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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

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the impact of trade unions
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
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 objectives3
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 objectives4
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
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
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
slide7

Monopoly union facing producers

under perfect competition

W1

£

S

D

O

Q1

fig

Q of labour

b bilateral monopoly
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
slide9

Bilateral monopoly

S1 (=ACL1)

MCL1

No union

No union

MRPL

£

Monopsony:

no union

W1

O

Q1

Q of labour

fig

3 the effects of unions evidence
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 evidence11
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
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