Zafiris Tzannatos The World Bank March 2005 Unions and Collective Bargaining Economic Effects in A Global Environment Zafiris Tzannatos The World Bank March 2005

Purpose of the study* Find out what the economic effects of unions and collective bargaining are, when unions exist (this is different than: “what happens if unions are introduced?) * Toke Aidt and Zafiris Tzannatos (2002) Unions and Collective Bargaining: Economic Effects in a Global Environment

Need first to understand What are “unions”? What they do and how they operate? With whom (what type of government)? In what kind of economy? The way economists have addressed these issues results many combinations (how many?)

What is “Unions”? Union density (% of workers unionized) Union coverage (% of workers whose wages are affected by collective agreements) Other (e.g. closed shop, index of power of exposed sector unions etc)

There is weak relationship between the % of workers (a) who are union members and (b) whose wages are affected by collective bargaining

What is “Collective Bargaining”? Union concentration Union centralization Employer centralization Level of bargaining Informal coordination Corporatism Other (pattern bargaining, indexes etc)

Swiss of Japanese …? All watches are the same!

What is “Government”? (Hypothesis of Coherence) Left-wing Government Right-wing Government Powerful unions Good performance Bad performance Weak unions

Unions, Employers, Government … But Does the Economy Matter? Closed economy? Open economy? Competitive economy? Monopolistic economy?

So, what are the effects of: 3 dimensions of “unions” 7 types of coordination 2 types of (polar) governments 4 types of (stylized) economies OVERALL 168 combinations

So, what are the effects of: 3 dimensions of “unions” 7 types of coordination 2 types of (polar) governments 4 types of (stylized) economies OVERALL 168 combinations (and if 4 types of government => 336 …)

Well! Effects on What? 1 of 5 Microeconomic Effects on Workers Wages/minimum wages Hours of work Job mobility Training Worker benefits

Well! Effects on What? 2 of 5 Microeconomic Effects on Firms Profitability Productivity New technology Pay systems Employment growth Physical investment Research and development

Well! Effects on What? 3 of 5 Direct Macroeconomic Effects Economic growth Aggregate productivity Inflation Compensation (wage) growth Wage dispersion Earnings inequality Labor supply Employment rate Unemployment

Well! Effects on What? 4 of 5 Macro Effects (on Indexes) Okun’s index (unemployment + inflation) Open economy (unemployment + deficit) Job quality (employment – wage dispersion) Growth/Inflation (GDP slow down + inflation)

Well! Effects on What? 5 of 5 Of course, on the labor market! Aggregate real wage flexibility (to U) Hysteresis (persistence of unemployment) Adjustment speed (to real wage shocks) Search effectiveness (Vacancies to U)

So, which of the 30 or so effects on micro and macro indicators comes from 168 combinations of unions, employers, governments and types of economies? (Semantics, selectivity and biases are important)

Manufacturing Output Growth Table 2.1: Economic Performance before and after an Improvement in Labor Standards (average growth rates, %) Country Reform year GDP Growth Manufacturing Output Growth Export Growth   Before After Turkey 1986 6.1 2.7 7.9 5.7 16.1 8.1 Fiji 1987 9.8 5.8 4.2 -0.6 14.3 6.7 Korea 10.7 8.6 15.7 8.3 15.6 6.9 Taipei 9.6 n.a. n.a Brazil 1988 5.3 0.9 4.5 -2.2 9.5 4.8 Thailand 1992 8.2 14.7 11.5 17.3 13.2 Argentina 1983 -0.2 1.0 -0.5 0.6 2.8 Uruguay 1985 -7.6 4.4 -5.4 3.7 6.8 Philippines -1.3 4.0 -2.4 3.1 2.4 7.2 Panama 1989 10.5 -2.5 8.9 0.2 Peru 1990 -0.9 1.8 -3.8 -23.2 Venezuela 5.2 -3.3 3.6 Dominican Rep. 1.7 9.1 5.6 Honduras 3.0 3.3 3.8 1.9 Guatemala 4.1 Ecuador 1979 7.1 1.3 11.6 2.1 0.4 2.3 Suriname 1991 -3.2 Average 3.81 4.34 3.36 3.61 6.58 4.27 Source: OECD (1996: Table 7)  

Note: Labor standards refer to the freedom of association and the right to collectively bargain Source: OECD (1996: part II)

Source: OECD (1996)

Summary Effects (Macroeconomic) More labor market coordination seems to be better for low unemployment, earnings inequality, fewer strikes than semi – and uncoordinated LM Coordinated and uncoordinated LM fare equally in terms of productivity growth and wage flexibility No difference in inflation and employment rates Differences reduced/very weak in the long run (as countries adapt one way or another)

Summary Effects (Microeconomic) Unions create differentials in favor of their members (but is this always bad?) The union effects on the performance of firms vary and are often ambiguous

If competitive wages in the absence of unions = 100, what does it mean if RED wages are 20% more than BLUE wages ?

Future research A. Union differentials and spill over effects need to be examined against gains and losses

a bad cause or a good symptom? Future research A. Union differentials and spill over effects need to be examined against gains and losses B. Are collective arrangements a bad cause or a good symptom? (reverse causation)