From the TUC

Saving Our Safety Net Fact of the Week: Unions reduce inequality

27 Mar 2015, by in Labour market

Saving Our Safety Net Fact Of The WeekI take every opportunity I can to promote The Union Advantage – it’s a TUC pamphlet that sets out the reasons why workers are better off in unions. It sets out all the hard-nosed “what’s in it for me?” stuff like higher pay rises, safer workplaces and fairer treatment. But I’m proud that it also talks about the union vision of a better society, of equality for all. It points out that unions have led the way in getting employers to adopt equality policies, that unionised workplaces have a better record on equal pay, work/life balance and discrimination and that we’ve played a major role in lobbying for laws to help vulnerable workers who don’t have a union to protect them.

We’ve known for some time that collective bargaining by British unions reduces pay inequality. A well-known study at the turn of the century found that, “if there were no unions the gender pay gap would be 2.6% wider and the race pay gap 1.4% bigger.” The study said that these were “substantial” and “remarkable” results – by comparison, the introduction of the minimum wage reduced that gender pay differential by less than 1 percent.  

More recently, an excellent paper for the Centre for Labour and Social Studies by Lydia Hayes and Tonia Novitz, showed that unions deliver their egalitarian advantage through collective bargaining, especially national collective bargaining for whole industries. Unsurprisingly, the growth of income inequality has followed the shrinking proportion of workers whose pay is set by a collective agreement step-by-step. Another CLASS paper, by Richard Wilkinson and Kate Pickett, showed that, across the world, the share of total income taken by the top 1 percent has risen as unions have been weakened. (This confirms earlier academic research showing that the presence of a union helps stop the CEO’s compensation package racing away.)

What has been remarkable more recently has been the growth of an international consensus on the importance of unions and collective bargaining to the fight against inequality. In 2010, a round up of research on Why socio-economic inequalities increase? for the European Commission noted that:  

Lower levels of wage inequality are found in the Nordic and Western European states where trade unions play a greater role in wage determination, in comparison to the UK and Ireland and countries in Eastern and Southern Europe. These MS show that it is possible to combine economic growth and modernisation with lower degrees of labour market inequality and so better reflect European values of growth with cohesion that other states might follow.

Last month, a new book from the International Labour Organisation pointed, like Hayes and Novitz, to the importance of national collective agreements, but also to the political impact of the weakening of unions, especially:

labour’s weakened ability to act as a ‘countervailing force’ meant that in some countries, reforms were instituted that negatively affected workers, including trade reforms, financial deregulation, orthodox monetary policies and the scaling back of the welfare state.

Across the world, countries with a smaller proportion of the workforce covered by collective bargaining tend to have more income inequality. As the Organisation’s Susan Hayter said in a blog post: Want  to tackle inequality? Shore up collective bargaining.

We often expect the ILO to be the most “worker-friendly” of the UN agencies, but in the last few years we’ve seen the others accepting that inequality is a problem and that unions can help reduce it. Earlier this month, Finance and Development, a magazine published by the International Monetary Fund, noted that “lower unionisation in advanced economies is correlated with an increase in the top 0 percent income share.” The World Bank’s 2013 World Development Report on “Jobs” included a very useful response to the argument that increased inequality is the price of higher employment. While unions are linked to reduced inequality, the Report noted, the studies that have looked at unions’ impact on employment

are divided between those finding that unions reduce employment (or increase unemployment) and those finding no significant effect. Where negative impacts are found, the magnitude is modest. The most recent estimates by the Organisation for Economic Co-operation and Development (OECD) find that a 10 percentage point decline in union coverage is associated with an increase in employment of 0.8 percentage points.

And remember: this is the strongest rebuttal of the argument we’re putting forward here! The OECD remains the most sceptical of the agencies, but even they, in their 2011 report, Divided We Stand: Why Inequality Keeps Rising, accepted that studies have shown a correlation between declining union density and bargaining coverage and higher wage inequality.

When I was reading for this article I was interested to discover that at least one government has decided that unions can be an instrument of “predistribution”. At the end of last year, President Bachelet of Chile decided to strengthen the position of the country’s copper mining unions to tackle the massive inequalities in an industry vital to the country’s economy. Under her plans, only the unions will be able to represent the workers in pay bargaining and the employers lose the right to dismiss workers on strike.

For someone of my generation, who came of age politically protesting against the Pinochet dictatorship, there’s a tremendous significance to this move. Obviously, I think that Britain can learn some lessons from this.