Trade unions,collective bargaining and macroeconomic performance: a review

Coordination through collective bargaining is recognised as an influential determinant of labour market outcomes and macroeconomic performance. This article provides a systematic review of the empirical literature on the subject. What emerges from the review is that it is different types and coverage of bargaining coordination, rather than cross‐country variation in trade union density, that matter for economic performance. High levels of bargaining coverage tend to be associated with relatively poor economic performance, but this adverse relationship can be at least mitigated by high levels of bargaining coordination. In the absence of formal bargaining arrangements, economies often develop informal bargaining mechanisms whose effects are similar to those arising from formal bargaining provided they both operate at similar levels of coordination. The consequences of labour market coordination or absence thereof depend on the monetary policy regime as non‐accommodating monetary policy can eliminate some of the adverse unemployment consequences otherwise associated with industry‐level collective bargaining. Finally, bargaining coordination seems to matter most in times of rapid economic change rather than under more stable conditions. Overall, we conclude that it is the total ‘package’ of (formal and informal) labour market institutions that matters for the performance of the economy rather than unionisation as such or individual aspects of unionism.     

Unionisation structures, productivity and firm performance: New insights from a heterogeneous firm model

This paper introduces collective bargaining at the firm and at the sector level into the heterogeneous firm model of Melitz and Ottaviano (Melitz, M. J., Ottaviano, G. I. P., 2008. Market size, trade, and productivity. Review of Economic Studies 75 (1), 295-316). It then analyses how the two bargaining regimes change aggregate industry productivity and firm performance relative to a competitive labour market. While sector-level bargaining forces the least productive firms to exit and thus increases average productivity relative to the competitive benchmark, firm-level bargaining allows less productive firms to stay in the market and thus reduces average productivity. Sector-level bargaining also results in higher average output and profit levels than either firm-level bargaining or a competitive labour market. The paper also shows that the choice between sector- and firm-level bargaining can involve a trade-off between product variety and product prices: Not only the average price level but also product variety tends to be lower under sector-level bargaining than under firm-level bargaining.     

Ambiguous effects of tax progressivity — theory and Danish evidence

Recent tax reforms in the OECD area have aimed at reducing the progressivity of labour income taxation by reducing marginal taxes for given average taxes. Theory has shown that this reduces employment/production when workers and firms determine wages through bargaining. This paper shows that an opposite effect arises when both wages and working hours are subject to bargaining. This may reverse the traditional result and this is especially likely if the bargaining power of workers is low and if labour supply is relatively elastic. In conclusion, the overall effect of a reduction in progressivity is ambiguous. The empirical estimates for Denmark indicate that the overall effect is negative for blue-collar workers and neutral for white-collar workers.     

The bargaining position of low-skilled and high-skilled workers in a globalising world

This paper extends the assessment of the impact of globalisation and technological change on the bargaining power and preferences of employees, by taking worker heterogeneity into account. In contrast with previous studies, two separate unions – representing low-skilled and high-skilled workers respectively – are considered. Using Belgian firm-level data, labour bargaining power and relative wage preference have been estimated by skill level. When these estimates are subsequently regressed on a set of potential determinants, the bargaining power of low-skilled workers appears to fall with imports and offshoring, whereas the bargaining power of high-skilled workers is only positively affected by R&D activities. In addition, a significant effect of globalisation is found on the relative preference of unions for wages over employment, indicating that the effect of globalisation on the behaviour of labour unions is more encompassing than frequently assumed.     

THE LABOUR FOOTPRINT: A FRAMEWORK TO ASSESS LABOUR IN A COMPLEX ECONOMY

As addressing labour becomes crucial in the move towards sustainability, there is the need for assessment tools suitable for current complex economic systems. This article presents an input–output based framework (‘labour footprint’) for evaluating labour issues behind the production of different economic commodities, including entire supply chains. In line with the guidelines of the International Labour Organization, six labour issues are considered: collective bargaining, forced labour, child labour, gender inequality, hazardous work, and social security. This conceptual article sets to (a) define this footprint's labour dimensions, (b) cite relevant data sources, (c) describe its calculation, (d) illustrate its application through a case study, and (e) discuss this framework's relevance from ‘conscious consumption’, ‘supply chain responsibility’, and regulators' standpoints. Since it advances the evaluation of fundamental labour issues and the scope of multi-criteria analyses, this footprint may be a valuable tool for sustainability assessments.     

European labour law and sectoral bargaining

The tradition in national labour laws to support labour standards in collective agreements is reflected in the trend in EC labour law towards recognition of collectively bargained standards in a number of recent legislative initiatives. If this trend can be linked with, and reinforced by, sectoral bargaining at EC-level, the emergence of a European labour law will come nearer to realisation.     

Free riders: the rise of alternative unionism in Denmark

In this article we analyse some disturbing trends in the Danish labour market: while collective bargaining coverage is still relatively high, union density has been declining and—worse than that—there has been a substantial shift away from recognised and in favour of alternative unionism. The alternative unions are not parties to collective agreements, and they offer membership much cheaper than the recognised unions, in effect taking a free ride on the institutional supports that used to be effective only for the recognised unions. The article explains this conundrum by pointing to the political and institutional backgrounds to this development, which threatens to erode the very basis for the Danish collective bargaining system. On the background of general statistics and of a general employee survey, we point out the reasons behind the challenges confronting the recognised unions, pointing out that the recognised unions must become both more efficient in the member services and more cost efficient, if they wish to halt the present downhill trend.     

FOUR PROPOSITIONS ABOUT INTERNATIONAL LABOUR STANDARDS

International labour rights organisations pay considerable attention to the working conditions in less developed countries. For labour rights activists, labour standards such as collective bargaining rights and maternal leave promote economic progress. We argue that this perspective has the causation backwards and that it is economic development that causes the codification of improved working conditions.     

Convergent and divergent country trends in coordinated wage setting and collective bargaining in the public hospitals sector

Drawing on the findings of research in the public hospitals sector in five European countries 1 —France, Germany, the Netherlands, Norway and the UK—this article assesses the character of change in wage setting and collective bargaining. It demonstrates the diversity of national arrangements by comparing key characteristics: (i) the bodies of collective representation (unions, professional associations and employer bodies); (ii) the degree of integration with the wider public sector framework; (iii) coordination (or competition) with the private hospitals sector; and (iv) the practice of à la carte provisions within individual hospitals. Despite national varieties of wage setting and collective bargaining, each country sector faces similar tensions—most notably the opposition between public (labour market) rules and health (product market) rules, and pressures to segment or integrate employment conditions by labour force group. By examining the nature of change in institutions for wage setting and collective bargaining in each country, the article contributes to our understanding of the extent of coordination and change of public sector wage setting and describes three scenarios: fragmentation (Germany); continuity (France and the Netherlands); and reconstruction (the UK and Norway).     

The responsiveness of wages to labour market conditions in the UK

If wages are more flexible in the sense that pay is more responsive to labour market conditions, this has important implications for the workings of the aggregate economy. First, the real fluctuations generated by both demand and supply shocks are smaller, and second, the economy can operate at a higher level of activity relative to potential without adverse inflationary consequences (i.e., the NAIRU is lower). Our empirical analysis of wage flexibility suggests that UK wages have become more responsive to labour market conditions since the mid-1980s, at least relative to the previous decade. Furthermore, this has happened within certain industrial sectors. Finally, a part of this move towards greater responsiveness has been due to the decline in national pay bargaining over the relevant period. However, the majority of this change is due to some other factors.     

Employment flexibility,unions and companies in France

Employment flexibility–eg in relation to easier dismissal and the removal of most restrictions on temporary work–has grown in France during the eighties. This article traces and discusses its consequences for labour relations, collective bargaining and the labour movement.     

Equilibrium unemployment with outsourcing under labour market imperfections

We study the effects of international outsourcing on equilibrium unemployment in a high-wage economy with labour market imperfections. We demonstrate, consistent with empirical results, that the wage elasticity of labour demand is increasing as a function of outsourcing. Furthermore, we show that a production mode with more outsourcing reduces the negotiated wage in a high-wage country with labour market imperfections if the relative bargaining power of the labour union is sufficiently high. Under such circumstances outsourcing reduces equilibrium unemployment. Finally, we characterize the optimal production mode showing that stronger labour market imperfections induce a production mode with more outsourcing.     

Collective bargaining and new work regimes: ‘too important to be left to bosses’

The formal negotiations process remains perhaps the least‐studied moment of collective bargaining. Drawing on ideal types of ‘distributive’ and ‘integrative’ bargaining and the ‘formal/informal’ distinction, this article reports non‐participant observation and ethnographic research into the negotiations process that enabled a change agreement in a British multinational, hereafter anonymised as FMCG. Informal bargaining relations provided the backdrop to—and emerged within—the formal negotiations process. Formal bargaining established new employment contracts based on a simplified internal labour market and generated the joint governance processes to enable and regulate the change process. Neither management nor union strategy was wholly derived from rational, interest‐based positions. The negotiations process was essential to strategy formation and to the emergence of sufficient ‘integrative’ bargaining for all parties to devise and approve new processual institutions and norms to deliver a more flexible labour process and to restore the long‐run viability for ‘distributive’ bargaining.     

Taxes on labour and unemployment in a shirking model with union bargaining

This paper studies the impact of a cut in labour taxes in a model that combines two explanations for equilibrium unemployment: employee shirking and union bargaining. It is shown that if the ratio of unemployment compensation to the net-of-tax wages is kept fixed, a tax cut leads to higher unemployment. When the unemployment benefits are fixed in real terms, the effect of a tax cut on unemployment is ambiguous. Adverse employment effects are ruled out if unions are powerless or the labour share is constant.     

Labour market segmentation and wage dynamics

The article contains results of a quantitative empirical investigation into the effects of labour market segmentation on wage dynamics in total industry as well as in several industrial branches in West Germany. By testing correlations between several indicators of earnings and the labour market it is shown that wage dynamics, in so far as they are determined by shop floor bargaining, can be explained at least as well and partly even better by indicators of certain partial labour markets than by conditions of the general labor market (i.e. the traditional Philipps approach).     

What has been happening to collective bargaining under New Labour? Interpreting WERS 2004

The late 20th century saw the rapid decline of collective bargaining, which had hitherto been the dominant means of regulation of employment in Britain. The article uses a comparison of the Workplace Employment Relations Surveys for 1998 and 2004 to assess how far this changed during the later period of economic growth and sympathetic labour legislation. Contrary to expectations, the data show that collective bargaining coverage has continued to fall, although much of this decline is concentrated in small firms in the private sector. The article goes on to analyse the recent change at sectoral level and examines evidence on the extent to which the character, as well as the extent, of collective bargaining had changed. The locus of management decision making has continued to move down organisations, both where collective bargaining occurs and also where unions are absent. Finally, the article evaluates how the perceptions of those involved in the bargaining process have shifted at a time of greatly diminished trade union influence.     

The effectiveness of socially sustainable sourcing mechanisms: Assessing the prospects of a new form of joint regulation

The traditional mechanisms for improving and protecting labour standards in advanced economies are failing. In Britain, the effectiveness of collective bargaining has diminished substantially over the past quarter century. Legally enforceable minimum labour standards have been an inadequate substitute. A new form of ‘joint regulation’ is emerging that may be better attuned to the contemporary structure of product market competition. It involves employers and unions coordinating action on labour standards across the supply chains of firms that contribute to the production of a particular good or service. This article explores the circumstances in which these ‘socially sustainable sourcing’ mechanisms develop and examines their impact on labour standards, by means of two case studies.     

The de-collectivisation of pay setting in Britain 1990–98: incidence,determinants and impact

What were the causes and consequences of declining collective bargaining coverage in Britain? The demise of collective bargaining did not lead to a greater use of individualised payment mechanisms, ‘high-involvement’ practices or productivity gains. Wage inequality rose as a result of the decline. However, workplaces that abandoned bargaining created more jobs. Overall, these results raise questions about Britain’s labour market performance during the 1990s because they suggest that falling unemployment as a result of weaker trade unions came at the price of slower productivity growth and widening male wage inequality.     

Employment relations in Central and Eastern Europe in 2002: towards EU accession

The difficult process of bringing CEE institutions and practices into line with those in the existing EU was accelerated at Copenhagen in December 2002 as accession negotiations were concluded. Elsewhere in the CEE, organised labour remained weak under high levels of unemployment and fewer workers entering the labour force as individual employers took advantage of favourable bargaining conditions and the absence of significant multi‐employer bargaining. Unions did, however, retain their political influence as seen in the revisions to Labour Codes in several countries in 2002. They also had expectations of greater post‐accession influence through their incorporation into the EU's social partnership framework.     

The effect of international firm mobility on wages and unemployment

Although the increase in international firm mobility is well documented, its effects on macroeconomic aggregates and the labour market remain controversial. Multinational enterprises (MNEs) benefit from an international outside option during wage bargaining, leading to a decrease in average wages. However, a strategic incentive to hire extra workers in a foreign (home) plant in order to reduce wages in the home (foreign) plant has an indirect positive effect on wages due to spillovers resulting from an increased demand for labour. In a framework of frictional unemployment, permitting MNEs leads to a decrease in unemployment. Abstracting from transport and plant fixed costs, MNEs lead to higher wages. Including transport and plant costs generally leads to lower wages, though the effects are small. The strategic hiring effect is important in mitigating the fall in wages.