12 May 2017

By John Hendy QC and Professor Keith Ewing, Chair and President of the IER

This is Part Two of a two-part series - see Part One for more on sectoral collective bargaining

The Labour Party has identified the restoration of Sectoral Collective Bargaining as a key element in its proposals for new laws at work. But what benefits will it bring?

In our blog ‘What is Sectoral Collective Bargaining?’ we explained what sectoral collective bargaining entails and how such a system could be restored.

Here we explain why such a system should be restored, for the following four overlapping reasons:

(i) Voice at work

Collective bargaining gives workers a voice in setting their terms and conditions. It is well established that the involvement of workers in decision making by their employers (not just confined to their terms and conditions of employment) is highly beneficial to business.

But it is also a matter of principle that workers should have a say in the enterprises for which they work and to which many of them dedicate so much of their lives. Democracy should not stop at the gate to the workplace. Collective bargaining is the only way of redressing the inherent imbalance in power in (at least to some extent) the unequal power of the employer over the worker.

(ii) Better terms and conditions

Collective bargaining will cause the real value of wages to rise. That value has not risen for British workers since 2007. Widespread collective bargaining is the most efficient means of raising wages. This is obviously good for the workers. But it is also good for the economy by increasing demand. This stimulates more investment which in turn stimulates the creation of more and better jobs. It is also good for government revenue as taxes increase and benefits to subsidise low wages diminish.

By raising wages and improving conditions, collective bargaining reduces inequality. Economic inequality is now known to cause huge damage to individuals and to society (both rich and poor, curiously enough). Disparity in income and wealth is mirrored by disparity in living standards, health, life expectancy, and a loss of social mobility. These individual tragedies echo down the generations, creating huge burdens on the State as well as misery for its citizens.

Inequality is bad for society and, in particular, for the economy.

(iii) An efficient economy

By preventing undercutting on labour costs to secure a competitive advantage, competition will focus on investment, efficiency, productivity, research and development - stimulated by increased demand from higher wages. The economy will become more efficient, as much recent economic research (including from the IMF) has shown. It has also been shown that collective bargaining tends to improve productivity by encouraging greater commitment to the job on the part of the worker.

Setting an industry-wide rate for the job diminishes the advantage in importing cheap labour. And economists and others have shown:

"Our analysis has underlined the negative effects that inhibiting union activities has on the economy. The evidence presented indicates that the long-term deterioration in collective voice in the UK and elsewhere in Europe has been counter-productive in terms of macroeconomic growth. Legal restrictions on the ability of trade union, where these bite sufficiently to reduce their bargaining capacity, are contrary to good economic policymaking where countries are in wage led growth regimes, and where labour’s share of income has declined. Economic recovery and stable, equitable development needs a rise in the collective voice of labour."

(Onaran, Working for the Economy: The Economic Case for Trade Unions, University of Greenwich and the New Economics Foundation, 2015, at p 33).

(iv) The rule of law

Collective bargaining is a fundamental human right protected by international laws ratified by the UK. These include International Labour Convention No 98 which imposes a duty ‘to encourage and promote the full development and utilisation of [collective bargaining] machinery’.

This is a duty that would be best complied with by multi-employer, sector based collective bargaining which typically leads to high levels of collective bargaining density. This contrasts with the system of single employer enterprise based bargaining operating in the UK and the US, which is characterised by low levels of density.

Conclusion

Sectoral Collective Bargaining was the formula that worked for the UK from before the First World War.

It was a solution adopted across Europe and in Roosevelt’s New Deal in the USA as the means of extricating their economies from the Great Depression in the 1930s. It should have been adopted following the crisis in 2007.

Though abandoned in the UK (in the 1980s) and (earlier) in the USA, Sectoral collective Bargaining remains the model on which the most successful economies of Western and Northern Europe function.

This is Part Two of a two-part series - see Part One for more on sectoral collective bargaining