This chapter tests the theoretical predictions of the model developed in Chapter 1 by examining the impact of social policy developments on the wage strategies pursued by the German labor movement in the postwar period. Were German unions willing to moderate their wage demands in exchange for the expansion of social policy transfers and services? What were the consequences of the growth in taxes and social policy commitments for the wage demands of German trade unions? How did the growth in the number of labor market outsiders affect the strategies of German unions? In this chapter I test the micro-level implications of the model using a combination of union documents, economic data, and secondary sources.

The chapter proceeds chronologically. The first section examines the strategies pursued by the Federation of German Trade Unions (Deutscher Gewerkschaftsbund, or DGB) under the Christian Democratic governments of Konrad Adenauer and Ludwig Erhard. In this period, German policy makers decided to reconstruct the welfare state along Bismarckian lines and rejected alternative proposals advanced by the Social Democratic Party to introduce universalistic social policies. Next I explore the evolution of the wage–social policy nexus under the Grand Coalition of Georg Kiesinger and the Social-Liberal Coalition government led by Willi Brandt. These administrations shared a commitment to continuous welfare state expansion and to the involvement of trade unions in the macroeconomic management of the German economy. The remaining two sections examine wage and policy developments during the 1980s and 1990s.