Labour Market – The Economics of Trade Unions

Unions – can you name them? Retail & Leisure & Media BFAWU PFA NUJ Transport BALPA ASLEF RMT Public Services FBU PSU RCN NUT

Union Personalities – Can you name them?

UK Trade Union Stats Trade union density for employees in the UK was 26.6 per cent in 2010 Trade union membership levels for UK employees was 6.5 million Across all sectors of the economy, just under half of UK employees (46.1 per cent in 2010) were in a workplace where a trade union was present The hourly earnings of union members, averaged £14.00 in 2010, 16.7% more than earnings of non-members (£12.00 per hour)

Union activity in the UK

Key functions of trade unions Protecting and improving real living standards E.g. Campaign for a living wage Protecting workers against unfair dismissal (employment rights) Promoting better conditions & health and safety Workload issues Workplace training and education, accumulation of human capital Protection of pension rights Counter-balance to possible monopsony power of employers in the labour market

Battling for their members

Unions in the News

Unions in the News

Influencing wages and earnings Collective bargaining with employers National wage bargaining Plant level wage bargaining (micro level) Can trade unions achieve a “mark-up” for their members (i.e. a premium wage)? What are the possible employment consequences?

Factors influencing bargaining power Macroeconomic climate Unemployment rates / labour shortages Profitability of businesses Stage of the economic cycle Public support / sympathy for unions Union density – % of the workforce in an industry who are members of a union Legislation – legal powers of union to take action Financial consequences of industrial action Impact of globalisation – and power of multinationals (TNCs) to outsource production around the world

A competitive labour market Wage Rate Ls W1 Ld E1 Number of people employed

Unions may negotiate minimum pay level – at the cost of jobs? Competitive labour market Union negotiated wage rate Wage Rate Wage Rate Ls Ls Wtu W1 W1 Ld Ld E1 E2 E1 E3 Number of people employed

Controlling labour supply to boost wage rates – restricting entry Competitive labour market Wage Rate Wage Rate Labour supply after trade union Labour supply before trade union Labour supply before trade union W2 W1 W1 Ld Ld E1 E2 E1 Number of people employed

Declining union membership

Long term decline in union power Employment laws: Employment legislation has Outlawed illegal strikes Given employers the right to seek compensation for the effects of certain forms of industrial action Requires all unions to hold secret ballots of their members before any strike action is permitted

Long term decline in union power Market competition / globalisation The effects of increased competition in product markets – in nearly every domestic market for goods and services, there is greater competition now

Long term decline in union power Changing pattern of employment There has been a long term change in the structure of employment away from traditionally strong union sectors such as heavy engineering, coal-mining, steel and textiles, towards service sector jobs in the private sector where union density is lower

Trade Union Membership There has been a large decline in union membership over the last thirty years Union membership peaked in the late 1970s at over 13 million, and then fell dramatically in the 1980s as Margaret Thatcher took on the trade unions. Membership then stabilised and the figure has remained between seven and eight million since the mid-1990s.

The number of industrial stoppages

Days lost from strikes in the UK

Total days lost to industrial action

The standard case against unions Unions act as a distortion in the labour market They drive wages higher and profits & employment lower than if the labour market was fully competitive They may prevent the introduction of new, flexible work practices They may delay the introduction of new technology Their collective bargaining power can lead to higher wages and cost-push inflationary pressures Unions can cause labour market failure

Evaluating: Questioning this view Unions and their members stand to gain from Higher productivity The workforce having more flexible skills Improved working conditions and employment rights Higher pay does not automatically lead to fewer jobs Monopsony argument Higher pay can create incentives for higher productivity Keynesian effects of increased incomes on demand Many unions have modernised to reflect changes in the domestic and global economy They can work with management and employers to improve efficiency and competitiveness – in partnership and cooperation

Evaluation on trade unions Trade unions have (in the main) changed radically from the 1970s and 1980s Reduced influence over pay and jobs Greater willingness to enter into agreements with management over work practices Still some “militant fringes” – mostly in the public sector Britain now has one of the best industrial relations records of any rich advanced nation Possible globalisation of trade unions

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