The impact of trade unions Outline

1. Unionism & union objectives

2. Economic models of union effects

3. The effects of unions - evidence

1. Unionism & union objectives A trade union is

‘a continuous association of wage-earners for the purpose of maintaining or improving the conditions of their working lives.’ (Webb & Webb 1896)

Objectivesa) Improved wages

b) Improved terms & conditions

c) full employment

d) industrial democracy

e) voice in government

….collective bargaining

1. Unionism & union objectives International comparisons of unionism (1994)

Country Membership Coverage

France 9 95

Germany 29 92

Sweden 91 89

UK 34 47

Japan 24 21

US 16 18 Importance of coverage Flexible labour markets?

1. Unionism & union objectives

Union membership, 1970-90

Country 1970 1980 1990

France 22 18 10

Germany 33 45 33

*Sweden 67 80 83

UK 45 50 39

Japan 35 31 25

US 23 22 16 Why has there been a decline?

2. Economic models of union effects The effect of unions depends on

the structure of the firm’s product market competitive monopsony

Several models a) monopoly union model* b) bilateral monopoly* c) right-to-manage model d) efficient bargains model

A) Monopoly union model Union has monopoly power in the labour

market Firm operates in a competitive/monopolistic

(product) market Effect on W & E

depends on union power ability of the firm to resist (…market)

Two outcomes a) W rise BUT E declines to reduce costs of

production – See Figure b) W rise & E increases - productivity deal

figO Q of labourQ1

S

D

£

W1

Monopoly union facing producersunder perfect competition

Monopoly union facing producersunder perfect competition

B) Bilateral monopoly Union has power in the labour market Firm has power in the product market Outcome depends on bargaining

strength of the union strength of the firm

No equilibrium; range of outcomes maximum W is where MCL = MRP minimum W is given by the monopsony

outcome See Figure 2

fig

O Q of labour

£

W1

Q1

MRPL

MCL1

No

un

ion

S1 (=ACL1)

No unio

n

Bilateral monopolyBilateral monopoly

Monopsony:no union

3. The effects of unions - evidence

A) The effect on wages union versus non-union wages

US: 10-20% more UK: 10% W. Germany: 6%

unions also reduce wage dispersion: skilled/unskilled; white/non-white workers

The effect on total compensation unionised firms - ‘poor’ conditions higher wages to compensate

3. The effects of unions - evidence B) Effects on employment

unions reduce employment growth C) Effect on hours of work

convert standard hours into overtime hours - higher pay

D) Effect on productivity & profits positive if ‘voice’ effects occur negative if they succeed in introducing

‘restrictive practices’ outcome depends on quality of union-

management relationship

Conclusion

Unions are an important part of the economy

Theoretically: effect depends on market structure

They do increase W and reduce E. Which model?

Wider effects in practice