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The effect of unions on company performance

Explore the effects of unions on company performance, including union density trends, internal factors, and empirical evidence. Discover how HRM policies, incentive pay, and union agreements influence wages, productivity, and profits.

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The effect of unions on company performance

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  1. The effect of unions on company performance • 1. Trends in union density & union coverage • 2. Theory • 3. Empirical evidence

  2. Internal factors affecting company performance • (a) HRM policies • TQM • benchmarking • training • (b) Pay policies - incentives • (n) Unions & union agreements • wages • productivity

  3. 1. Trends in union density • Union density = percentage of the workforce in a union • Blanchflower (1996) - see Table 1 • US - continuous decline • UK - more recent decline • variation • Causes of decline?

  4. Union coverage • Coverage = percentage of the workforce ‘covered’ by an agreement • What is more important, density or coverage?

  5. 2. Theory • No single model • (i) Monopoly union • (ii) Right-to-manage • (iii) Efficient bargaining • (iv) Seniority • Model (I) ignores bargaining - unrealistic

  6. (i) Right-to-manage model • Bargain over wages • Firms decide level of employment Real wage W/P A B Wm P C Wc P DL Employment

  7. Outcomes • Point A & point C = range • Point B = outcome of a bargain • not an equilibrium • depends on relative strength • union? • Firm?

  8. Efficient bargains • Firms & workers benefit from trade • Bargaining Real wage F B DL Employment Membership

  9. Contract curve • Positively sloped - E & W increase • over manning • W>MPL • Firm must earn supernormal  • No trade-off under the Monopoly union & RTM models

  10. 3. Empirical evidence • Effect of unions on company performance • (a) Wages & hours • mark-up = 10% in UK, 3.4% in Germany & 16-20% in USA • reduce total hours I.e. ‘standard’ hours • increase paid overtime • (b) Productivity

  11. (c) Profits • Increase W, so effect on  depends on productivity • UK = negative • (d) Technical change & investment • union recognition increases investment • ‘voice effect’ • (e) Turnover & employment

  12. Conclusion • Unions are not always bad for companies • Beneficial for workers - ‘sword of justice’

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