In this NERI Research InBrief No. 88, NERI Co-director Dr. Tom McDonnell considers the economic case for wider 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. Finally, 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.