The effect of unions on company performance

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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?

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2. Theory

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

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(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
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Outcomes

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

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Efficient bargains

• Firms workers benefit from trade
• Bargaining

Real wage
F
B
DL
Employment
Membership
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Contract curve

• Positively sloped - E W increase
• over manning
• WgtMPL
• Firm must earn supernormal ?
• No trade-off under the Monopoly union RTM models

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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

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(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

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Conclusion

• Unions are not always bad for companies
• Beneficial for workers - sword of justice