key topic

Trade unions, collective bargaining, and the labor market

A trade (or labor) union is a group of workers who have formed to protect their professional rights and interests, e.g. negotiating higher wages, heath care, pensions, workplace safety, and upholding the reputation of their trade.

  • Unions and investment in intangible capital

    When workers and firms cannot commit to long-term contracts and capital investments are sunk, union power can reduce investment

    Giovanni Sulis, November 2015
    Although coverage of collective bargaining agreements has been declining for decades in most countries, it is still extensive, especially in non-Anglo-Saxon countries. Strong unions may influence firms’ incentives to invest in capital, particularly in sectors where capital investments are sunk (irreversible), as in research-intensive sectors. Whether unions affect firms’ investment in capital depends on the structure and coordination of bargaining, the preference of unions between wages and employment, the quality of labor-management relations, and the existence of social pacts, among other factors.
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  • Collective bargaining in developing countries

    Negotiating work rules at the firm level instead of the industry level could lead to productivity gains

    Carlos Lamarche, September 2015
    Because theoretical arguments differ on the economic impact of collective bargaining agreements in developing countries, empirical studies are needed to provide greater clarity. Recent empirical studies for some Latin American countries have examined whether industry- or firm-level collective bargaining is more advantageous for productivity growth. Although differences in labor market institutions and in coverage of collective bargaining agreements limit the generalizability of the findings, studies suggest that work rules may raise productivity when negotiated at the firm level but may sometimes lower productivity when negotiated at the industry level.
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  • Who owns the robots rules the world

    Workers can benefit from technology that substitutes robots or other machines for their work by owning part of the capital that replaces them

    Richard B. Freeman, May 2015
    Robots, that is any sort of machinery from computers to artificial intelligence programs that provides a good substitute for work currently performed by humans, can increasingly replace workers, even highly skilled professionals, and thus reduce opportunities for good jobs and pay. But, with appropriate policies, the higher productivity due to robots can improve worker well-being by raising incomes and creating greater leisure for workers. Consider the way Google reduces the need for reference librarians and research assistants, or the way massive open online courses reduce the need for professors and lecturers. How these new technologies affect worker well-being and inequality depends on who owns them.
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  • Employment and wage effects of extending collective bargaining agreements

    Extending provisions of collective contracts to all workers in an industry or region may lead to employment losses

    Ernesto Villanueva, March 2015
    In many countries, the minimum wages and working conditions set in collective bargaining contracts negotiated by a limited set of employers and unions are subsequently extended to all the employees in an industry. Those extensions ensure common working conditions within the industry, limit wage inequality, and reduce gender wage gaps. However, several studies suggest that those benefits come at the cost of reduced employment levels, especially during recessions. The income losses of workers who are displaced because of a collective contract extension can offset the wage gains among workers who keep their jobs.
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  • Union wage effects

    What are the economic implications of union wage bargaining for workers, firms, and society?

    Alex Bryson, July 2014
    Despite declining bargaining power, unions continue to generate a wage premium. Some feel collective bargaining has had its day. Politicians on both sides of the Atlantic have recently called for the removal of bargaining rights from workers in the name of wage and employment flexibility, yet unions often work in tandem with employers for mutual gain based on productivity growth. If this is where the premium originates, then firms and workers benefit. Without unions bargaining successfully to raise worker wages, income inequality would almost certainly be higher than it is.
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  • The consequences of trade union power erosion

    Declining union power would not be an overwhelming cause for concern if not for rising wage inequality and the loss of worker voice

    John T. Addison, May 2014
    The micro- and macroeconomic effects of the declining power of trade unions have been hotly debated by economists and policymakers. Nevertheless, the empirical evidence shows that the impact of the decline on economic aggregates and firm performance is not an overwhelming cause for concern. However, the association of declining union power with rising earnings inequality and a loss of direct communication between workers and firms is potentially more worrisome. This in turn raises the questions of how supportive contemporary unionism is of wage solidarity, and whether the depiction of the nonunion workplace as an authoritarian “bleak house” is more caricature than reality.
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