The impact of trade unions n Outline n

The impact of trade unions n Outline n 1. Unionism & union objectives n 2. Economic models of union effects n 3. The effects of unions - evidence

1. Unionism & union objectives n A trade union is q n ‘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 n International comparisons of unionism (1994) Country Membership France 9 Germany 29 Sweden 91 UK 34 Japan 24 US 16 n n Importance of coverage Flexible labour markets? Coverage 95 92 89 47 21 18

1. Unionism & union objectives n n 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 n The effect of unions depends on q the structure of the firm’s product market n n n competitive monopsony Several models q q a) monopoly union model* b) bilateral monopoly* c) right-to-manage model d) efficient bargains model

A) Monopoly union model n n n Union has monopoly power in the labour market Firm operates in a competitive/monopolistic (product) market Effect on W & E q q n depends on union power ability of the firm to resist (…market) Two outcomes q q 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 W 1 D O Q 1 fig Q of labour

B) Bilateral monopoly n n n Union has power in the labour market Firm has power in the product market Outcome depends on bargaining q q n No equilibrium; range of outcomes q q n 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 £ S 1 (=ACL 1) MCL 1 Monopsony: no union W 1 No un ion n o i o un N MRPL O Q 1 Q of labour fig

3. The effects of unions - evidence n A) The effect on wages q union versus non-union wages n n n q q 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 n n unionised firms - ‘poor’ conditions higher wages to compensate

3. The effects of unions - evidence n B) Effects on employment q n C) Effect on hours of work q n unions reduce employment growth convert standard hours into overtime hours higher pay D) Effect on productivity & profits q q q positive if ‘voice’ effects occur negative if they succeed in introducing ‘restrictive practices’ outcome depends on quality of unionmanagement relationship

Conclusion n n 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