Unions and Collective Bargaining
Economic Effects in A Global Environment
Zafiris Tzannatos
The World Bank
March 2005
Purpose of the
*
study
Find out what the economic effects of
unions and collective bargaining are,
when unions exist
(this is different than:
“what happens if unions are introduced?)
* Toke Aidt and Zafiris Tzannatos (2002)
Unions and Collective Bargaining: Economic Effects in a Global Environment
Does economic performance deteriorate
in more unionized economies
or when bargaining becomes more centralized?
Performance
1 2 3 4 5 6 7 8 9 10
Level of centralization
Need first to understand
•
•
•
•
What are “unions”?
What they do and how they operate?
With whom (what type of government)?
In what kind of economy?
The way economists have addressed these issues
results many combinations (how many?)
What is “Unions”?
• Union density (% of workers unionized)
• Union coverage (% of workers whose
wages are affected by collective
agreements)
• Other (e.g. closed shop, index of power of
exposed sector unions etc)
There is weak relationship between the % of workers
(a) who are union members and
(b) whose wages are affected by collective bargaining
Table 5.2: Union Density and Bargaining Coverage in Selected OECD Countries
Country
Australia
Austria
Belgium
Canada
Denmark*
Finland
France
Germany
Italy
Japan*
Netherlands
New Zealand
Norway
Portugal
Spain
Sweden*
Switzerland
UK
US
Average
Union density
1970
1980
1994
50
48
41
62
56
42
46
56
54
31
36
38
60
76
76
51
70
81
22
18
9
33
36
29
36
49
39
35
31
24
38
35
26
n.a.
56
30
51
57
58
61
61
32
27
19
19
68
80
91
30
31
27
45
50
34
23
22
16
43
47
40
Bargaining coverage
1980
1990
1994
88
80
80
98
98
98
90
90
90
37
38
38
69
69
69
95
95
95
85
92
95
91
90
92
85
83
82
28
23
21
76
71
81
67
67
31
75
75
74
70
79
71
76
76
78
86
86
89
53
53
50
70
47
47
26
18
18
72
70
68
What is “Collective Bargaining”?
•
•
•
•
•
•
•
Union concentration
Union centralization
Employer centralization
Level of bargaining
Informal coordination
Corporatism
Other (pattern bargaining, indexes etc)
Swiss of Japanese …?
All watches are the same!
Table 5.6: Country Rankings Based on Alternative Valuations of Bargaining
Coordination
Country
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Italy
Japan
Netherlands
New Zealand
Norway
Portugal
Spain
Sweden
Switzerland
UK
US
S1990-1
80s
..
2
..
..
..
..
9
6
8
1
7
..
4
..
..
5
3
10
11
CD1988
85-90
10
1
8
17
4
5
11
6
13
14
7
9
2
..
..
3
15
12
16
OECD1997-1
1980 1990
3
1
3
1
3
1
17
17
3
8
2
4
8
8
8
8
15
14
17
17
8
8
8
16
8
1
15
1
3
8
1
1
8
8
8
14
17
17
1994
14
1
1
16
5
4
5
5
5
16
5
16
1
5
5
5
5
14
16
OECD1997-2
1980 1990
7
5
1
1
10
10
18
17
4
5
7
5
13
10
1
1
15
15
1
1
10
10
15
17
4
4
13
10
10
10
4
5
7
5
15
16
18
17
1994
15
1
9
16
6
6
9
1
4
1
9
16
4
9
9
9
6
16
16
What is “Government”?
(Hypothesis of Coherence)
Left-wing
Government
Right-wing
Government
Powerful unions
Good
performance
Bad
performance
Weak unions
Bad
performance
Good
performance
Unions, Employers, Government …
But
Does the Economy Matter?
•
•
•
•
Closed economy?
Open economy?
Competitive economy?
Monopolistic economy?
So, what are the effects of:
•
•
•
•
3 dimensions of “unions”
7 types of coordination
2 types of (polar) governments
4 types of (stylized) economies
OVERALL 168 combinations
So, what are the effects of:
•
•
•
•
3 dimensions of “unions”
7 types of coordination
2 types of (polar) governments
4 types of (stylized) economies
OVERALL 168 combinations
(and if 4 types of government => 336 …)
Well! Effects on What?
1 of 5
Microeconomic Effects on Workers
•
•
•
•
•
Wages/minimum wages
Hours of work
Job mobility
Training
Worker benefits
Well! Effects on What?
2 of 5
Microeconomic Effects on Firms
•
•
•
•
•
•
•
Profitability
Productivity
New technology
Pay systems
Employment growth
Physical investment
Research and development
Well! Effects on What?
3 of 5
Direct Macroeconomic Effects
•
•
•
•
•
•
•
•
•
Economic growth
Aggregate productivity
Inflation
Compensation (wage) growth
Wage dispersion
Earnings inequality
Labor supply
Employment rate
Unemployment
Well! Effects on What?
4 of 5
Macro Effects (on Indexes)
•
•
•
•
Okun’s index (unemployment + inflation)
Open economy (unemployment + deficit)
Job quality (employment – wage dispersion)
Growth/Inflation (GDP slow down + inflation)
Well! Effects on What?
5 of 5
Of course, on the labor market!
•
•
•
•
Aggregate real wage flexibility (to U)
Hysteresis (persistence of unemployment)
Adjustment speed (to real wage shocks)
Search effectiveness (Vacancies to U)
So, which of the 30 or so effects
on micro and macro indicators
comes from 168 combinations of
unions, employers, governments
and types of economies?
(Semantics, selectivity and biases
are important)
Does economic performance deteriorate
in more unionized economies
or when bargaining becomes more centralized?
Performance
1 2 3 4 5 6 7 8 9 10
Level of centralization
Table 2.1: Economic Performance before and after an Improvement in Labor Standards
(average growth rates, %)
Country
Reform
year
GDP Growth
Manufacturing
Output Growth
Export Growth
Before
After
Before
After
Before
After
Turkey
1986
6.1
2.7
7.9
5.7
16.1
8.1
Fiji
1987
9.8
5.8
4.2
-0.6
14.3
6.7
Korea
1987
10.7
8.6
15.7
8.3
15.6
6.9
Taipei
1987
9.6
6.9
n.a.
n.a
n.a
n.a
Brazil
1988
5.3
0.9
4.5
-2.2
9.5
4.8
Thailand
1992
10.7
8.2
14.7
11.5
17.3
13.2
Argentina
1983
-0.2
1.0
-0.5
0
0.6
2.8
Uruguay
1985
-7.6
4.4
-5.4
3.7
2.7
6.8
Philippines
1987
-1.3
4.0
-2.4
3.1
2.4
7.2
Panama
1989
-0.5
10.5
-2.5
8.9
0.2
8.9
Peru
1990
-0.9
1.8
n.a.
n.a
-3.8
-23.2
Venezuela
1990
2.7
5.2
-3.3
4.5
6.8
3.6
Dominican Rep.
1990
4.4
4.5
1.7
4.2
9.1
5.6
Honduras
1990
3.0
3.3
4.0
3.8
1.9
1.8
Guatemala
1992
4.1
4.1
n.a.
n.a
5.6
8.6
Ecuador
1979
7.1
1.3
11.6
2.1
0.4
2.3
Suriname
1991
1.7
0.6
-3.2
-2.4
n.a
n.a
3.81
4.34
3.36
3.61
6.58
4.27
Average
Table 2.2: Relationship between Core Labor Standards and International Trade:
Evidence from OECD and Non-OECD Countries
Trade indicator
Trade performance.
Revealed comparative advantage.
Definition
Growth in the share of a county’s exports
in total world trade (measured as total
export, raw material export, or
manufacturing export), 1980-1990.
Index for comparative advantage
calculated for 71 sectors on the basis of
foreign trade performance for these
sectors.
Trade prices
US import prices of textiles from a group
of other OECD and non-OECD countries.
Trade liberalization
The change in tariffs and quantitative trade
restrictions, 1980-1990.
OECD investment outflow to non-OECD
countries, 1975-1993.
Foreign direct investment (FDI)
Export-processing zones (EPZ)
Firms in an area that offers privileges with
regard to government policies.
Result
No correlation
No effect on the pattern of revealed
comparative advantage. Comparative
advantage is, by and large, determined by
the abundance of factors of production and
technology.
No effect on border prices in the US for
similar, imported textiles from different
countries. Likewise, US import of textiles
from “high-standard” OECD countries has
not been “crowded out” by imports from
“low-standard” non-OECD countries.
Positive correlation with the trade
liberalization.
Low labor standards not an important
factor for investment decisions in OECD
firms.
In only 6 countries out of the 73 that have
established EPZs, evidence exists of
deliberate government attempts to restrict
freedom to associate and the right to
bargaining collectively. The countries are
Bangladesh, Jamaica, Sri Lanka, Pakistan,
Panama, and Turkey.
Table 2.3: Macroeconomic Performance and Freedom of Association
Performance indicator
GDP per capita, 1990
Productivity growth, 1973-1992
Real wage growth, 1973-1992
Relationship
Weak association
Weak association
No association
Economic performance and bargaining coordination
Economic
performance
A
B
C
Low
Medium
High
Bargaining
coordination
Summary Effects
(Macroeconomic)
• More labor market coordination seems to be better
for low unemployment, earnings inequality, fewer
strikes than semi – and uncoordinated LM
• Coordinated and uncoordinated LM fare equally
in terms of productivity growth and wage
flexibility
• No difference in inflation and employment rates
• Differences reduced/very weak in the long run (as
countries adapt one way or another)
Summary Effects
(Microeconomic)
• Unions create differentials in favor of their
members (but is this always bad?)
• The union effects on the performance of firms
vary and are often ambiguous
If competitive wages in the absence of unions = 100,
what does it mean if RED wages are 20% more than BLUE wages ?
140
130
120
110
110
100 100
Wage
100
90
90
80
70
60
40
20
0
1
2
3
4
Future research
A. Union differentials and spill over effects
need to be examined against
gains and losses
Future research
A. Union differentials and spill over effects
need to be examined against
gains and losses
B. Are collective arrangements
a bad cause or a good symptom?
(reverse causation)