What Do Unions Do in Europe?

II European Conference What do Unions Do in Europe? Alison Booth, Michael Burda, Lars Calmfors, Daniele Checchi, Robin Naylor and Jelle Visser What do Unions Do in Europe?* Prospects and challenges for union presence and union influence A Report for the Fondazione RODOLFO DEBENEDETTI Alison Booth (University of Essex) Michael Burda (Humboldt University of Berlin) Lars Calmfors (Stockholm University) Daniele Checchi (University of Milan) Robin Naylor (University of Warwick) Jelle Visser (University of Amsterdam) * Giacomo De Giorgi and Mattia Makovec (Fondazione RODOLFO DEBENEDETTI) provided excellent assistance in collecting the data. What do Unions Do in Europe? 2 What do Unions Do in Europe? 1. Introduction There are a number of crucial questions concerning the role and the authority of trade unions in Europe at the turn of the century. Among the issues: Is union membership decline in Europe inevitable? Will deepening European economic integration render unions powerless when bargaining with employers? How might European monetary unification affect labour market bargaining outcomes? What is the importance of bargaining coordination and centralisation and is the level of coordination/centralisation likely to change in the changing economic environment in Europe? How might unions respond to the new challenges and the new opportunities that confront them? What are the prospects for unions of retaining, or even extending, their spheres of political and economic influence in Europe in the decades ahead? In the context of these crucial issues, our Report is concerned with documenting the extent and diversity of trade union representation in European labour markets at the start of the new millennium, with assessing the nature of union influence in Europe and with drawing lessons for the likely prospects and challenges facing European at this time. Sections 2 and 3 of the report chart the decline in union density experienced by most European countries in the last two decades of the 20th century, and posit a number of reasons for this decline. Section 4 is concerned with examining the determinants of union power and assessing the possible 3 What do Unions Do in Europe? impact of European economic integration on union prospects for influencing wage bargaining. In Section 5 we look at other important aspects of union strength - such as the extent of union coverage of collective bargains; the degree of co-ordination in wage bargaining of unions or employers groups or both; and the degree of centralisation of such wage bargaining. We also consider distributional consequences of trade unions. Section 6 then focuses on one of the most important aspects of union presence: the extent of bargaining coordination. The section analyses the impact of unions on aggregate wage levels and unemployment, and how this impact varies with the extent of coordination. We document the importance and implications of various combinations of union coordination and centralisation, and emphasise their channels of influence on macroeconomic outcomes. More precisely, Section 2 charts patterns in union membership across European countries over time and addresses the question of whether Europe’s unions have been in decline in the closing years of the 20th century. We show that union decline has continued through the 1980s and into the 1990s in the European Union, as in the United States (and as in Japan). Unionization in Western Europe is now 12 percentage points below its post-war peak of 44 percent in 1979, and is now lower than at any time since 1960. Yet, average union density in the EU is still more than twice the level of unionization in the US (and about 10 percentage points above the level in Japan). However, even in the Nordic countries union growth has halted. Since unification and the take-over of the unions from the former GDR, German unions have lost more than three million members, while existing bargaining structures are eroding. Union decline in Britain and France has continued. The Austrian, Irish or Italian unions are in a stronger position but lost considerable terrain. Dutch and Swiss unions have at best stabilized their position—at a much lower level of unionization than in the past. The section then examines possible explanations for union growth and decline and group these within one of three approaches: cyclical, structural, and institutional. One of the conclusions of this section is that cyclical and structural approaches cannot explain the cross- national diversity in union membership patterns as trends and cycles are too similar between European countries. This puts some weight on the importance of institutional explanations concerning factors such as recognition, centralisation and coverage rules. The section concludes that unions must, in order to survive and thrive, put forward practical programs of 4 What do Unions Do in Europe? action that (a) benefit their members or potential members (b) solve problems in the broader society - often, problems of capitalists on whose well-being the rest of society depends, and (c) achieve economic benefits, political credit and social respect to secure support for their own organization. Unions, therefore, must tread a path that involves them playing the roles of, in the framework offered by Hyman: service-providers, partners in productivity coalitions, social-pact partners, and a social movement. Marrying these roles successfully will not be simple! In Section 3 we use a business cycle approach to study the determinants of union density over the period 1960-95. We find that union density is significantly affected by labour market slack and by compositional effects. For a subset of countries, we also show that the sectoral changing composition (the decline of manufacturing industry and the increase in private services) and increased flexibility in the labour market have an adverse effect on union density. The section suggests that the future for European unions may appear less gloomy – from the union perspective - than suggested at first glance. Two offsetting tendencies are at work here: if improved macroeconomic conditions were to provide labour demand expansion, we would expect a reduction in unemployment and, other things being constant, an increase in membership. On the other hand, increased labour market participation (especially in southern European countries) brings to the labour market people who are employed in more precarious jobs (like the retailing sector). The overall impact is hard to predict. The experience of Nordic countries suggests that there is a potential role for unions even under adverse labour market conditions, provided that unions are concerned with the entire labour force, and are able to provide services to both the employed and unemployed. This may be beneficial, because it creates a precondition for wage bargaining co-ordination, argued in other sections to have positive macroeconomic effects. Section 4 examines the determinants of union influence over wages and focuses on the likely impact of trade and economic integration on the capacity of unions to exert an influence on bargained outcomes. We argue that two principal conditions must be met: first that there is some surplus to share and second that union bargaining power is substantial. The existence of 5 What do Unions Do in Europe? any surplus will depend primarily on the extent of product market competition. Much of the single market programme is aimed at generating intensified European competition and if this occurs, monopoly-like profits should fall, thereby squeezing the capacity of unions to raise wages above non-union or competitive levels. Against this tendency, however, European integration also facilitates the strategies of transnational firms, and enables them to establish product market domination across Europe. This raises new challenges both to European policy makers and to unions. On the one hand, the development of pan-European monopoly raises the likelihood that big firms will enjoy large profits and hence generates potentially rich rewards to powerful unions. On the other hand, the international basis of these firms enables them to switch production and hence, potentially, undermines the bargaining position of unions. Thus, policy-makers should not be complacent about the implications of integration for competition - and the consequent impact on the labour market. Instead, industrial and competition policy at the European level will have to be pro-active in enhancing the prospects for increased competition in European product markets. Section 5 documents the relationship between various measures of centralisation/ coordination and union density. This section describes the various social pacts, tripartite structures etc operating across different European countries, and provides a detailed account of European bargaining structures. Section 6 then focuses on one of the most important aspects of union presence: the extent of bargaining coordination. The section analyses the impact of unions on aggregate wage levels and unemployment and argues that the degree of bargaining coordination may have both a direct effect on wage setting and an indirect effect because it interacts with other factors, such as monetary policy, taxes and macroeconomic shocks. The evidence seems to suggest that highly coordinated bargaining is associated with substantially lower unemployment than decentralised bargaining when other factors are controlled for. Differences in the degree of bargaining coordination seem

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