Workshop 2 (Week 21, 7th Mar):

• Q3) Discuss the impact of the Covid-19 pandemic on labour

supply in the UK.

• Q4) What is the role of trade unions in the UK?

Q3) Discuss the impact of the Covid-19 pandemic on labour supply
in the UK.

The timeline:

Source: https://commonslibrary.parliament.uk/research-briefings/cbp-
8898/

It is important to distinguish between the short-run (SR, say Q1-Q4

2020) and the long-run (LR, say 2020-2022) impact.
• Large fall in the employment (825k) in the SR
o Unemployment and inactivity rose by 400k and 327k,
respectively.
o Generous employment support schemes saved millions of
jobs (over 11.7m jobs furloughed in total, plus 1.3m claims to
the Self-Employment Income Support Scheme), at a total
cost of £100bn+
• Good labour market recovery after 2 years
 o However, employment level still 350k below pre-Covid
level, due to significant rise in economic inactivity among
older workers
Some workers were disproportionally economically impacted by the
pandemic.
• minority ethnic groups
• If anything, men were slightly more impacted than women
• The youngest and oldest workers were most likely to lose their
jobs or be furloughed in the SR
o Youth employment recovered fully by early 2022.
o But many older workers opted to retire early.
• Low paid workers
• Disabled people
Q4) What is the role of trade unions in the UK?

Source: https://news.sky.com/story/strikes-set-for-february-heres-who-
is-taking-action-when-and-why-12778841

TRADE UNIONS

A trade union is, in most instances, an organisation whose membership

works together to achieve influence in the running of their employer
organisations, in order to improve their employment outcomes (wages,
working conditions, security of employment, etc.).i

If one views the employment relationship as a ‘zero sum game’, then it

naturally follows that the interest of trade unions and their members on
the one side, and employers / shareholders / management on the other, are
in conflict.

Trade unions typically require members to pay a fee (‘union dues’) to

finance their activities, including the hiring of employees of the union
itself.ii Legislation covering the rights and responsibilities of trade unions
and their members differs significantly between countries.
MEASURES OF THE ‘PRESENCE’ OF TRADE UNIONS – SOME
DEFINITIONS AND DATA

Trade union density rates are the most widely used measure of the
presence of trade unions in workplaces; however, their definition and
measurement can differ across countries which makes international
comparison sometimes problematic. The basic measure is the number of
trade union members expressed as a percentage of the number of people
entitled to be a member of a trade union.

Trade union density rates have declined in most OECD countries; data for
the UK are shown below. Since 1979 (when a Conservative government,
led by the right-wing Margaret Thatcher, was elected) the UK trade union
density rate has fallen from about 52% to about 22%.

UK Trade Union Density, 1995-20022iii

Collective bargaining coverage measures the proportion of workers
whose basic terms and conditions of employment (e.g. wage rates) are
determined by negotiation between employers and the trade union. OECD
data on collective bargaining coverage for the five countries previously
covered is:

Collective Bargaining Coverage, Selected Countries iv

Note the paradox of France here – it may not have many trade union
members, but most workers have their terms and conditions of
employment set by collective bargaining.

However, a general (and not surprising) pattern emerges from the above
and other data – a positive link between the trade union density and the
collective bargaining coverage rates.

Moreover, evidence based on OECD data has pointed to a strong

negative link between collective bargaining and wage dispersion:
THE DECISION TO JOIN A TRADE UNION

For an individual worker to join a trade union requires ‘yes’ to be the

answer to the following three (sequential) questions:
1. Are trade unions present / legal in the country in question?
2. If so, does the particular employer recognise trade unions?
3. If so, does the particular employee want to join a trade union?

WHAT DO TRADE UNIONS ACTUALLY ATTEMPT TO ACHIEVE?

There are a variety of different potential trade union objectives, but two
that are often put forward are:
 • Maximise the earnings / quality of job of trade union members (e.g.
the trade union markup (i.e. the trade union wage premium); this is
the ‘obvious’ one.
• Maximise the importance / prestige of the trade union itself, and the
leadership of that trade union.
o Trade unions are ‘political organisations’, and the current
leader(s) need to ensure that their members continue to vote
for them when elections are held.

The importance / prestige objective can be considered within the context

of the principal-agent literature. The principal (the unionised worker)
hires an agent (the trade union) to negotiate on their behalf to achieve
higher wages, etc., but the agent may have their own agenda. As a result,
they may seek an outcome that is not in the best interests of the worker.

The leaders of large trade unions can earn substantial amounts of money,
including salaries well over £100,000 plus a generous pension and
expenses. This makes the job a desirable one. Holding such a position also
permits the trade union leader to use their power to further political
beliefs.v

THE TRADE UNION MARKUP

One of the main objectives of a trade union is likely to be to raise the

wages of their workers with as small a reduction in employment as
possible. One of the major problems confronting trade unions is that there
is a ‘free rider problem’: they negotiate wage increases for all workers
covered by collective bargaining arrangements, regardless of their union
member status or participation in ‘industrial actions’.

The ‘trade union markup’ measures the extent to which wages tend to be
higher if a workplace has an active trade union involved in collective
bargaining. It varies from country to country, ranging from a low of 0%
in a range of countries (e.g. Italy, the Netherlands and Sweden) to a high
of 34% (Brazil). However, a widely-observed pattern is that the trade
union markup has declined over time, as is the case for the UK.

UK Trade Union Markup, 1995-2017vi

The extent of the trade union markup will depend on the relative
bargaining power of companies and the trade unions representing some /
all of their workers. Sloane et al (2013, p197) argue that the relative
bargaining power of trade unions is higher where there is:
• Inelastic product demand – companies can pass cost increases on to
customers
• Low elasticity of substitution between capital and labour –
companies can’t replace higher-paid workers with machines
• Inelastic supply of other factors – the prices of machines (for
instance) goes up if you use them to replace workers
• Labour cost is only a small proportion of total cost – so higher wages
are not much of a problem for firms

It is also interesting to note that the trade union markup has been declining
during a period when:
• Legislation covering trade unions has become less friendly to them
• Trade union density rates have been declining
• Collective bargaining coverage rates have been declining.
Sloane et al (2013, p202) note that:
“General findings have been that wage mark-ups are greater
for manual workers than for non-manual, and that union wage
gaps are larger for women than they are for men.”

In other words, trade unions have the greatest effect for those groups in
the labour force (e.g. manual workers, females) who have the least
economic power and so would benefit from the ‘strength in numbers’ that
might be expected to come from trade unions and collective bargaining.

OTHER EFFECTS OF TRADE UNIONS ON THE WORKPLACE

In general, the evidence suggests that:

• Trade unions reduce wage dispersion – pay claims submitted by
trade unions often ask for bigger rises for low-paid workers

• Trade unions may affect productivity, but effect is unclear:

o Increase it – there is a more harmonious management of
workers, increasing their productivity
o Decrease it – manager have less freedom to manage workers
in the ways that improve productivity
o The empirical evidence is ‘mixed’ – not consistent

• Trade unions tend to reduce profitability (trade unions capture some

of the ‘economic rent’ for their members through the trade union
markup)

• Trade unions tend to reduce employment in firms, though the

empirical evidence is not always consistent
INDUSTRIAL RELATIONS

Industrial Relations (IR) can be defined as:

“The process of control over the employment relationship, the
organisation of work, and relations between employers and
employees” [Gospel & Palmer (1993)]

Two principal points flow from this:

• IR is a process whose focus is on control
• IR determines the organisation of work

The actions of management and trade unions determine the ‘atmosphere’

in which IR are conducted. In turn, the atmosphere determines actions –
this cycle can be either constructive or destructive. vii

Millward (1993) and Millward et al (2001) use UK (Workplace Industrial

Relations Survey (WIRS) data to show the following about UK non-union
firms:
• There are fewer ‘labour’ procedures
• There are fewer health and safety representatives
• There are fewer channels of communication and consultation
• There is less information from management
• There are fewer personnel / HR specialists
• There are more dismissals, more compulsory redundancies, lower
pay, greater pay variability and more performance-related pay

INDUSTRIAL ACTION
What is ‘industrial action’? Put simply, a reduction in the contribution
employees make. The focus tends to be on strike action but there are a
variety of other forms; e.g.:
• ‘work to rule’ – workers do not go beyond what is in their contract
• ‘go slow’ – workers deliberately reduce their efficiency
• ‘sit in’ – workers occupy the establishment
• vandalism – workers destroy equipment or goods
 • mass resignation – ‘everybody’ resigns and refuses to go back to
work unless everyone is reinstated, and concessions are offered

Several of the above imply an end to worker commitment to the firm,

which is a major problem for an-HRM orientated firm (especially if it is
seeking to follow ‘soft’ HRM).

Strike data is often presented as days of strike per 1,000 workers. The
most recent OECD data for selected countries is presented below:

Strike Days per 1,000 Workers, Selected Countries viii

Anyone familiar with the common national stereotypes might not be

surprised that strike action is most common (amongst these countries) in
France, or least common in Sweden. But what is sometimes not known is
that strike action has been in decline for the past three decades. In some
countries strike action in the private sector is almost unheard of.

Annual strike data can be misleading because a big strike in one industry
/ company can have a dramatic effect on the data – in the UK data below
there were MAJOR strikes in the mining industry in both 1974 and 1984
that accounted for most of the strike action in those years.
UK Working Days Lost due to Strike Action in the Private and Public
Sector, 1996-2023

i
This is the form that trade unions tend to take in most countries, including those typically found in most of western
Europe, North America and other developed countries. However, in some countries which are run by non-democratic
governments it is the case that trade unions can be a means by which those governments may exercise their state
power.
ii
The main union for university academic staff is the University and College Union (UCU); at of March 2023 their
monthly membership fee ranges from £0.99 to £27.51 (it depends on salary).
iii
Source: https://www.statista.com/statistics/287232/uk-trade-union-density.
iv
Own graph using OECD data from https://stats.oecd.org/Index.aspx?DataSetCode=CBC.
v
The contest between Len McCluskey and Gerard Coyne for leadership of Unite the Union was a particularly bitter
one, resulting in legal challenges. See https://www.bbc.co.uk/news/uk-politics-45758083. However, this is nowhere
near the level of bitterness and controversy seen in Jimmy Hoffa’s leadership of the International Brotherhood of
Teamsters, a US trade union, with accusations of mafia involvement and ultimately his ‘disappearance’ (he was almost
certain executed by a ‘hitman’). Such was the scandalous and dramatic nature of his leadership that there have been
Hollywood movies made about his life (Hoffa (1992) and The Irishman (2019)).
vi
Source: https://www.statista.com/statistics/287278/trade-union-wage-premium-united-kingdom-uk-y-on-y/.
vii
See http://www.telegraph.co.uk/comment/10422530/grangemouth-ken-mccluskey-unite-union-ineos.html.
viii
Own graph using OECD data from https://www.oecd.org/els/emp/Industrial-disputes.pdf.