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Discuss trade unions in the workplace can only have a negative impact on productivity
1.0 Introduction
Trade unions are organisations that represent people at work. Their purpose is to protect and improve peoples pay and conditions of employment. They also campaign for laws and policies which will benefit working people. Trade unions exist because an individual worker has very little power to influence decisions that are made about his or her job. By joining together with other workers, there is more chance of having a voice and influence. However, throughout last twenty years there has been much debate over the impact of trade unions on productivity. Trade unions have been defined by two faces, as outlined by Freeman and Medoff in What Do Unions Do? As the basis of much of the literature surrounding unions has stemmed from this, I would discuss it in detail in the following paragraphs.
2.0 The Two Faces of Trade Unionism
Trade Unions is essentially pluralistic in outlook, it covers not only the relations between employer and employee, but also the relations between employers and unions and between them. TU theory, practice and institutions traditionally focus more on the collective aspect of relations. This is evident from the central place occupied by labour law, freedom of association, collective bargaining, the right to strike etc.
It was the study of Freeman and Medoff that first created the concept of the two faces of unionism. The first face, put forward primarily by neo-classical economists is that of the Monopoly face.
Monopoly face: This side of trade unions assumes that most unions have the power to raise wages above competitive levels. This is argued has harmful economic effects. Freeman and Medoff break down the definition of these faces into three sections. The first section is on economic efficiency. In this, according to the monopoly face, unions work rules can decrease productivity. The next section is on the distribution of income. Monopoly face in here can increases income inequality by raising the wages of highly skilled workers and also they create horizontal inequities by creating differentials among comparable workers. Finally on the social nature of the organisation, unions monopoly face breeds corrupt and non-democratic elements, and discriminate in rationing positions.
The Collective voice/ institutional face: on the other hand is quite different. Under this, unions have positive effects on productivity, by reducing quit rates, inducing managers to alter methods of production and adopt more efficient policies and thus improving morale among workers. Also, unions represent a wider range of interests than just the marginal worker that is catered for under a non-union system. This leads the firm to choosing a better mix of compensation and personal policies for employees. For example under this system a firm would cater for senior employees and retirement packages whose voice would otherwise not be heard. In a non-union system the firm would only be inclined to cater for the young and marketable marginal worker, one who might leave because of small changes in the conditions of employment.
Regarding the distribution of income unions standard rate policies reduce inequality among organized workers in a given industry or firm. For example they can raise the wages of blue-collar workers in relation to white-collar workers. Quantitatively, the “inequality-reducing effects of unionism outweigh the inequality-increasing effects”
The collective voice also defends unions on the political stage. It emphasis that unions are democratically elected organisations that represent the will of its members, especially those who are disadvantaged and of lower income levels.
3.0 Trade unions and productivity
Many studies have been done on this, perhaps the most contentious side of trade unions. It has yielded mixed results, depending on the industry, the models used and other factors such as how competitive that particular industry is. The monopoly view of trade unions and productivity is that they achieve a wage gain at the expense of other parties, be it the consumers who receive higher prices if the cost is passed onto them, or non-union workers who receive lower wages.
The voice/institutional response show that unions in fact raise productivity on average. However as Medoff notes, “the relationship is far from immutable and has notable exceptions.” Freeman and Medoff (1984) High productivity “appears to run hand in hand with good industrial relations and to be spurred by competition in the product market”, Freeman and Medoff (1984) while lower productivity under unionism exist under the opposite circumstances. Although unions may cause wages to increase, this is offset by improved labour productivity and thus profitability or employment need not be affected.
Alison Booth outlines two organisational theories of this view. The first is that with unionisation, and its higher labour costs, the management is shocked into operating the firm more efficiently. However it must be remembered that this theory assumes that the firm was not efficient prior to unionisation. The second theory is that unionisation improves morale and co-operation and comes with positive changes in procedural arrangements. It also makes an assumption; that the firm operates in a world of imperfect information or uncertainty, and that employment relationships are frequently long-term. It points out that negotiation costs are more often lower with unions than with individuals. Also, individual arrangements may not be incentive-compatible, in that unions can hold for example, the threat of withdrawing all labour.
What are the sources of these improvements in productivity that the proponents of the collective voice outline? Addison and Hirsch give a considerable section to this question in their book. They conclude that there is little empirical evidence to support the collective voice explanation of productivity change, with the exception of grievances and quits. Regarding the former they highlight studies by Katz, Kochan and Gobeille (1983) and Ichniowoski (1984). They used data from ten paper mills and union plants at General motors to show that the number of grievances is inversely related to productivity.
Source: Automobiles graph drawn with data found in Harry Katz, Thomas Kochan, and Kenneth Gobeille, in Freeman and Medoff pp. 177
Source: Paper mills graph drawn with data found