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Trade Unions, Collective Bargaining and Economic Performance

Posted on June 25, 2019 by Tom McDonnell

NERI Research inBrief no 68 June 19

A key goal of workers and unions is to achieve wage growth that outstrips increasing costs of living.

Trade unions can influence the labour share and the productivity channels, to the benefit of workers. Unions increase the bargaining power of labour, which enables workers to negotiate a larger slice of the economic pie. In addition, coordinated wage bargaining can impede cost competition strategies and encourage productivity enhancing measures, thereby pushing the economy towards a high wage and high productivity equilibrium.

Nordic countries provide concrete examples of countries with high levels of collective bargaining alongside high levels of employment and productivity. Their ‘high-road’ model shows that collective bargaining is consistent with high levels of productivity and strong economic performance.

Some key points:

·1. Trade unions can influence both the labour share and the productivity channels, to the benefit of workers.

·2. Competitiveness is consistent with a ‘high-road’ approach based on driving productivity, but also ‘low-road’ approachs based on driving wages and other costs downwards. Only the high-road approach is consistent with inclusive growth.

·3. There is no clear relationship between collective bargaining and unemployment. Some of the best performing countries have strong union influence.

·4. Empirical evidence suggests there may be small positive net effects of collective bargaining on productivity.

5. Research finds that less prevalent trade unions and collective bargaining are associated with higher market inequality.

The latest NERI inBrief reviews some of the theory and evidence here.

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