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. Some blame internationalisation of the product market which increased competition and thus reduced profits which workers could demand a share of. Other factors focus more on the decline of manufacturing and the advent of the service sector. This essay will explore which of these factors were most important in explaining the decline.

According to Brown the dominant reason for the decline of private sector unions was due to the internationalisation of trade which made product markets more competitive, thus reducing the scope for redistribution of profits as there were less profits available to redistribute. Firms make smaller profits as a result of the increased competition that globalisation has made possible. This means that unions will be unable to demand higher wages because it will result in the firm becoming unprofitable and eventually bankrupt. Before internationalisation, unions could effectively bargain across the sector so as to ensure that each firm operating within an industry increased their costs equally as a result of higher wage demands. This isn’t possible without a multinational union of which successful ones don’t yet exist. Because unions can’t secure higher wages they are seen by workers as ineffective and thus workers won’t want to pay, or waste their time being a member of one and hence precipitating their decline. This is illustrated by the fact that, in 1993 the union wage premium was 14.2% but this had fallen to 6.3% in 2000 (Metcalf, 2005). Brown’s economic model estimates that collective bargaining is 12% higher among firms facing local competition than that from farther afield. The WERS survey found that between 1984-2004 firms which claimed to dominate the market were more likely to have collective bargaining agreements. This argument may help to explain why unions are still fairly prevalent in firms with natural monopolies and in the public sector: there is a lack of competition which keeps profits high and allow unions to bargain more effectively.

Leading on from the internationalisation of product markets there has also been an internationalisation of borders which has affected labour in two ways; the rise of multinational corporations and greater immigration. Firstly the rise in multinational corporations and in their ownership of British firms means that they have less nationalistic loyalties to keep them in a country; 4% of LSE firms’ shares were owned by foreigners in 1981, rising to 40% by 2006. They put pressure on employees to avoid unions in the first place by threatening them with job losses, or using human resource management to keep the workforce happy. Additionally a large foreign firm could threaten to leave a country if the government doesn’t act against unions and if employees are too demanding.

Secondly, immigration has risen along with globalisation and this reduces the labour market power that some skilled workers used to have. Half of all new jobs created since 1997 have gone to migrants thereby showing that if a native worker demanded high wages their job may be taken by a migrant worker at a lower wage. This reduces the power of unions because they are only truly effective when their workers maintain some kind of labour market advantage (a skill in limited supply or a qualification) something which is diminished when competing against the world supply of labour. Furthermore immigrants were less likely to join a union in the 1980s/90s as the unions didn’t effectively recruit them and a lot of immigrants were ignorant to the benefits or existence of the unions, again precipitating their decline.

The final major reason we shall discuss for the collapse of the private sector unions is the shift in the economy from industrial production to the service sector. This led to union decline because of the heterogeneous nature of work in the service sector making collective action difficult because each worker was doing such a different job. Work in service sectors is usually a lot less monotonous and boring than in manufacturing and so workers tend to enjoy their jobs more and because they are so different unions find it more difficult to create foundations for collective action. This is exacerbated by the use of part time workers (some of whom are students or the elderly) who are less likely to have the time to bargain for higher wages and accept lower wages due to the convenience of shifts. The decline of the manufacturing sector and the collapse of employment communities (e.g. mining and shipbuilding villages/towns) led to less common interests between workers. The rise of cars as a mode of private transport and the increasing use of public transport made commuting a distance to work more common. If people don’t live with/near to their colleagues then they have fewer interests in their lives and have less common ground to make demands from employers, thus limiting the scope unions have and making them less important. This may explain why unions declined – they had less reason to exist and so employees didn’t sign up, this limited their ability to offer new services and recruit more workers thus causing a vicious spiral of decline. Additionally, within the service sector there exists many firms which require workers with very little training, for example in the retail and leisure industries, and so workers have little labour market power. If they demanded higher wages then employers could simply refuse and hire other unskilled workers just as easily, again demonstrating that collective bargaining – the raison d’être of unions – was becoming more difficult from the 1980s.

Perhaps it is more important that the shift from manufacturing to the service sector resulted in many new firms springing up. During the 1980s/90s unions declined not (in large part) because existing firms were derecognising unions, but because new firms were refusing to recognise them in the first place. It could be argued that it wasn’t the actual shift from manufacturing to services that aided in the decline of the unions but the fact that new firms were being established which either refused to recognise unions or operated where unions couldn’t actively form.

Despite this argument the service sector was rising during the 1970s yet union membership wasn’t falling, weakening the argument. It could be argued that there is a sufficient lag to explain this experience but it may simply be down to the rise of the service sector not being a prominent reason for the decline in unions: after all the public sector is heavily involved in the provision of services and yet unions haven’t collapsed there.
Trade unions in the public sector have been buoyant despite their collapse in the private sector – in 2006 60% of public sector employees were union members compared to 16% in the private sector. If we concluded that the main argument for the collapse in trade unions in the private sector was internationalisation of product and labour markets then this may explain why the insular public sector trade unions has not seen such a similar demise. The public sector unions are generally not affected by globalisation; many of the services provided by the public sector can’t be produced abroad, e.g. a worker living in India can’t teach a child in Britain. Moreover the public sector isn’t constrained in its demands by profit; in theory the government has an endless supply of money (it can print more if necessary) from which trade unions can demand higher wages. This may explain why the unions did so well before Thatcher – they realised that the government could and would meet their demands and so demanded as much as possible. During the 1980s Thatcher changed this perception and refused to meet union demands and restricted pay rises. This may explain why public sector union membership has also fallen from 64.4% in 1993 to 58.5% in 2006, obviously not as steep as the private sector but a fall none the less.

Some of this fall may be attributed to privatisation and outsourcing or merely the threat of such proposals where union demands are seen as excessive. Privatisation increases competition which reduces union ability to bargain for higher wages, this point is developed further below. Whilst unions have remained strong in the public sector it is important that they don’t become complacent as there is room for further decline in the future as government try to reduce spending by shrinking the size of the public sector, reduce wage increases or privatise/outsource the services, all of which would negatively affect the unions. On the other hand, it may be seen that unions don’t decline in the public sector if the reason workers join the union is not solely for higher wages. A significant proportion of public service workers are professions with high levels of skills (a lot of lower skilled jobs have been outsourced) which reduces internal competition and gives workers market power, furthermore a lot of jobs having feelings of collectivity, for example teachers usually work and socialise with each other which increases their sense of collectivity and may invoke a greater sense of injustice thus encouraging them to participate with a union. Some workers may join a union for other services they provide, such as insurance and compensation as well as legal advice which may be especially pertinent for professions like teachers and doctors. motor-trade-insurances.co.uk can help keep you driving forward and quality coverage paired with great saving. Moreover these large professions have political clout meaning they could strike effectively and so generally forcing the government to relent to higher wages; e.g. if the emergency services demanded pay increases the government may meet this for fear of a strike which would be politically disastrous.

This ‘endless’ profit argument could help explain why unions have remained fairly strong in the privatised monopoly industries. One of Thatcher’s arguments for privatising these firms was to reduce union demands because she thought that a private firm, which is profit maximising and doesn’t have endless resources like the government, would restrict union wage demands and hence lead to lower membership. However, whilst these firms don’t have endless resources they do manage to maintain supernormal profits as a result of the natural monopolies they exist in, thus giving scope for unions to demand a redistribution of profits towards its members. Moreover, despite being profit maximisers these firms may have incentive to relent and give into union demands because if workers were to strike then it could seriously damage the firm by leading to huge profit losses as a result of the service not being provided, in addition it would damage the firm’s reputation and it may lead to regulators imposing fines, or worse revoking the firm’s license to operate (where possible).

In conclusion there were a number of reasons for the decline of unions within the private sector, mainly the internationalisation of product markets which reduced firms’ profits and made it more difficult for collective bargaining to occur. Because collective bargaining was the main reason workers joined, or remained part of unions the fall in collective bargaining led to the fall of unions. Other factors exacerbated and influenced this decline further but can’t be seen to be the leading factor overall. The shift in sectoral employment away from manufacturing and into the service sector affected unions because many workers in the manufacturing sector were already union members and so the fall in membership from the mass unemployment made it difficult for unions to afford to form in the new emerging sectors. Furthermore the service sector isn’t an ideal place for unions to form due to the lower labour market power that workers have, although, the public sector which is largely in the service sector has managed to retain high union membership showing that it is possible to do, given the resources. It is important to note that the steep decline in unions hasn’t happened across the board – it didn’t happen in monopoly firms and nor did it occur in the public sector. The main reason that unions haven’t collapsed in these two sectors is because they aren’t as exposed to competitive forces which means supernormal profits exist which unions can demand. Because they are successfully able to conduct collective bargaining they are seen as effective by workers who continue to renew their membership. Despite unions being buoyant in the public sector we have noted that there is room for further decline in the future as governments tighten their belts and refuse wage increases.