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

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

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?

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

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

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

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

Efficient bargains  Firms & workers benefit from trade  Bargaining DLDL Employment Real wage Membership F B

Contract curve  Positively sloped - E & W increase  over manning  W>MP L  Firm must earn supernormal   No trade-off under the Monopoly union & RTM models

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

(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

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