David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

CHAPTER 10 The labour market
Table 10.4
Trade union density rates in selected countries (0/o of civilian labour force)
Country 1980 1990 1995 2002
Sweden 78.2 80.0 83.1 78.0
Denmark 78.6 75.3 77.0 73.8
-
Italy 54.5 38.8 38.1 34.0
Ireland 57.4 51.0 47.1
35.9
France 1 7. 1 10.1 9.8 9.7
Germany 34.9 31 .2 29.2 23.2
Source: Waddington, J. (2005), Trade union membership in Europe (http://library.fes.de/pdf-files/gurn/00287.pdf).
fairly constant until the late 1960s. The 1970s saw a sharp rise in union membership, which peaked in
1979, since when it has been falling sharply.
The trend outlined in Figure 10.10, to different degrees, is common to many other European countries, as
we can see in Table 10.4.
Declining unionization reflects several trends. First, as the share of the service sector in national output
rises, the share in traditional industry, manual and male, has shrunk. Second, the public sector, in which
unions were traditionally well organized, has shrunk as a result of privatization and cuts in its size. Third,
computers and other technical advances have made production much more flexible and small scale,
circumstances in which it is harder to organize a trade union. Fourth, increased female participation in the
labour force has often been in part-time jobs in which union organization is harder. Finally, globalization
has had a powerful impact. Globalization is affecting unions. Greater international competition in more
and more industries is eliminating pockets of domestic monopoly whose profits were tempting targets for
unions. As greater competition makes the derived demand for labour more elastic, unions face an everworsening
trade-off between wages and employment. Restricting labour supply only raises wages by
sacrificing many jobs. As the trade-off gets less attractive, belonging to a union becomes less worthwhile.
First, we need to analyse further what unions actually do.
The traditional view of unions is that they offset the power that a firm enjoys in negotiating wages and
working conditions. A single firm has many workers. If each worker must make a separate deal with the firm,
the firm can make a take-it-or-leave-it offer. A worker with firm-specific human capital, which will be almost
useless in any other firm, may face a large drop in productivity and wages ifhe rejects the firm's offer. The firm
is in a strong bargaining position if it can make separate agreements with each worker. In contrast, by
presenting a united front, the workers may be able to impose large costs on the firm if they all quit. The firm
can replace one worker but not its whole labour force. The existence of unions evens up the bargaining process.
A closed shop is an
agreement that all a firm's
workers will be members of
a trade union.
Once a union is established, it aims not merely to protect its members but also to
improve their pay and conditions. To be successful, the union must be able to
restrict the firm's labour supply. If the firm can hire non-union labour, unions will
find it hard to maintain the wage above the level at which the firm can hire nonunion
workers. This is one reason why unions are keen on closed-shop agreements
with individual firms. 4
4 Unions frequently argue that, in the absence of a closed shop, non-union workers will benefit from improvements in pay and conditions
achieved through the efforts of the lUlion. Non-union members are getting a 'free ride' without paying their union subscriptions.
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