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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 • 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 • ‘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 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 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 • 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 • 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 W1 £ S 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 • 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
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 • 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 - 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 • 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