1. Zafiris Tzannatos The World Bank March 2005
Unions and Collective Bargaining Economic Effects in A Global Environment
Zafiris Tzannatos
The World Bank
March 2005

2. Purpose of the study* Find out what the economic effects of
unions and collective bargaining are,
when unions exist
(this is different than:
“what happens if unions are introduced?)
* Toke Aidt and Zafiris Tzannatos (2002)
Unions and Collective Bargaining: Economic Effects in a Global Environment

4. Need first to understand
What are “unions”?
What they do and how they operate?
With whom (what type of government)?
In what kind of economy?
The way economists have addressed these issues results many combinations (how many?)

5. What is “Unions”? Union density (% of workers unionized)
Union coverage (% of workers whose wages are affected by collective agreements)
Other (e.g. closed shop, index of power of exposed sector unions etc)

6. There is weak relationship between the % of workers (a) who are union members and (b) whose wages are affected by collective bargaining

7. What is “Collective Bargaining”?
Union concentration
Union centralization
Employer centralization
Level of bargaining
Informal coordination
Corporatism
Other (pattern bargaining, indexes etc)

8. Swiss of Japanese …? All watches are the same!

9. What is “Government”? (Hypothesis of Coherence)
Left-wing
Government
Right-wing Government
Powerful unions
Good performance
Bad performance
Weak unions

10. Unions, Employers, Government … But Does the Economy Matter?
Closed economy?
Open economy?
Competitive economy?
Monopolistic economy?

11. So, what are the effects of:
3 dimensions of “unions”
7 types of coordination
2 types of (polar) governments
4 types of (stylized) economies
OVERALL 168 combinations

12. So, what are the effects of:
3 dimensions of “unions”
7 types of coordination
2 types of (polar) governments
4 types of (stylized) economies
OVERALL 168 combinations
(and if 4 types of government => 336 …)

13. Well! Effects on What? 1 of 5 Microeconomic Effects on Workers
Wages/minimum wages
Hours of work
Job mobility
Training
Worker benefits

14. Well! Effects on What? 2 of 5 Microeconomic Effects on Firms
Profitability
Productivity
New technology
Pay systems
Employment growth
Physical investment
Research and development

15. Well! Effects on What? 3 of 5 Direct Macroeconomic Effects
Economic growth
Aggregate productivity
Inflation
Compensation (wage) growth
Wage dispersion
Earnings inequality
Labor supply
Employment rate
Unemployment

16. Well! Effects on What? 4 of 5 Macro Effects (on Indexes)
Okun’s index (unemployment + inflation)
Open economy (unemployment + deficit)
Job quality (employment – wage dispersion)
Growth/Inflation (GDP slow down + inflation)

17. Well! Effects on What? 5 of 5 Of course, on the labor market!
Aggregate real wage flexibility (to U)
Hysteresis (persistence of unemployment)
Adjustment speed (to real wage shocks)
Search effectiveness (Vacancies to U)

18. So, which of the 30 or so effects on micro and macro indicators comes from 168 combinations of unions, employers, governments and types of economies? (Semantics, selectivity and biases are important)

20. Manufacturing Output Growth
Table 2.1: Economic Performance before and after an Improvement in Labor Standards (average growth rates, %)
Country
Reform year
GDP Growth
Manufacturing Output Growth
Export Growth
Before
After
Turkey
1986
6.1
2.7
7.9
5.7
16.1
8.1
Fiji
1987
9.8
5.8
4.2
-0.6
14.3
6.7
Korea
10.7
8.6
15.7
8.3
15.6
6.9
Taipei
9.6
n.a.
n.a
Brazil
1988
5.3
0.9
4.5
-2.2
9.5
4.8
Thailand
1992
8.2
14.7
11.5
17.3
13.2
Argentina
1983
-0.2
1.0
-0.5
0.6
2.8
Uruguay
1985
-7.6
4.4
-5.4
3.7
6.8
Philippines
-1.3
4.0
-2.4
3.1
2.4
7.2
Panama
1989
10.5
-2.5
8.9
0.2
Peru
1990
-0.9
1.8
-3.8
-23.2
Venezuela
5.2
-3.3
3.6
Dominican Rep.
1.7
9.1
5.6
Honduras
3.0
3.3
3.8
1.9
Guatemala
4.1
Ecuador
1979
7.1
1.3
11.6
2.1
0.4
2.3
Suriname
1991
-3.2
Average
3.81
4.34
3.36
3.61
6.58
4.27
Source: OECD (1996: Table 7)

21. Note: Labor standards refer to the freedom of association and the right to collectively bargain
Source: OECD (1996: part II)

22. Source: OECD (1996)

24. Summary Effects (Macroeconomic)
More labor market coordination seems to be better for low unemployment, earnings inequality, fewer strikes than semi – and uncoordinated LM
Coordinated and uncoordinated LM fare equally in terms of productivity growth and wage flexibility
No difference in inflation and employment rates
Differences reduced/very weak in the long run (as countries adapt one way or another)

25. Summary Effects (Microeconomic)
Unions create differentials in favor of their members (but is this always bad?)
The union effects on the performance of firms vary and are often ambiguous

26. If competitive wages in the absence of unions = 100, what does it mean if RED wages are 20% more than BLUE wages ?

27. Future research A. Union differentials and spill over effects
need to be examined against
gains and losses

28. a bad cause or a good symptom?
Future research
A. Union differentials and spill over effects
need to be examined against
gains and losses
B. Are collective arrangements
a bad cause or a good symptom?
(reverse causation)