Building on the right‐to‐manage model of collective bargaining, this paper tries to infer union power from the observed results in wage setting. It derives a time‐varying indicator of union strength taking account of taxation, unemployment benefits, and the labour market situation and confronts this indicator with annual data for Germany. The results show that union power did not change much from 1992 to 2002 but fell markedly (by about one‐third) from 2002 to 2007 in the aftermath of substantial labour market reforms.