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) CountryMembershipCoverage France995 Germany2992 Sweden9189 UK3447 Japan2421 US1618 Importance of coverage Flexible labour markets?

1. Unionism & union objectives Union membership, Country France Germany *Sweden UK Japan US Why has there been a decline?

2. Economic models of union effects The effect of unions depends on the structure of the firms 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

fig O Q of labour Q1Q1 S D £ W1W1 Monopoly union facing producers under perfect competition Monopoly union facing producers under perfect competition

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 MC L = MRP minimum W is given by the monopsony outcome See Figure 2

fig O Q of labour £ W1W1 Q1Q1 MRP L MC L 1 No union S 1 (=AC L 1 ) No union Bilateral monopoly Monopsony: no union

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