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The effect of unions on company performance

The effect of unions on company performance. 1. Trends in union density & union coverage 2. Theory 3. Empirical evidence. Internal factors affecting company performance. (a) HRM policies TQM benchmarking training (b) Pay policies - incentives (n) Unions & union agreements wages

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The effect of unions on company performance

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  1. The effect of unions on company performance • 1. Trends in union density & union coverage • 2. Theory • 3. Empirical evidence

  2. Internal factors affecting company performance • (a) HRM policies • TQM • benchmarking • training • (b) Pay policies - incentives • (n) Unions & union agreements • wages • productivity

  3. 1. Trends in union density • Union density = percentage of the workforce in a union • Blanchflower (1996) - see Table 1 • US - continuous decline • UK - more recent decline • variation • Causes of decline?

  4. Union coverage • Coverage = percentage of the workforce ‘covered’ by an agreement • What is more important, density or coverage?

  5. 2. Theory • No single model • (i) Monopoly union • (ii) Right-to-manage • (iii) Efficient bargaining • (iv) Seniority • Model (I) ignores bargaining - unrealistic

  6. (i) Right-to-manage model • Bargain over wages • Firms decide level of employment Real wage W/P A B Wm P C Wc P DL Employment

  7. Outcomes • Point A & point C = range • Point B = outcome of a bargain • not an equilibrium • depends on relative strength • union? • Firm?

  8. Efficient bargains • Firms & workers benefit from trade • Bargaining Real wage F B DL Employment Membership

  9. Contract curve • Positively sloped - E & W increase • over manning • W>MPL • Firm must earn supernormal  • No trade-off under the Monopoly union & RTM models

  10. 3. Empirical evidence • Effect of unions on company performance • (a) Wages & hours • mark-up = 10% in UK, 3.4% in Germany & 16-20% in USA • reduce total hours I.e. ‘standard’ hours • increase paid overtime • (b) Productivity

  11. (c) Profits • Increase W, so effect on  depends on productivity • UK = negative • (d) Technical change & investment • union recognition increases investment • ‘voice effect’ • (e) Turnover & employment

  12. Conclusion • Unions are not always bad for companies • Beneficial for workers - ‘sword of justice’

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