From the forums in Davos to the protests taking place on the streets: inequality is the defining challenge of our time. It hurts economic growth, denies workers their fair share and robs families of their hopes for a better future. The sources are well known.
As a new volume just released by the ILO shows, they include a lack of job opportunities, low wages, and inadequate social policies. They set off a domino effect, which harms the well-being of workers and their families today while closing the door to education and opportunities for generations tomorrow.
The policy and institutional “fixes” are also well known and they include collective bargaining.The evidence is clear. Unions and collective bargaining institutions reduce inequality by raising wage floors.
Collective bargaining also reduces inequality between groups of workers such as women and men, high-skilled and low-skilled workers, and workers with a regular contract and those with temporary contracts. You can see the effect of collective bargaining by looking at the proportion of employees whose wages are paid according to rates set out in a collective agreement.
Countries where a higher percentage of employees have collectively determined wages are also those with lower wage inequality. The opposite also holds true. Countries where fewer workers are covered by collective bargaining tend to have higher wage inequality.
Why does this happen? Because unions negotiate better rates for workers at the bottom of the pay scale. They set lower limits and insist that pay is based on objective rules rather than subjective assessments. They ensure that workers are paid more for additional working hours. Unions also lobby for better redistributive policies. Countries where union membership is high generally spend more on social protection programmes such as unemployment benefits.
The strengthening of unions and collective bargaining in the period following the Great Depression was not a historical accident. It was an explicit intention of public policy.
The higher collective bargaining coverage we see in the chart is the result of three factors: the organizational power of employers’ organizations and unions; national or industry-wide collective bargaining arrangements; and government support for collective bargaining.
So it’s no surprise that the decline in trade union membership in some parts of the world, together with deregulation of labour laws and decentralization of collective bargaining to the enterprise level, has been accompanied by an increase in wage inequality.
If we want to tackle inequality, we need to restore collective bargaining to its proper place. A first step is to protect two fundamental and enabling workers’ rights: freedom of association and the right to collective bargaining. A second step is to shore up collective bargaining.
This will require the efforts of employers and their organizations, of trade unions and of governments. As we are reminded in the new volume “inequality is…. a matter of political choice and institutional design”.
The strengthening of unions and collective bargaining in the period following the Great Depression was not a historical accident. It was an explicit intention of public policy. Contrast this to the response of some governments to the Great Recession in 2008 which reformed labour codes, eliminated collective bargaining in the public sector and weakened the role of unions and collective bargaining in wage determination.
Even skeptics are now persuaded that unions are a good thing and that the labour movement has served as a prominent and effective voice for economic justice providing the necessary checks and balances for corporations. Falling union membership means rising inequality.
The stakes are high. We need to find ways to strengthen and extend the scope and inclusiveness of collective bargaining in order to enhance its equity effects in all countries. This will require sound policy choices and bold measures to shore up collective bargaining.