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Labour Economics: Union Membership Union Membership - Theoretical, Empirical and Literature Summary Contents
- Theoretical Framework: o Collective Voice Theory o Criticism of Framework
- Union Power: o Types o Measurement o Measurement issues
- Literature Summary: o Schabel (2003) o Pencavel (1971) o Olson (1965) o Booth (2003)
- Empirical Evidence of Decline o US o UK o DE o FR o NL o DK
- Heterogeneity in distribution
- Causes of Decline
- Legislation in UK
- Explaining international variations
- Bryson and Freeman (2004): US/UK comparison
- Potential ladders (Crouch 2000)
- Effects of unionism Definition UNION: 'a continuous association of wage earners for the purpose of improving the conditions of their employment' Key: Collective voice theory
- Freeman and Medoff (1979): two faces of unions - rent extraction vs collective choice
- Hirschman (1970): o Exit: individual mobility o Voice: confrontation
- Collective voice more effective than individual bargaining
- Various public goods in industrial setting that affects every single employer - free rider problem (externalities/market failure etc)
- Individuals not prepared to exit - unlikely to reveal true preferences
- Non-union settings: labour market adjusted by entry/exit
- Union settings: union takes account of preferences of all workers.
- Primary mechanism: collective bargaining over pay and conditions - vested interest effect.
- Secondary mechanism: pursuing correct adherence to legal rights, lower rate of accidents, family friendly policies - sword of justice effect Union Power: Types (Collin and Terry
1.) Coercive power - how much unions can force change on employers
2.) Legitimacy power - the credibility and "influence" they have as a result of being seen as a legitimate voice of workers grievances and wishes.
3.) Can add third - political power; corporatism.
1 Labour Economics: Union Membership Byrson et al (2011): membership and power not synonymous but membership crucial for organisation. Measurement of power:
- Density = proportion of paid workers who are union members.
- A rough measure o Doesn't account for education, unemployment, injuries, retirement etc. o Coverage - eg. France
- Density by country, particular sector, or by company. Low density generally means less coercive power and to some extent legitimacy power.
- Collective bargaining coverage = proportion of wage earners who are covered by collective agreements.
- 90s: average collective bargaining 68.3% vs density 40%. Gap due to legal constraints and institutional context o France/Spain: collective agreements don't distinguish between unionised/non unionised workers o US/UK: can discriminate
- Premium mark up
- Policy influence: the degree to which unions can influence political outcomes
- public service provision, social policy, legal rights for workers, etc. Corporatism.
- Union density F(social, psychological and political factors):
- Byrson et al (2011): membership and power not synonymous but membership crucial for organisation Schnabel (2003) Classical model (Pencavel 1971): union membership considered as though it were an asset in the portfolio of a utility maximising worker that provides a flow of services (private/collective goods) Demand for unionism given by: Ud= d(p,y,wdiff,z,s,t)p = costs of membership y = wealth (positive if a normal good) wdiff = wage premium z = non financial union benefits eg better working conditions and grievance procedures s = level of substitute services. Streeck (1981): may be available at lower cost elsewhere. Reduces attractiveness of unionism. t= taste for unionism - attitudes and preferences, ideological motives, social pressure,custom
Supply: unions face binding budget constraintUs = e(p,co,cs,g) P = price Co = cost of organisation (fixed cost component, exhibit economies of scale) Cs = cost of servicing members (fixed cost too) G = union goals (eg max membership or a certain utility fn).
Assume market clearing: U = Ud = Us. U and p functions of other variables in the system, so equation given by U = f(y, wdiff, z, s, t, co, cs, g). Signs in reduced form ambiguous. Criticism:
- Model ignores GE aspects, eg wdiff not independent of level of unionisation
- Doesn't account for free rider problem. Arises because goods are nonrival in consumption and low-cost exclusion is not possible. 2
Labour Economics: Union MembershipPolitical and psychological factors must be taken into account Often empiricised with small n studies. Not good enough. Difficult to observe all variables directly. Often substituted by proxy variables.
Solving free rider problem?
- To solve free rider problem,
- Olson's(1965):overcome CAP through a) Compulsory membership. Eg closed shop - pre-entry eg. Equity or post-entry eg UMA b) selective incentives: provision of private goods - eg. Cheap life insurance. Probem: can be provided cheaper elsewhere; haven't managed to do so effectively.
- Social custom approach can solve:
- Booth (1985). Reputation utility that derives from compliance. Stems from Akerlof (1980). o Decision to join is interdependent. o Solidarity is important. o Original model problematic: Booth assumes workers have homogenous tastes where only stable equilibrium with non zero density is where everyone joins. o Booth (1993): model of union membership and wage determination. Open shop union is viable only after membership has achieved a minimum critical density and wages are at a sufficient level to support this. Wage setting modelled using MV framework of SCT. Implies union executives maximise EU of MV to be re-elected. Heterogeneous workers join if expected utility of joining > expected utility of abstention. Simultaneous equations system - membership f(wages); wages f(membership).
- Problem: leaves formation of social custom unexplained. Evidence of Decline: UK
- 1979: 13.3 million members. 57% of staff.
- Fell sharply in 80s and 90s o 80s lost support of state and management o 90s lost support of employees
- New Labour:
- 1999: membership rose 10,000 but density actually declined since number of employees increased
- Changing labour market - increased direct contact: team briefings, problem solving groups, meetings between management and staff etc.
- Composition effects of jobs - mechanical shift to services from manufacturing. NPM.
- 2007: 7.1 million members. 28% of employees (Metcalf 2005: 3/5 public sector; 1/5 private sector)
- Gap created by discredited political and media classes.
- Bryson (2011): over past three decades EU union membership has halved Decline all over the place, but especially emphasised in UK, 2 nd only to US. But, some variation (explain variation...). Country
US UK DE FR NL DK
26 70 91 85 76 69
14 30 68 90 89 90
22 50 36 18 35 76
12 23 23 6 26 71
3 Extension of state agreements No No Few High High no
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