variations and party differences.

Public procurement and labour governance: A literature review

While public contracting is not a new phenomenon, it has gained importance in advanced economies over the last few decades due to the increasing importance of contracting out for services (Bel and Fageda, 2007; Domberger and Rimmer, 1994; Jørgensen and Bozeman, 2013; Kuhlmann and Bouckaert, 2016; Pollitt and Bouckaert, 2011; Rees, 2014; Veggeland, 2008; Vincent-Jones, 2006). Against this background, a rather extensive body of work has been dedicated to the impacts of contracting out, showing that it may negatively impact working and employment conditions and wages (Dube and Kaplan, 2010; Engström and Axelsson, 2010; Flecker and Hermann, 2011; Vrangbæk et al., 2015). The price-driven procurement of services has been associated with labour cost cutting, extended work schedule, and increased workloads (Campbell and Peeters, 2008) and has been argued to ‘exacerbate the vulnerable position of workers employed in […] low-wage service segments’ (Grimshaw et al., 2014: 1).

Against this background, research on public contracting has highlighted the function of public procurement as ‘a tool for regulation’ (Holley, 2014: 673). Public procurement has a long-standing history as being used as a tool to foster the creation of employment opportunities and upholding wage levels (McCrudden, 2007; Schulten et al., 2012). In recent decades, legal regulations have increasingly included social aspects (Sack, 2012), which have gained importance and acted as a lever to promote, for example, equal opportunities and compliance with the International Labour Organisation’s (ILO) core labour standards, and the sourcing of Fairtrade goods (Erridge, 2007; McCrudden, 2007; Sarter, 2015). Studies have also noted the use of public procurement as a means to promote responsible business practices and labour standards by strategically using public institutions’ consumer power (among others, Donaghey et al., 2014; Howe and Landau, 2009; Ravenswood and Kaine, 2015). While public and labour law have dominated the regulation of labour for a long time, public contracts increasingly include stipulations regarding labour conditions. As labour standards ‘are now regulated through the combination of traditional labour law mechanisms and lesser understood contract law mechanisms’ (Holley, 2014: 672), pay clauses in public contracts have gained importance as a regulatory tool (Holley, 2014: 673).

Scholars conceptualise the nexus between public contracts and labour regulation as a trilateral relationship among private business, employees and the ‘buying’ state. Public authorities ‘become a more or less visible “third party” in the definition of employment conditions’ (Jaehrling, 2015: 150). Donaghey et al. (2014) studied public procurement and its ‘multiple roles as employer, regulator, and consumer’ (p. 247). Furthermore, research on public procurement considers the importance of the particular institutional context of labour regulation, for example the existence of a general minimum wage, collective agreements, and tariffs, which have been declared to be universally applicable (Jaehrling, 2015; Ravenswood and Kaine, 2015; Schulten et al., 2012). In this regard, research on social clauses in public procurement displays a strong tendency to focus on liberal market economies (Hall and Soskice, 2001; Hancké et al., 2008), as the case studies mainly consider the Anglo-Saxon context (Erridge, 2007; Holley, 2014; Howe and Landau, 2009; Ravenswood and Kaine, 2015). Case studies on public procurement also focus on sub-national authorities, including the federal state level (Holley, 2014; Howe and Landau, 2009) and the local level (Erridge, 2007; Grimshaw et al., 2014). Sub-national authorities tend to regulate pay clauses in public procurement if national regulation has been insufficient for reducing the disadvantages of contracting out and a programmatic mismatch between the national level and the sub-national authorities exists. The likelihood of introducing social clauses in public procurement also increases if labour-led governments are in power (Howe and Landau, 2009). However, compared to studies on privatisation, in which the effects of party differences have been studied systematically (Hibbs, 1977; Obinger et al., 2014), the literature on social clauses in public procurement has not conducted a similar systematic study on the role of parties, which needs to be understood when focusing on the regulatory side of the procuring state.

In brief, while research has examined the use of social clauses in liberal market economies, important gaps in knowledge persist regarding coordinated market economies. More specifically, the question of how the regulation of social clauses in public procurement interacts with institutional changes in coordinated market economies remains neglected. This article addresses this gap in knowledge as it analyses labour clauses in a coordinated market economy undergoing transformation and sheds light on the adjustment to changes in public service delivery and the traditional governance of labour. In addition, most of the empirical studies on public procurement use a small-n case design (Erridge, 2007; Howe and Landau, 2009; Jaehrling, 2015; Ravenswood and Kaine, 2015) in which few examples with labour clauses are analysed. Our study takes a different route. We add methodologically to the research by comparing 16 federal states in two different historical periods (N = 38, 10 cases in the period 1999–2008, 28 cases in 2008–2014). A diachronic mid-sized sample that covers a period of over 15 years is novel in the literature. It allows for revealing the changes of the procurement policy and the explanatory factors over time. By using a mid-size sample and a diachronic perspective, this article contributes to further knowledge in public procurement by identifying the introduction of labour clauses as an answer to profound changes in coordinated market economies, such as privatisation, contracting out and the decreasing coverage of the traditional governance of labour. The article exposes notable regional differences in the use of labour clauses, which are due to different wage levels and price-based competition in public procurement. With regard to the use of labour clauses, the article corroborates the existing knowledge on the decisive role of left political parties. It adds new insights to the literature by finding that even centre-right parties make use of labour clauses due to dense relations with small- and medium-sized enterprises in regions with relatively high wage levels in order to protect small businesses.

Methodological approach

We focus on legislative acts that have been instituted in the last 15 years² to discern the content as well as the regional and political contexts of public procurement regulation. We are interested in the role of public procurement law as a tool for the regulation of wages, and therefore conducted document analysis and analysed all the changes in legal stipulations regarding social aspects in sub-national public procurement law between 1999 and the end of 2014, which was shortly before a universally binding minimum wage was introduced.³ Thereby, we cover a pivotal event (a European Court of Justice (ECJ) ruling in 2008; see later) that changed policy notably. These changes included both the introduction of and the nullification of stipulations regarding a range of diverse criteria that encompassed, for example, adherence to collective agreements, minimum wages, gender equality, the employment of long-term unemployed and disabled people, and the purchase of Fairtrade products. In order to explore the relationship between legal changes and the party composition of sub-national governments, we analysed legal changes (the introduction or nullification of social criteria relating to wages and working conditions⁴) in sub-national (federal states’) public procurement law in relation to the composition of government at the time of change.

Collective bargaining without a statutory minimum wage: The institutional context

This article focuses on the trilateral relationship among the procuring state, private business, and employees and its institutional setting in Germany, which is traditionally a coordinated market economy (Hall and Soskice, 2001; Hancké et al., 2008). Its governance of labour was characterised by the dominance of open-ended full-time contracts for men (breadwinner model), the paramount importance given to the principle of autonomy during collective bargaining (Tarifautonomie), and an unemployment insurance system, which in the event of unemployment equipped individuals relatively well by international standards. The system of Tarifautonomie relies on trade unions and employer organisations who represent employees and enterprises, respectively, and its ability to safeguard wage levels inherently depends upon the ability of these two types of organisations to agree on binding regulations on behalf of both employees and employers. In the European context, perhaps one of the most striking features of industrial relations in Germany was, until fairly recently (2015), the lack of a statutory minimum wage. Minimum wages were established in collective bargaining and could be declared generally binding for a specific sector. The traditional German governance of labour has experienced pivotal institutional changes since the early 1990s.

First, since the mid-1990s and over the subsequent decades, the coverage of collective bargaining has consistently declined (Addison et al., 2017: 194; Bechmann et al., 2015: 23; Dostal, 2012: 98–99; Ellguth and Kohaut, 2010: 346; Streeck and Rehder, 2005). This decline was caused by and reflected in the waning membership of trade unions and employer organisations (Marsden, 2015: 171; Streeck and Rehder, 2005). Overall, the percentage of employees whose working conditions are set by industry-wide collective agreements decreased from 70% in Western Germany and 56% in Eastern Germany in 1996 to 51 and 36% in 2016, respectively (Behrens, 2015: 183; Ellguth and Kohaut, 2017: 281). The East German regions hence showed a notably lower coverage by collective agreements and lower wage levels.

Second, in the early 2000s, labour market reforms were launched that reorganised the agency of unemployment insurance and made other changes. Benefits for the unemployed were reduced remarkably, and new forms of work contracts were promoted, such as fixed-term employment contracts and labour leasing. Thereby, in labour governance, de-commodification was reduced (Crößmann and Schüller, 2016; Schmid, 2017). Thus, Germany has seen a continuous decline in the use of the standard model of employment, which refers to working on a full-time basis based on a permanent contract and within the scope of national insurance (Normalarbeitsverhältnis). Germany has also seen an increase of agency work, non-standard and precarious employment, and low-wage employment (Bosch, 2002; Dostal, 2012; Keller and Seifert, 2011).

Third, while the decreasing coverage of collective bargaining, on the one hand, and labour market regulation, on the other, have weakened the position of employees in general, the process of contracting out and privatisation that went along with the reforms of New Public Management has impacted public sector workers (Hood, 1991). German federal states and municipalities have been particularly affected by these reforms (Bogumil et al., 2007; Kuhlmann and Bouckaert, 2016), which have worsened the wage levels and working conditions in the public sector (Flecker and Hermann, 2011). Consequently, the trilateral relationship that exists among the state, private business and employees has been being weakened by both changes in the traditional governance of labour and an increase in the occurrence of contracting out.

Labour clauses in public procurement prior to 2008

Turning to the study of the regulatory responses of the state to the three aforementioned institutional changes, it is important to note that the German federal states (Länder) introduced pay clauses in public procurement. European law imposes constraints on domestic policymakers. However, the internal arrangement of legal competencies is of particular importance to Germany. As a federal state, legal competencies exist in Germany at the national as well at the sub-national level, depending on the policy area. Generally speaking, legal regulations regarding general working conditions, such as maximum working hours or wage-related regulations, are within the unique competence of the (national) federal state. In contrast, by enacting economic regulation such as public procurement law, both government at the federal level and the 16 federal states are engaged in policymaking. Federal law (if it exists) sets a framework within which the federal states (Länder) may choose to pass further regulations. These regulations can attend to issues that federal law has left unaddressed, or define certain aspects more closely. However, while sub-national regulations may complement federal law, they must not contradict it. At the time of this analysis, the Federal Anti-Trust Act (Gesetz gegen Wettbewerbsbeschränkungen), which regulates public contracting, has explicitly stated that social aspects could be included in public contracting as long as they relate to the subject matter of the contract. As federal law did not provide any additional or more precise stipulations, the 16 federal states had the discretion to enact sub-national legislation on this matter.

Starting with the decrees that were passed in Hamburg in 1996, regulatory mechanisms were instituted to strengthen the reach of collective bargaining, particularly in the construction sector. The use of pay clauses in the states’ public procurement regulations gained increasing importance in the following years. Prior to 2008, stipulations were introduced in eight states that required companies winning public (works) contracts to comply with regionally binding collective agreements in public procurement laws (Tariftreueregelung) (Sack, 2012).

Prior to 2008, 10 out of 16 German federal states established laws requiring compliance with collective bargaining agreements. Thereby, the regulatory state tried to protect workers by maintaining the traditional system of collective bargaining. This holds particularly true for the German construction industry, which was the first sector that these laws were applied to. Here, the traditional governance of labour had come under pressure because of the lack of coverage with collective bargaining in East German construction, which competed successfully with lower prices based on low wages and detrimental working conditions.⁵ Labour clauses in public procurement policies were, prior to 2008, almost exclusively used in West German states. This again reflects the variations in regional wage levels and the coverage of collective bargaining, as well as the competition between private businesses for public sector contracts. Given the differences in wages of West Germany and East Germany and the relative competitive advantage of companies operating in the latter, compliance with collective bargaining agreements in public procurement had been considered in East Germany as a regulation that results in ‘immanent discrimination solely against our companies’ (Landtag Thüringen Plpr. 4/19, p. 1986).

In this article, party differences are considered to be an explanatory factor for public procurement policy. This period of labour clauses shows a picture that strongly diverges from the picture painted by the literature thus far: it is notable that no clear party pattern appears. While left parties (the Social Democratic Party of Germany (SPD), the Party of Democratic Socialism (PDS), and the Greens) are expected to focus on social considerations, the position of the Christian Democratic Party (CDU) in supporting these particular labour clauses has yet to be explained. The CDU used public procurement policy as a mechanism to protect private businesses (mainly small- and medium-sized enterprises) involved in the traditional governance of labour and involved in the system of collective bargaining. West German associations of small- and medium-sized enterprises in construction as well as the chambers of craft, which also represent small businesses, successfully lobbied the CDU to protect their position in the market. The most important opponent to collective bargaining agreement compliance laws was the neoliberal Free Democratic Party (FDP), which is reflected in the fact that the governments in which this party participated were either reluctant to enact such regulation (the West German states of Baden-Württemberg and Rhineland-Palatinate) or they were engaged in abolishing existing regulation (see Table 1). To summarise, prior to 2008, labour clauses in public procurement were primarily a matter of protecting traditional industrial relations arrangements in public sector contracts and were enacted by West German states and a broad coalition of parties, including the centre-right CDU.

Table 1.

Federal states with contract compliance laws until 2008 (ranked by years).

State	Party/government constellation when contract compliance legislation was introduced	Party/government constellation when contract compliance legislation was rescinded	Sector of application
Berlin	CDU–SPD coalition (1999)		Construction
Bavaria	CSU government (2000)		Construction
Saarland	CDU government (2000)		Construction
Saxony-Anhalt	SPD–PDS alliance (2001)	CDU–FDP coalition (2002)	Construction
Bremen	CDU–SPD coalition (2002)		Construction and public transport
Lower Saxony	SPD government (2002)		Construction and public transport
North Rhine-Westphalia	SPD–Alliance '90/the Greens coalition (2002)	CDU–FDP coalition (2006)	Construction and public transport
Schleswig-Holstein	SPD–Alliance '90/Greens coalition (2003)		Construction, public transport, sewage and refuse disposal services
Hamburg	CDU–FDP–PRO coalition (2004)		Construction and public transport
Hessen	CDU government (2008)		Construction, building-cleaning and property management, investigation and security services

CDU: Christian Democratic Party; CSU: Christian Social Union (only exists in Bavaria); FDP: Free Democratic Party; PDS: Party of Democratic Socialism; PRO: Party for a Rule of Law Offensive (a right-populist party in Hamburg); SPD: Social Democratic Party of Germany.

Source: Own compilation.

While these issues gained increasing importance in public sector procurement, they did not remain unchallenged, either politically or juridically. Hence, in 2006 the Federal Constitutional Court (Bundesverfassungsgericht) ruled on the constitutionality of stipulations requiring companies that carry out public contracts to comply with collective agreements. In its ruling, the court declared that these requirements conformed with German law (BVerfG, 11.7.2006, BvL 4/00). Whereas the ruling of the Federal Constitutional Court backed the use of contractual obligations as a means to uphold wage levels, shortly afterwards, another ruling, this time by the ECJ, eventually resulted in their abolishment: the ECJ’s ruling in Case C-346/06 of 3 April 2008, Rüffert vs. Land Niedersachsen.⁶ In its ruling, the ECJ declared that a stipulation that obliged companies that acquired public contracts to pay wages in accordance with regional collective agreements, which are not universally applicable, conflicted with European law, namely Directive 96/71/EC (1997) concerning the posting of workers. This ruling eventually led to the nullification of such stipulations in German public procurement laws. However, in this case, the ECJ not only ended stipulations that obliged companies that acquire public contracts to comply with collective agreements, which are not universally binding, but it also triggered a further development. In the aftermath of this very influential ruling for Germany, social considerations in public procurement gained increasing importance (Sack, 2012; Seikel, 2015: 1177–1180).

Debating the minimum wage

As previously noted, traditional labour governance in Germany did not include a general national minimum wage. Against the backdrop of an increasing low-wage sector, the erosion of standard forms of employment, and a decline in both bargaining power and the coverage of collective agreements, the introduction of a statutory minimum wage has increasingly won support. This was a change because previously, wage setting had been the domain of trade unions and employer organisations without interference from the state.

Starting in the second half of the 2000s, different actors began advocating for the introduction of a statutory minimum wage. The Left Party, Die Linke, clearly favoured the introduction of a minimum wage, a topic that was initially ‘a major mobilizing issue of the Left Party in competing with the SPD for electoral support’ (Dostal, 2012: 110). While the SPD was initially divided regarding the introduction of a statutory minimum wage, from 2009 it became a strong advocate (Dostal, 2012: 107–108). Likewise, the Green Party, Bündnis 90/Die Grünen, largely favoured the introduction of a minimum wage (Dostal, 2012: 112). In contrast, the conservative party, the CDU, remained divided on setting a minimum level of hourly remuneration. While individual politicians, and especially members of the employee group CDA, spoke out in favour of a minimum wage, until 2011 the CDU’s position was that the traditional politics of Tarifautonomie and its non-interference in wage setting should be upheld. Since that time, the party has promoted the introduction of a universally binding minimum wage threshold (Lohnuntergrenze) rather than a statutory minimum wage (Dostal, 2012: 102–104). The liberal party, the FDP, was clearly and uncompromisingly opposed to a statutory minimum wage (Dostal, 2012: 109).⁷

Facing increasing non-standard employment and low pay as well as a decline in the coverage of collective agreements, the introduction of a statutory minimum wage had been a point of concern in political debates for some time. However, while a number of political parties, notably the SPD, the Left Party and the Green Party, advocated for a minimum wage during the late 2000s until the early 2010s, they did not have a majority in parliament at federal level, which has responsibility for enacting a minimum wage. From 2005 to 2009, the SPD was part of a coalition government led by the conservative CDU, which remained opposed to the introduction of a statutory minimum wage. After the elections in 2009, a new coalition government came into power that consisted of the conservative CDU and the liberal FDP. This newly elected government strongly opposed the introduction of a statutory minimum wage. During the time that both parties were in power, no majority existed that would have allowed the passing of a law introducing a minimum wage in Germany. On the national level, this changed with the Grand Coalition (CDU/CSU and SPD) in 2013, which agreed upon a national minimum wage against the notable reservations of the CDU/CSU-faction (CDU, CSU and SPD, 2013: 8). The national minimum wage was established on 1 January 2015.

Public procurement law and the minimum wage

Because the federal states were unable to enact a national statutory minimum wage, those in favour decided to use existing legislative responsibilities to establish a minimum wage, even though it would have a much more limited scope. Whereas legislative responsibilities regarding a general minimum wage lie with the federal parliament, regulations regarding social aspects in public procurement can be adopted at the sub-national level of the federal states (Länder). Hence, public procurement law presented an opportunity for enacting limited provisions on remuneration.

From the perspective of this opportunity, the period since 2008 has been characterised by a general expansion in social considerations in sub-national public procurement regulations in Germany (Sack, 2012). The analysis of legal changes shows that in this context, policymakers at the sub-national level seized the opportunity to enact stipulations on minimum wages in public contracts. In total, we identified 28 substantive decisions on public procurement at the federal state level during this period. However, not all of these referred to minimum wages: 21 decisions were made on minimum wages, social criteria, and public procurement regulation that favoured SMEs; only 13 of the decisions specifically addressed minimum wages.

In 2009, Bremen was the first federal state to introduce a minimum wage for companies that had acquired public contracts. One year later, in 2010, the federal states of Rhineland-Palatinate and Berlin followed. Since that time, Brandenburg (2011), North Rhine Westphalia, Mecklenburg-West Pomerania (2012), Baden Wurttemberg, Saarland, Hamburg, Schleswig Holstein and Lower Saxony (all in 2013) have also introduced similar stipulations in their public procurement laws. Shortly before the federal (generally binding) minimum wage was enacted, Hesse incorporated a stipulation that public contractors have to comply with a federally set minimum wage. However, in contrast to the aforementioned laws, the Hessian law did not actually set a minimum wage. By 2015, 12 of the 15 federal states’ public procurement laws⁸ included procurement-related minimum wages (Table 2).⁹

Table 2.

Changes to public procurement law, particularly inclusion of social aspects and minimum wages in sub-national public procurement laws, and composition of government at the time of passing the law.

Federal state	Year	(Coalition) government	Procurement- related minimum wage	Promotion of SMEs	Vocational training	Equal pay (agency workers)	Equal pay (unspecified and particularly M/W)	Employment of long-term unemployed	Compliance with ILO Core Labour Standards	Fairtrade	Promotion of women, equal opportunities	Employment of people with disabilities	Rec. work and family life, family friendliness
Baden- Wuertemberg	2013	Greens–SPD	Yes	No	No	No	No	No	No	No	No	No	No
Bavaria	2009	CSU–FDP	Abolition of public procurement law
Berlin	2008	SPD–Left	Yes	No	Yes	No	No	No	No	No	No	No	No
Berlin	2010	SPD–Left	[Yes]	No	[Yes]	No	No	No	Yes	No	Yes	No	No
Berlin	2012	SPD–Greens	[Yes]	No	[Yes]	No	Yes	No	Yes	No	Yes	No	No
Brandenburg	2011	SPD–Left	Yes	No	No	No	No	No	No	No	No	No	No
Bremen	2009	SPD–Greens	Yes	Yes	Yes	No	No	No	Yes	No	Yes	Yes	No
Bremen	2011	SPD–Greens	[Yes]	[Yes]	[Yes]	No	No	No	[Yes]	No	[Yes]	[Yes]	No
Bremen	2012	SPD–Greens	[Yes]	[Yes]	[Yes]	No	No	No	[Yes]	No	[Yes]	[Yes]	No
Hamburg	2008	CDU–GAL	No	Yes	No	No	No	No	Yes	No	No	No	No
Hamburg	2010	CDU–GAL	No	Yes	No	No	No	No	Yes	No	No	No	No
Hamburg	2013	SPD	Yes	[Yes]	No	Yes	No	No	[Yes]	No	No	No	No
Hesse	2013	CDU–FDP	No	Yes	No	No	No	No	No	No	No	No	No
Hesse	2014	CDU–Greens	Yes	Yes	Yes	No	No	Yes	No	Yes	Yes	Yes	Yes
Mecklenburg- West Pomerania	2011	SPD–CDU	No	Yes	No	No	No	No	Yes	No	No	No	No
Mecklenburg- West Pomerania	2012	SPD–CDU	Yes	[Yes]	No	No	No	No	[Yes]	No	No	No	No
Lower Saxony	2008	CDU	No	No	No	No	No	No	No	No	No	No	No
Lower Saxony	2012	CDU–FDP	No	No	No	No	No	No	No	No	No	No	No
Lower Saxony	2013	SPD–Greens	Yes	Yes	Yes	No	No	Yes	Yes	No	Yes	Yes	No
North Rhine Westphalia	2012	SPD–Greens	Yes	Yes	Yes	Yes	No	No	Yes	Yes	Yes	No	Yes
Rhineland- Palatinate	2010	SPD	Yes	No	Yes	No	Yes	Yes	Yes	No	No	No	No
Saarland	2010	CDU–FDP –Greens	No	No	No	No	No	No	Yes	No	No	No	No
Saarland	2013	CDU–SPD	Yes	No	No	Yes	No	No	[Yes]	No	No	No	No
Saxony	2013	CDU–FDP	No	Yes	No	No	No	No	No	No	No	No	No
Saxony Anhalt	2012	CDU–SPD	No	Yes	Yes	No	Yes	No	Yes	No	No	No	Yes
Schleswig- Holstein	2011	CDU–FDP	No	Yes	No	No	No	No	No	No	No	No	No
Schleswig- Holstein	2013	SPD–Greens– SSW	Yes	Yes	Yes	Yes	No	No	Yes	Yes	Yes	Yes	Yes
Thuringia	2011	CDU–SPD	No	Yes	Yes	No	Yes	No	Yes	No	No	No	No

CDU: Christian Democratic Party; CSU: Christian Social Union (only exists in Bavaria); FDP: Free Democratic Party; ILO: International Labour Organisation; SPD: Social Democratic Party of Germany; SSW: South Schlesian Voters Union (the party of the Danish minority, only exists in Schleswig-Holstein).

Source: Own compilation.

Note: (1) [yes] indicates the persistence of a pre-existing stipulation; (2) parties are shown in order of their vote share, first party leads coalition. (3) The SSW, Südschleswigsche Wählerverband, is a regional party, which only exists in the Federal State of Schleswig Holstein, and is designated to represent the Danish minority. (4) In Hamburg, the Greens are represented by the ‘Green Alternative List’.

Considering the composition of these governments at the time when these changes were enacted, it becomes clear that the procurement-related minimum wages were predominantly driven by the participation of the social democratic party in government. In nearly all cases where a minimum wage for public contracts was enacted, at least one party of the centre left was the leading party of the governing coalition (see Table 2). Other coalitions, particularly those with the neoliberal FDP, were reluctant to address social criteria in public procurement (Sack, 2012). In addition, in a vast majority of cases, coalition governments that introduced procurement-related minimum wages were led by the SPD; this was the case in Bremen (2009), Rhineland-Palatinate (2010), Berlin (2010), Brandenburg (2011), Mecklenburg-West Pomerania (2012), North Rhine Westphalia (2012), Schleswig-Holstein (2013), Lower Saxony (2013) and Hamburg (2013). There was only one case in which a government that was not led by either the SPD or the Green Party instituted a procurement-related minimum wage: in the Saarland, where there was a coalition between the CDU and the SPD.¹⁰ As mentioned before, in 2014 Hesse enacted a law that required compliance with universally binding minimum wages. This was brought about by a coalition government that included the CDU and the Green Party. However, this legislation reinforced federal level requirements and did not include new regulations regarding wage levels. To summarise, it appears that the introduction of procurement-related minimum wages was strongly influenced by the participation of the SPD and the Green Party in government. This type of legislation was most likely to be adopted if the SPD was also the leading party in a (coalition) government.

The analysis of the regulatory dimension regarding procurement (Donaghey et al., 2014: 247) and the role of parties in decisions at the sub-national level of the federal states since 2008 revealed a pattern of party politics that was familiar in political economy (Hibbs, 1977) and public procurement policy (Howe and Landau, 2009) and differed from the previous period.

Clearly, it was mainly centre-left governments that enacted public procurement laws that included minimum wage clauses. This differed from the composition of governments that enacted stipulations on social considerations other than minimum wages. Hence, the pattern identified regarding the introduction of procurement-related minimum wages diverges from the pattern identified regarding the introduction of social considerations in general. Social considerations without minimum wages were far more likely to be adopted by a coalition government led by the conservative party, as long as either the SPD or the Green Party was part of the governing coalition (see Table 2). To summarise, regulation that includes minimum wages appears to be linked rather exclusively to a leftist government. However, this seems to be less the case for stipulations on other social regulations such as equal pay and ILO Core Labour Standards (i.e. an encompassing insertion of social policy in public procurement).

Public procurement law as a regulatory tool in the federal context

As previously discussed, over the past few decades, declining membership in trade unions and employer organisations, as well as the diminishing degree to which enterprises are subject to industry-wide collective agreements, has undermined the coverage of collective agreements. Regulatory changes in labour market policy and the introduction of fixed-term employment contracts and labour leasing have led to the tendency of the German coordinated market economy to lean towards a neoliberal stance, which occurred at the same time as the new phenomenon of the ‘working poor’. Given these developments, the different parties, namely the SPD, the Left Party and the Green Party, have increasingly advocated for the introduction of statutory minimum wages (see earlier). Although there was increasing support for establishing a legal minimum wage, until recently, advocates did not have a majority in the federal parliament and government that would have allowed them to pass national regulations enacting a statutory minimum wage.

Against this background, the introduction of minimum wages in states’ public procurement regulation gained strategic importance. In the German federal system, enacting legislation regarding a statutory minimum wage is one of the responsibilities of government at the national level. However, the sub-national federal states can impose requirements regarding public procurement. Because advocates for the establishment of minimum wages were unable to enact a statutory minimum wage at the national level, they increasingly used their legislative capability at the sub-national level.

Since 2009 sub-national governments led by the SPD have increasingly introduced legislation regarding minimum wages in public procurement laws, thereby using them as a political tool. The introduction of statutory minimum wages represents an important change in the system of wage setting from the previous system. As previously discussed, wage setting was traditionally the domain of trade unions and employer organisations as well as state agencies that could establish sector-specific minimum standards in cases where the functioning of this system could not be guaranteed, for example in sectors where coverage of collective agreements was low. Even though the reach of the federal states was limited to employment in the context of public contracts, the introduction of procurement-related minimum wages represented a drastic change because it was the first legislation that set a universally binding, unconditional floor for remuneration.

Conclusion

Public contracts have increasingly become an important tool for regulating labour standards (Donaghey et al., 2014; Holley, 2014; Howe and Landau, 2009; McCrudden, 2007; Ravenswood and Kaine, 2015). The trilateral relationship among the procuring state, private business and employees varies between different institutional contexts of capitalism (Jaehrling, 2015). While previous research has focused on liberal market economies, an important gap has persisted regarding social clauses in coordinated market economies. In addressing this knowledge gap, this article has demonstrated how the federal states (Länder) in Germany have used public procurement legislation and labour clauses to respond to profound changes in public sector industrial relations since the mid-1990s. A neoliberal drift was evidenced by the introduction of commodification in labour market policies and the increasing contracting out of the public sector. The institutional context began to lean more towards a liberal market economy without a statutory minimum wage that could act as a baseline.

From a diachronic perspective, labour clauses in public procurement legislation reflect changes in traditional labour governance in Germany. Starting in the late 1990s, the West German states showed that they were interested in protecting the established industrial relations in the public sector by requiring firms to engage in collective bargaining agreements in order to be awarded a contract. These regulations were also stipulated because governments sought to secure their industry by upholding wage levels higher than in the East German regions. Political alliances in favour of requiring compliance with collective bargaining agreements included not only the left parties (SPD, Left Party and Green Party) but also the main centre-right party, the CDU. While the willingness of left parties to use public procurement legislation for the benefit of employees and trade unions is well discussed in the literature, the stance of the centre-right parties has been neglected so far. The article shows that conservative parties should also be considered as advocates for labour clauses. From their viewpoint, public procurement legislation and the inclusion of specific labour clauses were mainly used to protect regional small- and medium-sized enterprises, a core part of the electoral support base of the centre-right party, from detrimental competition.

After a pivotal ECJ ruling on German labour clauses in 2008, several German federal states again responded to the institutional context. The introduction of a procurement-related minimum wage, however, was now based on a notably different political party constellation. Requiring the bidders of contracts to pay a minimum wage had been a policy supported by centre-left or leftist governments, which are more responsive to the demands of the workforce.

Within the context of German cooperative federalism, sub-national public procurement laws may act as a substitute for legislation that does not have support at federal level. In total, 12 states enacted regulations regarding a minimum wage in public procurement legislation. This may not have been the determining factor explaining the establishment of a national statutory minimum wage. The roles of trade unions, the left parties and public opinion in helping the ‘working poor’ are more decisive in this regard. However, legislation enacted at the state level might be understood as a ‘bottom-up’ supportive policy that contributed to the establishment of a national minimum wage.

This article provides insights into research on public procurement that addresses the desire of left parties to enact legislation at the sub-national level to respond to the needs of employees faced with the detrimental consequences of contracting out. The findings suggest that the likelihood of establishing this type of regulation increases with the desire to protect the position of established companies in their home region. In contrast, states and businesses in regions with low wage levels benefit from their relative comparative advantage in acquiring public sector contracts when bidding against those in regions with higher wage levels. Given the small distances within Germany, it is advantageous for businesses from regions with low salaries to tender on the basis of low prices. The governments of these regions benefit from the award of contracts to enterprises located in their areas, as corporate and income taxes are due at the place of business, not at the place of work. Thereby, the states with low wage levels enjoy an increase in income due to the competitive advantage in the market. Governments in these regions are reluctant to set up labour clauses that might affect this position.

The second crucial finding of this article relates to party differences in enacting public procurement policies and their impact on how the regulatory state defines labour clauses (or not). The analysis indicates that the space for the engagement of parties in public procurement is broader than the programmatic left–right distinction. While the role of public procurement legislation (and practice) in promoting small- and medium-sized enterprises has been discussed (Loader, 2013), the relevance of these enterprises as a part of the electorate and as a group that is affected by public procurement legislation has thus far been underestimated. Christian Democratic and centre-right parties have their own opinion on this topic because the introduction of wage-related labour clauses can also protect certain established forms of small business.

To summarise, this article contributes to the knowledge in the field in the following ways. It has analysed different labour clauses included in public procurement legislation and their adjustment to a changing institutional context, thereby revealing the introduction of labour clauses as a regulatory answer to the neoliberal shift of a coordinated market economy. In analysing the regulatory dimension of the procuring state by comparing 16 sub-national jurisdictions over 15 years, the results indicate that regional differences exist due to relative comparative advantages in the public sector market. It has also extended the discussion on the influence of political parties on this type of legislation by bringing centre-right parties in.

The article is limited in its focus on one country and on the regulatory dimension. Future research should compare federal and unitary states to validate the crucial role of the regulatory competences of sub-national authorities, the regional relative comparative advantages, as well as the role of political parties. In particular, contrasting cases within party systems that change and evolve, as is the case in large parts of Europe (Hernández and Kriesi, 2016), would be of interest because of the likely changes in the alignment of interest groups (trade unions and associations of small- and medium-sized enterprises) and the subsequent changes in programmatic positions regarding public procurement. In addition, concentrating on the regulatory dimension, which is the subject of this article, is limited because it does not include the implementation of the law. Thus, future research is needed on the administrative reality of labour clauses in public procurement.

Footnotes

Acknowledgements

We thank Sebastian Fuchs, Emily Thomson and the three anonymous reviewers for their helpful comments.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The research project was funded by the Hans-Böckler Foundation (2012-581-4).

Notes

Biographical notes

Detlef Sack is Professor of Comparative Politics at Bielefeld University, Faculty for Sociology. His research interests include the governance of state–market relations, in particular privatisation, public–private partnerships and public procurement, as well as organised business, self-governance of business (Chambers of Commerce) and lobbying. He is also interested in comparative public policy (home and justice affairs, energy, transport, labour market).

EK Sarter is Research Fellow in Social Policy at the University of South Wales and is interested in the field of public and social policy, with a special focus on the interaction between social and economic policy goals, governance and equality.

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