Conservatives - support unions!

Trades union membership has fallen to its lowest level since the 1940s. In principle, this should trouble conservatives.

This is because trade unions are an example of non-statist self-reliance, of people organizing to help themselves rather than looking to government.

I say this because of a fact pointed out by Philippe Aghion and colleagues - that there is a strong negative correlation across countries between union membership and minimum wage laws. Countries with strong unions, such as the Nordic nations, tend to have no minimum wage laws whilst countries with lower union membership, such as Greece or France, have stronger minimum wage legislation.

The UK had no national minimum wage in the 50s and 60s, believing that collective bargaining could better regulate wages. It was only after the collapse in union power that a NMW was enacted.

I suspect that what's true of minimum wages might also be true of other aspects of regulation. Elf n safety laws also increased after the decline of unions.

Unions, then, are an alternative to state intervention.There's a simple reason for this. Workers, naturally, will always want their working standards improved. If they cannot pursue this aim through unionization, they'll do so through politics instead.

But the thing is that collective bargaining is a more efficient way of protecting workers than the law.One reason for this is that the law inflexibly applies to everyone, whereas bargaining allows for workers to accept worse wages or working conditions where it would be prohibitively expensive to improve them. Also, the complexity of the law creates uncertainty which can be worse for business than good working relations with a union.

These considerations lead me to this chart. Drawn from the OECD and other sources, it plots union density in 1991 (admittedly an arbitrary date) against GDP growth since then. You can see that there is only a negative correlation between the two because of that Korean outlier.If Korea is excluded, there is a positive correlation (0.25) across the 22 advanced nations in my sample between union density and subsequent growth.Highly unionized Finland and Sweden have done better than less unionized Japan or the US.

This isn't so robust as to suggest that unions are definitely good for growth. But it does mean they aren't obviously bad*.

In this sense, people who want less state intervention and stronger growth should be sympathetic towards unions. So, why aren't Tories mourning their decline? I mean, it's not as if they just blindly hate the working class, is it?  

* There is a strong negative correlation between the change in union density and GDP growth over this time; faster-growing economies have seen bigger falls in union density. But there's an endogeneity issue here. It could be that fast growth is associated with more creative destruction, which sees the decline of unionised workplaces and emergence of more non-unionised ones, whereas a sclerotic economy preserves unionized workplaces.

Comments

[Francis Sedgemore]

Chris - As you know, correlation does not equate to causation. I can show you a clear correlation between historical sunspot numbers and terrestrial political revolutions, but of course it's entirely meaningless.

The paper you cite makes comparisons between very different countries and socio-economic realities, and I take issue with its referral to the "Nordic countries". Although they have in common an absence of national minimum wage laws, the Scandinavian countries are quite different in their political and economic characteristics.

Denmark, about which I can speak from personal experience as a taxpaying resident and trade union member, has minimum wage agreements negotiated by trade unions and union groups on an industry basis. But, more importantly, Denmark has a 'hire and fire' economy that is arguably more dynamic and efficient than the British or German models, which, like all national economies, are a product of national economic circumstance.

Denmark's relatively free-market economy is combined with a welfare system that leads to only a modest income drop on losing one's job, and there are extensive, state-funded opportunities for employment retraining. National minimum wage legislation may not be necessary in such a situation, but that is certainly not a consensus view in Denmark, and in any case it has relatively little to do with union membership.

Danish trade unions have guild-like characteristics, and that bothers me, as it can so easily result in closed shops. While industry-based wage floors can work in the more established sectors of the economy, they do not help in the emerging markets, and for the increasing numbers of people working in industries in which unions have yet to effectively organise. Denmark's market economy may be more dynamic than that of UK plc, but that doesn't mean it is any better suited to 21st century post-industrial reality.

[marc]

Small positive correlation. With a massive error term, probably enough to make it the correlation statistically insignificant. With x= 40, y ranges from about 0.6 to 2.1. With x=75, y ranges from around 1.3 to 1.9. So can have 2%-ish GDP growth with 75% union density or 40%. The x-axis doesn't seem to be explaining very much.

[chris]

@ marc - whether the correlation is statistically significant or not depends which points you include/exclude. It is the case that long-run economic growth is much the same from one rich country to another, implying that there's little that anything can explain about growth differences:
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2009/07/can-governments-increase-growth.html
But my point is merely that the rightist view that strong unions are bad for an economy is not obviously true, and might be false, because there are several theoretical mechanisms linking the two, at least one of which implies that unions might help the economy.

[JohnO]

Inasmuch as "conservatives" support the dominance of market capitalism they will oppose unions. Capital has the choice of only entering a market when they can be profitable. While workers, since they don't have money or sustainable land, are forced to enter the market at all times for their lively-hood, even when it is not profitable or beneficial. Unions with the ability to negotiate, strike, and when successful accumulate capital, can then offer the workers the possibility of not entering the market when it is not profitable for them to do so, while offering them a full-time lively-hood.

[SimonF]

Do the unions in Nordic countries enforce national pay rates in, say, their equivalent of NHS, teaching and other services?

I ask out of curiosity rather than to make apolitical point.

[Tim Newman]

Unions may well in some circumstances be food for the economy. Whether British unions with British union leaders are good for the British economy is another matter entirely.

[Francis Sedgemore]

"Do the unions in Nordic countries enforce national pay rates in, say, their equivalent of NHS, teaching and other services?"

Effectively, yes. And they also have a great influence in limiting pay differentials within these professions.

Does this 'disincentivise' managers? In my own (former) trade, academia, probably not, but then academics are universally bad at managing. The stakes are too low to encourage them to pull their fingers out.

As for schools and hospitals, in Denmark these institutions appear to be well run, and, among those in my social circle at least, those who work within the Danish education and health sectors tend to be happy campers. Well, happy when compared with the whingers on this side of the North Sea.

[guthrie]

Whingers? You've got to be joking, given how much higher education and the NHS have been pushed about, ripped apart and finally dropped from a great height onto a hard surface, over the last decade.

[Statistical Arbitrage]

Hi Cris, I agree. I suspect that what's true of minimum wages might also be true of other aspects of regulation. Elf n safety laws also increased after the decline of unions.

[celine handbags]

You've got to be joking, given how much higher education and the NHS have been pushed about, ripped apart and finally dropped from a great height onto a hard surface, over the last decade.