Last reviewed 10 July 2018

Steve Vale, HR consultant, considers the arguments in a new report from the Institute for Public Policy Research (IPPR) Commission on Economic Justice.

Political orthodoxy maintains that the weakness of the UK economy in the 1970s was due, at least in part, to the large membership, power and influence of the trade unions during that period. However, a new report from the IPPR Commission on Economic Justice takes a contrary view, holding that the decline in the membership and prominence of trade unions to present day levels has had a deleterious effect not only on employees in the UK, but also on the economy as a whole. It argues that there is a need for a renaissance in collective bargaining at sector and firm level, reversing the decline in union membership, so that trade unions can become social partners in industrial strategy, and in managing automation to build a more productive economy that works for all.

Background to the report

The Institute for Public Policy Research (IPPR) established the Commission on Economic Justice in November 2016, aiming to bring together leading figures from across society — from business and trade unions, civil society organisations and academia — to examine the challenges facing the UK economy and make practical recommendations for reform. The Commission is undertaking a wide-ranging programme of research and policy consultation on issues including industrial strategy, macroeconomic policy, taxation, work and labour markets, wealth and ownership, subnational economic policy and technological change. It is non-partisan, and has been welcomed by both Government and opposition parties.

The current report, Power to the People — How Stronger Unions Can Deliver Economic Justice, was written by Joe Dromey.

The report notes that, following World War II, there was a long and sustained period of growth in trade union membership, reaching over 13 million in 1979. Union membership has declined significantly since that point, and is now under seven million, just over half the previous peak. Only one in four employees are in a trade union (23.2%), with the figure in the private sector being just 13.5%.

There have been a number of reports setting out what trade unions themselves could do to adapt to the changing labour market and there are examples of union-led innovation. However, this report argues that, while union adaptation and innovation are vital (and while it is happening in pockets), this alone is unlikely to be sufficient to reverse the decline in trade union membership and impact. There will need to be wider changes to level the playing field, so that trade unions are better able to recruit, to organise, to innovate and to fight for economic justice, and the Government has a role to play in this context.

Main findings

The main conclusions from the report are based on six key propositions.

  1. Trade unions and collective bargaining are good for workers and good for the economy.

    The decline of union density and collective bargaining has led to a power imbalance in our economy, contributing to a decline in the labour share of national income and a rise in inequality.

  2. Workers who could most benefit from union membership are least likely to join and membership is set to decline further still.

    Density and collective bargaining have fallen particularly rapidly in the UK, and membership is lowest among low-skilled, low-paid workers. Membership is set to continue falling as unions struggle to recruit young workers to replace retiring members.

  3. Public policy has contributed to the decline of trade unions, so public policy must be part of the solution.

    The decline of union membership and collective bargaining coverage was in large part due to a deliberate and ideologically driven assault on the union movement. This hostile environment must now be reversed.

  4. Government should promote a renaissance of collective bargaining to improve wages and working conditions.

    This should be delivered through sectoral collective bargaining in low productivity, low pay sectors, as well as more widespread firm-level bargaining.

  5. Trade unions should be supported to recruit members and to innovate.

    There should be stronger rights for unions to access workplaces and a requirement for employers to inform workers of their right to join a union. Auto-enrolment into trade unions should be trialled in the gig economy, and a WorkerTech Innovation Fund should be introduced to support unions to harness digital technology.

  6. Trade unions should be seen as social partners in industrial strategy and for the managed acceleration of automation.

    Stronger unions need not mean widespread industrial unrest. Government should promote positive industrial relations by supporting social partnership with unions involved as key stakeholders in managing the economy. Unions should be key partners in delivering a managed acceleration of automation, and in ensuring that it benefits working people.

The report examines each of these propositions in more detail.

Trade unions and collective bargaining are good for workers and good for the economy

The report says that there is extensive evidence of the benefits of trade unions, both for workers and for the economy. Against the background of the longest squeeze on living standards in over a century, with median full-time gross weekly 4.7% lower in real terms than their pre-crash peak in 2008, it should be clear that trade unions and collective bargaining can play a vital role in boosting wages by strengthening the bargaining power of labour. Even today, workers at workplaces covered by a collective agreement earn 4% more than those in workplaces without a union. And, as both members and non-members benefit from unions negotiating on behalf of workers, the wage premium is not exclusive to members.

Similarly, trade unions have supported working people in securing a fairer share of the wealth that they collectively generate. The decline in trade union membership from 1979 has coincided with a large decline in the labour share of gross domestic product (GDP) — the proportion of national income that goes to workers in wages. The labour share fell from a peak of 67% of GDP in 1975 to a nadir of 52.1% in 1996.

While it has since recovered some of the lost ground, and it now stands at 58.3%, this partial recovery has coincided with a rapid growth in inequality, meaning that many workers have not fairly shared in it, and the report argues that the decline in trade union density and collective bargaining coverage in the UK has contributed to a significant increase in inequality. It notes that some workers may be able to secure high pay in an atomised labour market as they have skills that are in high demand, but many are unable to do so as they have less bargaining power. Trade unions can play a vital role in aggregating the power of mid- and low-skilled workers and others who would otherwise lack power in the labour market, helping them to secure a fair share of the wealth that they help generate.

There is extensive evidence of the link between trade unions, collective bargaining and equality. At the level of individual organisations, the presence of trade unions is linked to more equal pay. By helping raise the wages of the lowest paid, and encouraging the use of objective criteria in setting pay, wages in unionised organisations are less widely dispersed, and wage inequality is lower.

The report also claims that there is some evidence that trade unions can help boost productivity. On an international level, there is evidence of a link between both union density and collective bargaining coverage and productivity. Countries with stronger participation rights — including collective bargaining — tend to perform better on a wide range of productivity-enhancing measures.

On a workplace level, there is some evidence that workplaces with a trade union are more likely to demonstrate high-performance working practices which are associated with higher levels of productivity and that an increase in union density can be associated with improved performance relative to the industry average.

Finally, the decline in union density has acted as a drag on economic growth. While wages are sometimes seen just as a cost to businesses, wage levels are also a crucial source of demand in the economy. Strong wage growth helps consumers buy products, generating revenue for companies and growth for the economy. The UK is a particularly “wage-led” economy, with levels of investment and growth being determined more by wage growth than by profit levels. The large fall in union density in recent decades can therefore be seen as having had a negative effect on the UK economy.

The recent experience of local government bears out some of the claims made in the report — certainly those relating to fairness and equality over pay distribution. Even compared with other parts of the public sector, differentials across local authorities are relatively low, and the wages of the lowest paid employees have been a particular focus in pay bargaining. Local government has one of the better records on reducing the gender pay gap, particularly among full-time employees.

On the other hand, the continued sector-wide collective bargaining system in local government has not succeeded in addressing the squeeze on pay in the sector, and there is a case that the relative decline in pay levels has been worse in the parts of the public sector where pay is negotiated than in the parts covered by the review bodies. Of course, it is arguable that the drop in union density in local government has weakened the power of collective bargaining, but this is probably a “chicken and egg” argument — has density dropped off as a result of perceived failures in collective bargaining or has the more problematic bargaining environment led to the drop in density?

Workers who could most benefit from union membership are least likely to join and membership is set to decline further still

The report says that it should be particularly concerning that the workers who could most benefit from union membership and collective bargaining coverage are the least likely to be union members, and that the unions’ failure to recruit younger workers to replace retiring members means that union density is set to fall further.

Fewer than one in four workers are now trade union members. Trade union membership has fallen particularly low in the private sector, leaving unions increasingly concentrated in the public sector. While just one in six (16.6%) of all people in paid work are in the public sector, nearly three in five union members (56.8%) are public sector employees. Many significant areas of the private sector have virtually no union membership.

There is evidence that union density is lower in low-pay industries. The report notes that there were five industries in which at least one in four workers were low paid in 2017. Across these industries just 1 in 10 (10.2%) of employees were union members, compared to one in four (24%) across the rest of the economy. On an individual level, union membership is lowest among low-paid workers. Just one in nine (11.3%) of employees earning less than £250 a week are union members, compared to one in four (23.2%) of all employees.

Union density is also lower in industries and in occupations at greater risk of automation. There is a strong negative correlation between union density in an occupation and the proportion of jobs with a high potential for automation — ie where more jobs are at risk of automation, union density tends to be lower.

The proportion of younger workers who are union members is also declining. Among workers in their 20s, 30s and 40s, union density has fallen by one-third over the last two decades. As a result of this, the average age of union members is increasing fast. The proportion of union members aged 50 or over nearly doubled from 22% in 1995 to 40% in 2017, and, in the next two decades, 2.5 million union members are set to retire.

As a result, just one in four workers is now covered by a collective agreement, and the UK has seen the largest decline in collective bargaining of all the 20 Organisation for Economic Co-operation and Development (OECD) countries for which there is data.

Trade union membership density has fallen in local government, due to a number of factors, including the externalisation of some of the most unionised parts of the workforce. The age profile of the local government workforce means that the numbers of younger employees who are union members would have declined rapidly in recent years in any case, so that it is difficult to judge whether density is falling quicker among younger employees.

Significantly, the decline in density has not yet led to the collapse of national collective bargaining (despite occasional calls for this and the fact that a sizeable group of councils — mainly located in the South — has opted out). This suggests that, de facto, council employers see advantages in the continuation of collective bargaining, notwithstanding the claims that it gives greater power to the workforce. If so, they must share some of the concerns expressed in the report about the fall in membership density — continuing the current collective bargaining arrangements with unions which directly represent an ever-decreasing proportion of the workforce cannot be good for local government employers or trade unions.

Public policy has contributed to the decline of trade unions, so public policy must be part of the solution

The report says that changes in the structure of the economy and in social attitudes can help explain the decline in union density and collective bargaining set out above. But it also says that the decline has also in part been due to a deliberate, sustained and ideologically driven assault on the movement by Government. At the same time, it claims that there remains strong latent support for trade unions.

De-industrialisation, the growth in self-employment and remote working, and the change in employment balance between public and private sector have clearly been relevant factors, but government policy has played a significant role in curtailing the powers of the union movement. Examples include increasing significantly the cost and the complexity of industrial action, and the requirement for union members to opt in to the political fund.

However, the report says that there is evidence that latent public support for trade unions remains strong. In surveys, over three in four of adults in the UK agree that trade unions are essential to protect workers’ interests. (Ironically, while younger adults are less likely to join a union, they are more likely to see unions as essential to protecting workers’ interests.) The proportion of adults displaying negative perceptions of trade unions has declined very significantly in recent years. In 1979, four out of five adults said that trade unions had too much power in Britain. By 2017, this had fallen to fewer than two in five.

This prompts the report to claim that, since public policy and the hostile environment for the unions has contributed to their decline, public policy should be part of the solution. The report therefore goes on to set out how Government could support a renaissance of trade union membership and collective bargaining in order to promote economic justice and improve economic performance.

Government should promote a renaissance of collective bargaining to improve wages and working conditions

Based on its analysis of recent economic history, the report concludes that, if there is to be a return to strong and sustainable wage growth, with a reduction in excessive levels of inequality and in low pay, and the UK wishes to see the wider economic benefits associated with such developments, there needs to be a renaissance of collective bargaining.

It proposes that the Government should set a strategic objective of reversing the decline in collective bargaining in order to boost pay, productivity and job quality. This should be overseen by a new Minister of State for Labour, working within a re-designed and rebranded Department for Business, Enterprise and Industrial Strategy, to improve the quantity and quality of employment across the economy. It should involve a target for doubling the proportion of workers covered by collective bargaining to 50% by 2030, with a particular focus on increasing collective bargaining in low-pay low-productivity industries. In order to meet this ambitious target, the Government should both encourage sectoral collective bargaining in key sectors and facilitate firm-level collective bargaining.

Sectoral collective bargaining is seen as particularly important, although the UK model of collective bargaining traditionally focuses on the firm level, which means that trade unions have to secure collective agreements workplace by workplace. Sectoral collective bargaining should be concentrated on areas where it is most needed — low-pay sectors where workers alone have limited bargaining power and which are characterised by low pay, low productivity and natural challenges to organising — for example hotels and restaurants, wholesale and retail, agriculture and social care.

These agreements could be delivered through establishing Sector Councils as part of a new Employment Act. Sector Councils would include representation from employers and from trade unions, and they would be tasked with developing sectoral collective agreements and setting out minimum levels of pay for given roles, as well as other terms and conditions. Sectoral collective agreements should apply to all workers in the given sector, irrespective of whether they are union members or not. Once agreed, sectoral collective agreements should be legally enforceable.

At the same time, beyond the minimum standards set out in a sectoral collective agreement, workers and employers should also be entitled and encouraged to agree firm-level collective agreements, and the rules on trade union recognition should be made less stringent.

In addition, the report says that Government should introduce a requirement for large employers with 250 or more workers to consult on pay, terms and conditions, and major decisions that affect the workforce, as part of a new Employment Act, a duty which could be met either through recognising an independent union, or through establishing a works council that is independent of management control and elected by staff.

Local government, of course, has vast experience of sectoral collective bargaining, and some of the positive outcomes of this, already mentioned in this article, would offer important evidence to support the case made in the report. But it also offers some salutary lessons that sectoral collective bargaining can become unwieldy and therefore prone to inertia. The collective process in local government in the last few years has tended to focus only on pay or, narrower still, solely on annual pay agreements. There has been little progress on wider terms and conditions — witness the lengthy stand-off on car allowances — let alone wider issues designed to improve performance and productivity. But realising benefits in these wider areas is important to the case being made for sectoral bargaining, and, arguably, a renaissance and re-vitalising of existing sectoral agreements (such as those in local government) would go a long way to strengthen the claims and proposals put forward in the report.

Examples of the types of activities a sectoral agreement could potentially support are set out in the report: job quality, job security, training, working arrangements, use of technology, and productivity could all feature, alongside the more usual terms and conditions issues.

Trade unions should be supported to recruit members and to innovate

The report goes on to argue that collective bargaining — at sectoral and firm level — works best when union membership is high, and where workers have a meaningful voice in the process. On this basis the report recommends that the Government should do more to level the playing field and support unions to recruit.

This would mean the following.

  • Trade unions being given a Right of Access, as part of a new Employment Act, so that they can access workers — physically and digitally — in order to recruit and represent members, and to improve the quality of work.

  • Requiring employers to inform workers in writing of their right to join a trade union, including requiring standardised text added to contracts, setting out what trade unions do, outlining the benefits of joining, and listing the trade unions that represent the sector — the trade unions in the sector should themselves be entitled to provide a short text setting out their work, the benefits of joining and their membership fees.

  • Ensuring that all large employers with 250 or more staff are required to allow workers to opt in to membership on signing their contract, with union subs deducted from payroll through check-off, which, alongside the information on the benefits of joining, would provide an easy way for workers to join a union on starting employment.

  • Piloting auto-enrolment into trade union membership, starting with workers using digital platforms to sell their labour in the so-called “gig economy”, such as Uber and Deliveroo — as with pensions auto-enrolment, membership would not be compulsory, and the worker would be given the right to opt out, either on joining the organisation or at any point thereafter. (If successful in the gig economy, the report envisages rolling auto-enrolment out to other areas of the economy characterised by low pay, insecurity, widespread exploitation and where there is low union density and natural barriers to recruitment.)

In addition, the report acknowledges that, in response to the rapidly changing labour market and the significant decline in union membership, density and collective bargaining, trade unions themselves will have to change, adapt and innovate. The pace of change in this dimension needs to increase, and the report sees potential in the introduction of a WorkerTech Innovation Fund to support trade unions to innovate, harness digital technology and develop new platforms, tools and approaches to recruiting, organising and representing workers. Such a fund would be overseen by the TUC, with trade unions being able to bid for funding for specific projects and expected to provide match-funding.

Finally, the report argues that the Government should make it easier for unions to organise. It says that the UK has some of the most restrictive trade union laws among advanced economies and that, despite this, and despite the low levels of industrial unrest, the Government has further restricted trade union rights in the Trade Union Act 2016, which placed additional unnecessary burdens on trade unions, including an arbitrary and highly unusual turnout threshold on industrial ballots. It argues that the latter Act should be repealed.

The history of UK industrial relations perhaps makes some of the recommendations in this section of the report sound like wishful thinking, but, again, experiences in local government throw some interesting light on the issues raised. While local government employers have not provided precisely the measures recommended in the report, they have provided a comparatively union-friendly environment for many years. This has not resulted in overly powerful unions (at least, not in recent times), but has, in the past, enabled progress on measures such as single status and equal pay through effective joint initiatives.

On the other hand, the fact remains that this (relatively) union-friendly approach has not, in more recent times, generated circumstances where, overall, the sectoral collective agreement which is in place can be said to be really effective in delivering the range of the benefits envisaged in the report in terms of pay levels, job quality and productivity. Most of the progress on the latter has come through the work of individual employers at local level, which calls into question the efficacy of the emphasis on support for agreements across sectors, as against agreements with individual employers.

Trade unions should be seen as social partners in industrial strategy and for the managed acceleration of automation

The report points out that many countries combine far higher levels of union density and collective bargaining coverage than exist in the UK with constructive industrial relations and low levels of industrial disputes, as part of a dynamic, innovative and productive economic model.

It therefore proposes that Government should support and foster social partnership in the UK and should recognise that, while employers and workers often have divergent interests, in many areas they have common ground in looking to maximise productivity, support skills development and utilisation, and in promoting worker wellbeing. Social partnership should also recognise the vital role that unions and employers can play in working with the Government to manage the economy. This approach is visible in much of Europe, where the social partners (unions and employers) are involved in negotiating labour market policy and are represented on labour market institutions.

Citing the involvement of trade unions on the Low Pay Commission as an example of successful co-operation with Government, the report refers to the Government’s White Paper on industrial strategy, which sets out plans to develop sector deals — partnerships between Government and industry that aim to boost productivity. It argues that, in order to promote social partnership and to ensure workers as well as employers are involved in industrial strategy, trade unions should be involved as key partners in the design, delivery and implementation of sector deals.

Trade unions already play a vital role in adult skills through supporting work-based learning. Trade unions should therefore be seen as key partners in building a skills system which supports progression and productivity for the benefit of both workers and employers, with involvement in apprenticeships.

Plans for elected worker representatives on company boards should be revived in full. Worker representation should be embedded in corporate governance, including elected worker directors on large company boards and representatives on remuneration committees. At least two members of the board — and preferably one-third of the total — should be elected worker directors, with similar representation on remuneration committees.

The report says that there is a strong case for the involvement of trade unions in managing the process of automation. As significant actors in the labour market, and as aggregators of worker power, trade unions could help shape the process of automation. It therefore proposes that trade unions should be engaged as key social partners in managing the acceleration of automation, and ensuring that it works for working people. It cites evidence to suggest that trade unions can help support workers through the process of technology-driven change and that trade unions can help ensure that workers benefit from automation. Currently, the risk that working people will not fairly benefit from the increases in productivity that result from automation can lead to resistance to it.

The report argues that automation is more likely to change roles (rather than eliminate them), so that participation in lifelong learning will become increasingly important to ensure workers are not left behind. Trade unions should therefore be engaged as key partners in supporting the training and retraining of the workforce in order to adapt to automation.

Conclusions

The report concludes that trade unions are a force for good in the economy, able to help mitigate against inequality, and help improve the quality of work. As such, the state should not be agnostic about the decline in union membership and in collective bargaining. Instead, this should be seen as a cause for concern, and it should be reversed.

It states that achieving better wages and working conditions as part of a new growth model will require a renaissance of collective bargaining, a growth in trade union membership and support for social partnership. The changes proposed in the report — to promote collective bargaining at the sector and firm level, to support unions to recruit and innovate, and to support positive industrial relations and the involvement of unions as social partners in managing the economy — are designed to support such a renaissance, and spearhead a revival in productivity growth across the economy.

Realistically, the chances of the measures set out in the report being implemented must be slim, unless there is a change in Government.

However, the report will make interesting reading in a sector which is a surviving example of sectoral collective agreements — not just because local government’s experience of such agreements presents a less rosy picture than that set out in the report, but also because the report is a reminder of how valuable such agreements can be — and could be in the future — in driving beneficial change across the sector.

Reference

Dromey J (2018) Power to the People: How Stronger Unions Can Deliver Economic Justice, IPPR. http://www.ippr.org/research/publications/power-to-the-people