The impact of trade unions

Outline
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1. Unionism & union objectives
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2. Economic models of union effects
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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)
Objectives
a) 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
France
9
Germany
29
Sweden
91
UK
34
Japan
24
US
16


Importance of coverage
Flexible labour markets?
Coverage
95
92
89
47
21
18
1. Unionism & union objectives


Union membership, 1970-90
Country1970
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


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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
Monopoly union facing producers
under perfect competition
£
S
W1
D
O
Q1
fig
Q of labour
B) Bilateral monopoly



Union has power in the labour market
Firm has power in the product market
Outcome depends on bargaining



No equilibrium; range of outcomes



strength of the union
strength of the firm
maximum W is where MCL = MRP
minimum W is given by the monopsony
outcome
See Figure 2
Bilateral monopoly
£
S1 (=ACL1)
MCL1
Monopsony:
no union
W1
MRPL
O
Q1
Q of labour
fig
3. The effects of unions - evidence

A) The effect on wages

union versus non-union wages




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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

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C) Effect on hours of work

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unions reduce employment growth
convert standard hours into overtime hours higher pay
D) Effect on productivity & profits

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positive if ‘voice’ effects occur
negative if they succeed in introducing
‘restrictive practices’
outcome depends on quality of unionmanagement relationship
Conclusion
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
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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