Why have unions declined over the last 30 years?

Account for the collapse of private sector trade unions in industrialised economies since the 1980s. Why has the experience of public sectors been different?

In the 1980s 54.5% of employees were trade union members but by 2000 this number was below 30%. This decline in unions can be seen through a variety of measures; in 1980 64% of all workplaces recognised at least one union, this dropped to 42% by 1998; in 1984 some 70% of employees were with a workplace which conducted some form of collective bargaining, by 2004 this figure was at 39%. Many factors have been proposed for this decline of trade unions in the private sector and to a limited extent in the public sector. [...]

The Mundell-Tobin Effect

This article explains the Mundell-Tobin effect by showing the relationship between the ISLM and ADAS models. The Mundell-Tobin effect states that nominal interest rates may not rise 1:1 with price levels, as the Fisher effect states.

The Fisher effect derives from Fisher’s identity of i = r + π where i=nominal interest rates, r = real interest rates and π=inflation rate (i.e. rate of change in price levels). Fisher believed that if π rose by 1 then i must also rise by one.

Mundell-Tobin came along and said that this wasn’t the case, because they believed that r, the real interest rate, would fall if inflation rose, meaning the overall effect would be that i didn’t rise on a 1:1 basis with inflation. [...]