Unions and Collective Bargaining Economic Effects in A Global Environment

1. Unions and Collective BargainingEconomic Effects in A Global Environment Zafiris Tzannatos The World Bank March 2005

2. Purpose of the study* Find out what the economic effects of unions and collective bargaining are, when unions exist (this is different than: “what happens if unions are introduced?) * Toke Aidt and Zafiris Tzannatos (2002) Unions and Collective Bargaining: Economic Effects in a Global Environment

4. Need first to understand • What are “unions”? • What they do and how they operate? • With whom (what type of government)? • In what kind of economy? The way economists have addressed these issues results many combinations (how many?)

5. What is “Unions”? • Union density (% of workers unionized) • Union coverage (% of workers whose wages are affected by collective agreements) • Other (e.g. closed shop, index of power of exposed sector unions etc)

6. There is weak relationship between the % of workers (a) who are union members and (b) whose wages are affected by collective bargaining

7. What is “Collective Bargaining”? • Union concentration • Union centralization • Employer centralization • Level of bargaining • Informal coordination • Corporatism • Other (pattern bargaining, indexes etc)

8. Swiss of Japanese …?All watches are the same!

9. What is “Government”?(Hypothesis of Coherence)

10. Unions, Employers, Government … ButDoes the Economy Matter? • Closed economy? • Open economy? • Competitive economy? • Monopolistic economy?

11. So, what are the effects of: • 3 dimensions of “unions” • 7 types of coordination • 2 types of (polar) governments • 4 types of (stylized) economies OVERALL 168 combinations

12. So, what are the effects of: • 3 dimensions of “unions” • 7 types of coordination • 2 types of (polar) governments • 4 types of (stylized) economies OVERALL 168 combinations (and if 4 types of government => 336 …)

13. Well! Effects on What?1 of 5Microeconomic Effects on Workers • Wages/minimum wages • Hours of work • Job mobility • Training • Worker benefits

14. Well! Effects on What?2 of 5Microeconomic Effects on Firms • Profitability • Productivity • New technology • Pay systems • Employment growth • Physical investment • Research and development

15. Well! Effects on What?3 of 5Direct Macroeconomic Effects • Economic growth • Aggregate productivity • Inflation • Compensation (wage) growth • Wage dispersion • Earnings inequality • Labor supply • Employment rate • Unemployment

16. Well! Effects on What?4 of 5Macro Effects (on Indexes) • Okun’s index (unemployment + inflation) • Open economy (unemployment + deficit) • Job quality (employment – wage dispersion) • Growth/Inflation (GDP slow down + inflation)

17. Well! Effects on What?5 of 5Of course, on the labor market! • Aggregate real wage flexibility (to U) • Hysteresis (persistence of unemployment) • Adjustment speed (to real wage shocks) • Search effectiveness (Vacancies to U)

18. So, which of the 30 or so effects on micro and macro indicators comes from 168 combinations of unions, employers, governments and types of economies?(Semantics, selectivity and biases are important)

20. Table 2.1: Economic Performance before and after an Improvement in Labor Standards (average growth rates, %) Country Reform year GDP Growth Manufacturing Output Growth Export Growth Before After Before After Before After Turkey 1986 6.1 2.7 7.9 5.7 16.1 8.1 Fiji 1987 9.8 5.8 4.2 -0.6 14.3 6.7 Korea 1987 10.7 8.6 15.7 8.3 15.6 6.9 Taipei 1987 9.6 6.9 n.a. n.a n.a n.a Brazil 1988 5.3 0.9 4.5 -2.2 9.5 4.8 Thailand 1992 10.7 8.2 14.7 11.5 17.3 13.2 Argentina 1983 -0.2 1.0 -0.5 0 0.6 2.8 Uruguay 1985 -7.6 4.4 -5.4 3.7 2.7 6.8 Philippines 1987 -1.3 4.0 -2.4 3.1 2.4 7.2 Panama 1989 -0.5 10.5 -2.5 8.9 0.2 8.9 Peru 1990 -0.9 1.8 n.a. n.a -3.8 -23.2 Venezuela 1990 2.7 5.2 -3.3 4.5 6.8 3.6 Dominican Rep. 1990 4.4 4.5 1.7 4.2 9.1 5.6 Honduras 1990 3.0 3.3 4.0 3.8 1.9 1.8 Guatemala 1992 4.1 4.1 n.a. n.a 5.6 8.6 Ecuador 1979 7.1 1.3 11.6 2.1 0.4 2.3 Suriname 1991 1.7 0.6 -3.2 -2.4 n.a n.a Average 3.81 4.34 3.36 3.61 6.58 4.27

24. Summary Effects(Macroeconomic) • More labor market coordination seems to be better for low unemployment, earnings inequality, fewer strikes than semi – and uncoordinated LM • Coordinated and uncoordinated LM fare equally in terms of productivity growth and wage flexibility • No difference in inflation and employment rates • Differences reduced/very weak in the long run (as countries adapt one way or another)

25. Summary Effects(Microeconomic) • Unions create differentials in favor of their members (but is this always bad?) • The union effects on the performance of firms vary and are often ambiguous

26. If competitive wages in the absence of unions = 100,what does it mean if RED wages are 20% more than BLUE wages?

27. Future research A. Union differentials and spill over effects need to be examined against gains and losses

28. Future research A. Union differentials and spill over effects need to be examined against gains and losses B. Are collective arrangements a bad cause or a good symptom? (reverse causation)