Unions
- See Benjamin, Gunderson, Lemieux and Riddell: Chapters 14, 15.
Unions:
Collective organizations that negotiate conditions of employment
with employers on behalf of their members.
- This is done through collective bargaining.
- Control of labour supply (strike threat): source of bargaining power
- The outcome is a “collective agreement”.
- specifies wages, non-wage benefits (pensions, vacations,
group insurance, etc.), hiring, promotion, layoffs,
grievance procedures, etc.
(Examples: )
- Agreement length: average has been about 40 months (since about 2005)
- historical: about 35 months 1996-2004; about 25 months 1986-94.
(
- Legislation concerning collective bargaining is primarily provincial.
- Federal jurisdiction industries the exception.
- Historically, the most important legislative changes were federal.
Order-in-Council P.C.1003, 1944: encouraged private sector
unionization.
Public Service Staff Relations Act, 1967
- encouraged public sector unionization.
Provinces followed the Federal lead in these cases.
- What does the legislation do?
- Employees right to join unions is established.
- Limits are placed on the employer’s power to interfere with worker
rights to bargain collectively.
- Processes for certifying or decertifying unions are specified.
- Rules governing strikes and lockouts are specified.
- Cooling off periods, compulsory conciliation.
- Prohibits strikes and lockouts during the term of an
agreement.
- Requires agreements to specify alternative ways of dealing with problems (grievance procedures).
- May limit actions during a strike/lockout: can replacement workers be hired? Limits on picketing?
- Requires certain provisions in the agreement.
(Details: See Labour Relations Act, 1995 link at
Types of Union organization:
- Craft unions:
- Represent workers in similar occupations.
e.g., firefighters, longshoremen
- Industrial unions:
- Represent workers across many occupations but typically in the same
industry(ies).
e.g., CAW, Steelworkers, CUPE
- more recently: industrial unions expanded outside traditional
industries
- “Unifor”: merger of CAW and CEP (August 2013)
“300,000 workers across roughly 20 sectors of the economy,
primarily in manufacturing, communications and transportation.”
- "Umbrella" organizations:
- Canadian Labour Congress (CLC)
- Ontario Federation of Labour (OFL)
- Canadian Federation of Labour (CFL)
- CNTU in Quebec
- Members are industrial and craft unions.
- Represent the interests of unionized labour to governments andthe public.
Extent of unionization in Canada:
- In 2013: 31.2% of those employed were union members.
- Historical Table 14.1 and Figure 14.1), share of Paid Non-agricultural workers
1920 16.0%196032.3% 1995 34.3%
1930 13.9% 197033.6% 2005 30.7%
194016.3% 198035.7% 2010 30.8%
195128.4%199034.5% 2015 30.6%
- Legislative changes: important for the jumps 1941-1951 and in the early 1970s.
- Other Countries (% of employed wage earners), mostly 2013:
Canada29.5%Sweden67.0% Brazil 25.2%
U.S.11.9%Germany17.7% U.K.25.7%
Japan17.8%Australia20.0% France 7.7% Italy 37.3%
Source: J. Visser,Institutional Characteristics of Trade Unions Database
University of Amsterdam (
- Text Table 14.2: unionization rates have declined everywhere since 1980.
- Shares covered by collective agreements are often higher. Why?
- exempt groups of employees covered by collective agreement.
- extension provisions: agreements applied to (part of) non-union sector.
2013 MostlyCoveredMembership share
Australia60.0% 20.0%
Netherlands84.8%18.0%
Sweden89.0%67.0%
France96.0%7.7%
Spain77.6%16.9%
Germany57.6%17.7%
Canada30.5%29.4%
- In Canada? non-union members covered by agreements is 2%.
Level of Bargaining
- The Canadian system of collective bargaining is decentralized.
- single employer, single establishment, single union: most prevalent
- single employer, multi-establishment, single union: widespread
- single employer, multi-union: a few examples (railways, newspapers)
- multi-employer, single union: some examples in health care, construction,
forestry, trucking.
- multi-employer / multi-union bargaining: uncommon.
(Source: Chaykowski, 2009 Table 10.1)
- U.S. is similarly decentralized (UK since 1980s as well).
- Multi-employer agreements and even national level wage determination
is found in some countries.
Visser’s database: levels of bargaining (LEVEL),extension of agreements (EXT)
and coordination (WCOORD).
- Belgium, Netherlands (early 2000s), UK (1970s), Australia (1983-91)
some examples of high centralization.
- Importance of the level of bargaining?
- Empirical studies suggest it can affect the degree of unemployment.
- Calmfors and Driffil (1988): best known study
- looked at relationship between bargaining coordination and
unemployment.
- results suggest that the relationship is “hump-shaped”.
- decentralized systems: low unemployment
- wages are more flexible to specific market
conditions.
- centralized/highly coordinated systems: lowunemployment.
- economy-wide wage setting: may take into account
unemployment consequences of high wages.
- intermediate cases: higher unemployment!
- unions pursue higher wages but don’t take
national unemployment consequences into account.
- Later studies? - Several find the hump-shape.
- Some suggest only coordination gives low
unemployment.
Unionization by Type of Job and Personal Characteristics:
- Industries:
- High unionization: public administration, communications and utilities, education, health and social assistance.
- Low unionization: wholesale and retail trade, finance, insurance and real estate, agriculture, accommodation and food.
- This pattern is similar across countries (Visser)
Unionization by Major Industry, Canada 2017Educational services / 0.727
Public administration / 0.721
Utilities / 0.635
Health care and social assistance / 0.546
Transportation and warehousing / 0.397
Construction / 0.301
Manufacturing / 0.251
Information, culture and recreation / 0.238
Forestry, fishing, mining, oil and gas / 0.233
Business, building and support services / 0.178
Wholesale and retail trade / 0.133
Finance, insurance, real estate / 0.099
Other services / 0.096
Accommodation and food services / 0.069
Professional, scientific, technical service / 0.046
Agriculture / 0.044
Public sector / 0.755
Private sector / 0.164
Total employees, all industries / 0.304
Source: CANSIM Table 282-0078
- Visser (2000): 17 industrialized countries
- unionization rates higher in public sector in all countries.
PrivatePublic
US 9%37%
Japan22%68%
UK19%60%
Germany22%56%
Sweden77%93%
Australia24%55%
- Public: public administration, public health, education, public transport.
- Occupations:
- Low unionization:sales occupations, food and beverage prep.
- High:Teaching, nursing, health (technical and support), protective
services.
- Part-time jobs are less likely to be unionized (all countries in Visser; also text
Table 14.3).
- Firm size:
- larger firms are more likely to be unionized (text Table 14.3)
- Middle aged, older workers are more likely to be unionized (text Table 14.3)
- More educated workers are more likely to be unionized (text Table 14.3)
- Regional unionization rates, 2017:
Alberta (25%), Ontario (27%), high Newfoundland (38.7%), Quebec(38.4%)
Economics of Unions:
- Some Major questions?
(1) Why are some jobs unionized and others not?
(2) How to model unions and unionized labour markets?
(3) What are the effects of unions on compensation and other
outcomes?
Models of Unionization: Which Jobs are Unionized?
Decision makers involved:
(1) Workers:
- Demand for unions: economic approach?
- based on a comparison of the costs and benefits of unionization.
- benefits: better pay and benefits; rights/security advantages?
- costs: higher labour costs may mean fewer jobs; strike costs, dues.
(2) Union organizers:
- Determine the supply of union services.
- Which jobs to target for organizing drives?
(3) Employers:
- can take actions to deter unionization.
(4) Governments:
- Determine the legal framework.
- Are government policies a substitute for unions?
Some factors affecting unionization:
(1) Tradeoff between extra compensation and jobs.
- Better compensation will often mean fewer jobs: how many fewer? what does the answer depend upon?
(a) Elasticityof labour demand.
- The more elastic (flatter) is labour demand the worse is the tradeoff
between extra compensation and employment.
- Demand for unionization will be low if possible wage gains are
offset by a high risk of job loss.
Some factors that affect labour demand elasticity:
- Degree of product market competition:
- competitive market: harder to pass on higher wage costs – labour demand more elastic.
- Goldin: US 19th century: creation of a national market and
The decline of local craft unions.
- Late 20th century: international competition – has it made labour demand more elastic?
- Monopolist vs. a competitive firm: monopolist more ability
to pass labour cost rises on to customers.
- Existence of substitutes for organized labour:
- easy to use substitutes makes labour demand more elastic.
- technology plays a role;
- globalization: can make foreign workers a substitute.
- labour laws: can union workers be easily replaced with non- union workers?
- Resource industries, industries with large sunk capital investments:
(mining, utilities, steel) – is labour demand inelastic once the intialinvestment is made?
- Public sector unionization and elasticity:
are labour demand elasticities low in the public sector?
(b) Is the industry/firm growing?
- Unionization may be more attractive in a growing industry.
- Raising compensation may mean lower employment
growth rather than layoffs.
(c) Monopsony: does the employer have monopsony power?
- if so unions are like minimum wages under monopsony.
- Raising wages might not decrease employment.
(2) Worker attitudes toward unions
- If unions are viewed positively (aside from any monetary benefits
they may bring) the prospects for unionization will be better.
e.g., Canada vs. United States? Are Americans more anti-union?
Alberta vs. Quebec
Northern U.S. vs. Southern U.S.
Parts of Europe vs. North America.
- Are there spillovers here?
- are attitudes contagious? (Holmes, 2006)
- Public attitudes may also affect collective bargaining legislation.
(3) Worker's anticipated labour force attachment
- Short tenure: is unionization is less likely?
- unionization as an investment: less time to accrue benefits
- costs now in terms of union dues, lost income if
there is a strike, etc.
- less time to reap benefits of unionization.
- high cost of organizing high turnover groups.
Possible examples of groups with low unionization and low attachment:
- young workers, fast food industry workers.
(4) Non-union pay and working conditions:
- These can affect the expected benefits and demand for unionization.
- Employers may night adopt high-wage policies to discourage
unionizatione.g., Michelin Tire.
- Have improvements in personnel management contributed to falling U.S.
unionization?
- Minimum employment standards set by government may affect
the size of expected benefits.
- government protection: a substitute for unions?
- welfare state as an explanation of the decline of unionization?
- Extension of collective agreements to non-union workers reduces incentives to join unions, e.g. France, Netherlands.
(5) Expected Degree of Employer resistance.
- Will the employer fight unionization?
- If a long strike is expected the cost of unionization to the
worker may be high.
- Employer information campaigns, actions against union
members, wage and working conditions can
affect the costliness / success of a unionization drive.
e.g. anti-union firms: McDonald’s, Walmart.
- do they invest in an anti-union reputation to discourage demand for
unions?
(6) Legal framework:
- Can affect the relative power of employers vs. unions and so
the size of anticipated rise in compensation.
- Can affect the time and resource costs of forming a union.
- United States: prevalence of "right-to-work" laws
- can't require that workers be union members.
- Less "union-friendly" legislation in the U.S. is often argued to
be a major factor behind low U.S. unionization rates.
- Growth of unions in Canada and the US: pattern suggests
legislation was important. e.g. PC1003, public sector union laws.
- Martinello (2000) Canadian Public Policy (see text p. 424)
- Ontario certification and decertification activity in 1990s.
- Signficant effects of NDP and PC governments and their
legislation on success rates.
- Recent Canadian studies of changes in unionization rates:
- Riddell and Riddell (2004):
- Declines in Canadian and US unionization rates 1984-98.
- It is not due to decline of industry/occupations where unionization
rates are high or a change in workforce characteristics.
- Probability of being unionized has fallen generally.
- Why? Perhaps:- increased management opposition
- legislative change
- better substitutes for union services.
Unions in Economic Models
- What is the objective(s) of a union?
- unions are collective organizations
- individual members may have quite different preferences
e.g., old vs. young and seniority rules
- the leadership may have its own objectives
- no single model of how unions behave.
Monopoly union model:
- Think of a union as a monopolist selling labour to the firm.
- controls the labour supply
- faces the firm’s labour demand curve: this curve represents the
actions of the firm, i.e. shows employer choice of
employment at each wage.
- the value of the wage rate chosen implies an employment
level(from the labour demand curve)
- Union sets the wage to maximize its “welfare” or “well-being”
- welfare of a union?
Union Preferences:
- Assume unions view both compensation (W) and employment (E) as good.
- represent union preferences over compensation and
employment with a set of indifference curves.
(see text Figure 14.3 for some possibilities).
- shape represents valuation of extra employment vs. extra
wages:
- steep: values extra employment highly (extra wages lowly)
- flat: values extra wages highly (extra employment lowly)
- where do these come from?
- union consists of many workers with different preferences
(leaders preferences? voting models?)
Constraints Faced by unions:
- Wage obtained in alternative employment and/or the cost to workers of
supplying labour
- union must do as well as workers can do in employment
elsewhere.
- this could be represented by the labour supply curve (text draws it
as flat – I will too a wNU)
- Labour demand curve:
- reflects behavior of the profit maximizing firm (given the wage)
i.e., given the negotiated wage the firm chooses employment
along the labour demand curve.
Union’s Best Choice:
- Facing these two constraints:
- union picks the wage that will put it on the indifference
curve just tangent to the labour demand curve.
(provided that this wage is higher than the alternative wage)
- typical outcome?
- wages are typically higher than in the competitive case
(competitive wage = alternative wage)
- employment is lower than the competitive case.
- What does the outcome depend upon?
- shape of labour demand curve (elastic, inelastic?)
- union preferences: shape of indifference curves
- alternative wage
(experiment with these to see how the outcome changes)
Application: Trends in European wages and unemployment (time permitting)
- Blanchard and Philippon (2003) “The decline of rents and the rise and fall of
European unemployment”
(Blanchard’s website MIT)
- Adopts a monopoly union framework.
- union chooses the wage to maximize total wages paid (wage bill): w E
(note: convex shape of implied indifference curves).
- constraint: wage-employment (W-E) tradeoff.
higher wage lower profits lower investment fewer jobs
- argues that the constraint changed over time due to:
- capital market integration in Europe: made investment more
responsive to profits.
- product market deregulation : product markets more
competitive.
- both made the W-E tradeoff worse for unions (labour
demand more elastic).
- Response?
- wage moderation as unions learned of the changed tradeoff.
- So changes in tradeoff:
- initially (1980s): decreased employment, raised
unemployment.
- eventually (1990s): decreased wages, caused
employment to rise, unemployment to fall.
Challenges to the Monopoly union model:
Efficient Contracts Model:
- Monopoly model outcome is not an “efficient bargain”
- it could be altered to make both parties better off.
- Intuition: monopoly model contrains the solution to be on the
labour demand curve.
- Relaxing this constraint creates the possibility that firm
union can do better.
- Consider isoprofit curves for the firm:
- isoprofits: show combinations of W and E which give the same
amount of profit.
- they peak on the labour demand curve
- why?
- given the wage, E which maximizes profits is on the
labour demand curve
i.e. LD curve shows profit maximizing employment at each
wage.
- moving to the right or left of a point on the labour
demand curve means profits must be falling
- so the wage must fall to maintain profits.
- so isoprofits have a concave shape.
- The higher the isoprofit the LOWER the level of profit.
i.e. higher wage at same E means lower profit!
- Consider the union's preferred point from the monopoly union model:
- union indifference curve is tangent to the labour demand curve.
- isoprofit curve cuts across the indifference curve .
(see point A in text Fig. 14.6)
- implication:
- W, E combinations south-east of the union's preferred
point (between the indifference curve and isoprofit lines going through this point) will raise
union utility AND firm profits!
i.e., the union's preferred point is inefficient.
- There will be an incentive to negotiate W, E bargains that are
off the labour demand curve.
- negotiate over both wage and employment levels.
- Actual point chosen?
- there will be a locus of efficient bargains.
- in some, the unions does relatively well, in others the firm
does relatively well.
- which is chosen?
- depends upon relative bargaining strength.
Wage Discrimination Approach:
- Monopolists in output markets can do better if they can price discriminate:
charge higher prices to those with highest willingness to pay.
- monopoly model above assumed the same wage was paid to all union
workers hired.
- Unions can also do better if they can charge firms different wages for different
workers:
- high wage for those the employer is willing to pay most for; lower wages
for others.
- Perfect discrimination: charge the height of the labour demand curve for each
worker the employer hires.
- union seizes all the surplus from hiring workers!
- employment level will be the same as in a competitive labour market.
- difficulty with perfect discrimination:
- union needs a lot of information to implement this.
- must know which workers an employer values most and how
highly they are valued.
- Kuhn (1998):
- unions favor seniority based pay systems;
- is this a way of wage discriminating?
Which Model is Most Correct? Some Points Raise in the Literature
- Most union contracts do not specify employment levels.
- this seems inconsistent with the efficient contracts model.
- this seems odd given that an efficient contract should benefit both parties.
- why might this happen?
- is employment determination a traditional management right?
- But why did this tradition arise and persist?
- information problems and incentives to mislead (e.g., see p. 443 )
- an efficient contract will specify different employment
levels for different business conditions (different LD)
- is this type of contract avoided because it is too complex?
- if employer has better information on business conditions
unions may have to trust that it will reveal the true
one.
- but if contract says cut wage if conditions are poor
the firm may always report poor conditions.
- monopoly union outcome may be the best attainable given
problems with efficient contracts.
- Kuhn (1998): union contracts are often complex.
- they do much more than just set a wage.