In this blog and its associated NERI Research InBrief No. 88, NERI Co-director, Dr. Tom McDonnell considers the economic case for wider collective bargaining.
NERI Research InBrief No. 88 is the 3rd in the NERI’s economic security series. This time the focus is on the economic case for collective bargaining.
The majority of income for the majority of households comes from wages. Decent wages are therefore critical to living standards, to economic security and well-being, and to the minimisation of poverty and deprivation.
Wealth is much more unequally distributed than income across all advanced economies. This means that policies that work to increase the labour share, such as supports for collective bargaining, will tend to reduce market inequality over time. Well-designed collective bargaining structures can mitigate power asymmetries between employers and employees and thus ameliorate market failures in the ‘price’ of labour and the distribution of income. Collective bargaining also tends to promote wage compression within firms and sectors and this too acts to reduce inequality over time.
Collective bargaining can push economies into a more ‘high road’ or high value-added equilibrium and cross-country comparisons of economic outcomes in Europe suggest that concerns about negative economic impacts from collective bargaining are misplaced.
The arguments underpinning the economic and social merits of CB are increasingly driving policy reform. In particular, the European Union’s historic Adequate Minimum Wage Directive (AMWD) marks an important milestone in the development of a genuine ‘social’ Europe consistent with its European Pillar of Social Rights. The idea is that the European social market economy will compete and drive growth based on innovation and productivity not erosion of living standards.
The AMWD explicitly requires EU Member States to establish an action plan to promote CB including a framework of enabling conditions to achieve a target of 80% CB coverage for the workforce. Possible examples of supporting measures could include less restrictive criteria for establishing sectoral agreements and extension mechanisms, protection against victimisation of workers that exercise their rights to CB or union membership, and a right of trade union access to the workplace.
The Irish government is required to transpose the directive by November 2024. It remains to be seen if it will meet its obligations.