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September 14th, 2015

Economic arguments against the Trade Union Bill

2 comments | 1 shares

Estimated reading time: 5 minutes

Blog Admin

September 14th, 2015

Economic arguments against the Trade Union Bill

2 comments | 1 shares

Estimated reading time: 5 minutes

Richard DouglasUnder its draft Trade Union Bill, the Government aims to place increased restrictions on unions’ power to carry out strike action. Richard Douglas suggests that, in opposing the Bill, unions could reach out to non-members by setting out a positive vision of the economic role played by wage bargaining.

It was an odd statement for the Government to make. Announcing the Trade Union Bill, the Business Secretary, Sajid Javid, said: “Trade unions have a constructive role to play in representing their members’ interests but our one nation government will balance their rights with those of working people”.

Union members … and working people. The suggestion seems to be that these are distinct groups, with interests necessarily opposed to each other.

Of course, since the heyday of the 1970s an increasing number of working people have not been trade unionists—membership in the UK having halved since the first Thatcher government was elected (down to 6.4 million in 2014). But that does not mean that union members and non-members have conflicting interests.

What it does mean is that unions have a big task if they want to reform this Bill. This is going to require reaching out to non-members, in order to construct the broadest front of opinion. One way of approaching this is to frame a defence of the role of unions in terms of what works economically, and is thus of clear benefit to everybody. In this spirit, here are three economic arguments in defence of union bargaining power.

1. The right to strike underpins the deals unions can get for their members

It would be hard to find a clearer explanation of the economic role played by the right to strike than that in Paul Samuelson’s Economics, the leading introductory textbook for generations of undergraduates. Turning to the section on wage bargaining in my old second-hand copy, we find the following scenario: “It may sometimes happen that management refuses to go above $3.53 while labor refuses to take less than $3.55”. The result? A strike.

Samuelson conducts a little thought experiment. Suppose “the employer was deprived, voluntarily or by law, of the right to refuse any wage demand if it would bring on a strike.  Would this cost him only 2 cents an hour?  Obviously not.  There would then be no reason why the union might not hold out for a 50- rather than a 25-cent wage increase.” Similarly, “if the union could never exercise the right to strike, why should not the employer offer $2 rather than $3 per hour if he can get labor at that rate?”

There we have the right to strike in a nutshell. A strike is the backstop to a union’s ability to stand up for its members. It should always be a last resort, not least because it means those on strike lose their pay; but as Samuelson says, “Threats become hollow unless occasionally carried out.”

These references from Samuelson’s textbook illustrate a wider point: mainstream economics is not a bad place to start in arguing against the Trade Union Bill. It depicts unions as the rational representatives of workers who naturally maximise their own advantage. Acknowledge this and criticism of striking workers as being self-centred, implied in the Bill, can be turned back on itself. Of course unions exist to maximise the interests of their members.  Mainstream economics depends on unions acting like this in order to model how the economy will respond to different levels of employment, wages, and inflation.

2. Workers are in this together

It’s not enough for unions to argue they exist to further the interests of individual members within particular workplaces. To make broader connections they need to show how bargaining in one workplace is a good thing for working people in general.

It is here that drawing on mainstream economics becomes a problem. According to its premises, wage bargaining is a zero-sum game, with unionised workers in competition with non-unionised workers. Where unions have a strong influence, it says, the result will be higher unemployment and lower wages for non-members.

This is where an alternative perspective is useful. Steve Keen, Professor of Economics at the University of Kingston, provides such a contribution in Debunking Economics. Keen demonstrates there’s no such thing as a natural wage. All wages are determined, not just by workers’ contribution to production but by their relative bargaining power with employers. Unions cannot be said to push wages above the “going rate”: they help to set what the going rate is, not just within individual workplaces but across industrial sectors.

Of course, just because workers at Jaguar Land Rover got a 4.5 per cent increase last year, this doesn’t mean everyone in the automotive sector will get the same—let alone everyone in the wider economy, where median pay settlements remain around 2 per cent.

As Ken Mulkearn, director of Incomes Data Research, points out, in looking at other workplaces pay negotiations tend to focus on the median settlement: “Since, by definition, the median is in the middle of the range of pay rises, it tends to be less influenced by lower—or, crucially, higher—increases. So this concentration on the median tends to produce a fairly narrow range of settlements.”

That said, higher wage settlements are a target for other workers to aim for—and it’s unions that provide the negotiating muscle to help others push pay up towards those levels.

3. A rise in wages is good for growth

A final economic argument in defence of union wage bargaining is that it’s good for economic growth. This argument is impressively marshalled by Özlem Onaran, Professor of Workforce and Economic Development Policy at the University of Greenwich. Examining the long-running decline in the share of employers’ income going to wages, she finds this has had a negative impact on growth overall.

Certainly, repression of wages means higher profits, which can translate into higher private investment. It also leads to higher exports, due to a fall in labour costs. The neoliberal analysis leaves things there, having promised since the early 1980s this would trickle down into growth for all. However, Onaran shows these factors have been more than outweighed by a reduction in workers’ consumption. Furthermore, the positive influence on exports has been all but wiped out by a simultaneous decline in wage-share in other countries, cancelling out most of what advantage might have arisen from reducing labour costs in the UK. Growth through this period of wage repression has been maintained by workers taking on more debt. As the financial crash of 2008 made clear, this was—and remains—unsustainable.

Onaran’s approach to restoring growth is straightforward: “The fall in the wage share has been a deliberate outcome of policies that led to the fall in the bargaining power of labour, welfare state retrenchment, and financialisation. The solution therefore lies in reversing this process.”

Over 35 years in which unions have been demonised and their powers circumscribed, the share of national income going to workers has declined. As Howard Reed of Landman Economics has shown, UK wage share went down from 57 per cent in 1980 to 51 per cent in 2013 (see graph). Even this underestimates the impact on workers, since figures for wages are skewed by the inclusion of senior executives.

Douglas fig 1

Source: Howard Reed, analysis of Blue Book, ONS, 2014: analysis updated and revised from Howard Reed  and Stewart Lansley, How to Boost the Wage Share, TUC, Figure 1.

Among Onaran’s individual policy prescriptions, foremost is the recommendation to strengthen the bargaining power of labour, through such measures as improving union legislation and widening collective bargaining. In this light, the Trade Union Bill can be seen as running directly in the opposite direction to that which is needed to boost economic recovery. Instead it promises more of the same medicine which led to faltering growth and dependency on credit—underlying conditions for the financial crash and “Great Recession” which has succeeded it.

About the Author

Richard DouglasRichard Douglas is a member of the National Executive Committee of the PCS Union. He writes here in a personal capacity. He has previously written on environmental politics and economics for a variety of journals and a book, Future Ethics.


(Featured image credit: Foreign and Commonwealth Office CC BY 2.0)

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