Will higher Trade Union membership lead to higher pay?

A provocative question, no doubt, but one that’s been in my mind this week, as the internal Labour debate around the need to lift incomes has become focused around the rights and bargaining power of Trade Unions, and the TUC has taken the “predistribution” ball and hurled it straight into the strike zone.

For most of us on the left, it is idiomatic that Trade Union membership leads to higher pay. There is, after all, power in a union, as generation of Labour students have sung, before many go to work in jobs in which union membership is mostly an irrelevancy.

Take Seumas Milne’s article here, in which he argues that “the real problem for the British economy is not that unions are too strong, but that they have long been far too weak“.

Seumas’s point is that since Trade Union membership has declined and the share of national income represented by salaries has declined, ergo we can fix this by stronger Unions. (Note however that this reading of the data is strongly contested by those who argue that this is misleading).

Now intuitively, I agreed with this, and this being Mr Milne, that made me want to think about exactly why I intuitively agreed with it, and if such assent was justified.

So off I tootled to the annual report on Trade union membership data produced by the Department of Business, Innovation and Skills.

Now, it’s pretty clear that there is a wage premium for Trade Union members in the public and private sector, although, since trade union members tend to be better educated, more likely to have degrees, more likely to be long term employees, more likely to be older and more likely to full-time than part time, it’s not entirely clear whether this is an artifact of the demographic make up of union membership, or a consequence of Union membership.

So what I found more interesting were the relative changes in hourly wages in the private sector and public sector among both Union and Trade Union members. The relative wage trends, in other words.

This seems to suggest that over the last decade and a half, non-union members have seen a greater proportional increase in their income than union members. This has eroded the wage premium enjoyed by union members in both the public and private sectors.

So for example, in 2011 private sector, non-unionised workers received an hourly income 182% of that in 1995, while unionised workers wages were only 70% higher.  This had the effect of reduced the Trade Union wage premium from 15% to 8%.*

To put this in cash terms, private sector non-unionised workers hourly pay increased by £5.36 since 1995, unionised workers by £5.31. Since non-unionised workers earned less in 1995, this parity in cash increase significantly reduced the wage premium.

Nor, interestingly, does this seem to be a result of the minimum wage, since there was a big increase in comparative non-union incomes between 1995-97, perhaps as a result of recovery from recession.

Perhaps surprisingly, non-union workers saw an even bigger relative increase in the public sector, compared to union members, despite the much stronger concentration of union membership in the public sector, which might be expected to improve unionised workers earning position. Non-union hourly wages were 185% of 1995 levels by 2011, while union members achieved 168%. This lowered the wage premium from 30% to 18%.**

You can see the trends here:

Now, obviously, this could all be mere demographic change. If non-union members are younger, but gradually aging as a proportion of the population, then you’d expect to see their income more closely approach that of union members. You’d also expect to see this if more educated skilled workers are entering broadly non-unionised industries.

However, that said, if non-union pay rates have increased at a greater rate than union pay over the last 15 years, this does at least raise the questions of

a) Are unions being particularly effective in raising their members income?

b) Is the private sector really holding down wages disproportionately among non-union members if the union wage premium is declining due to faster wage increases among non-union members?

c) Can we really make the assumption that non-union members are being exploited if their wages appear to be increasing at a faster relative rate than those of union members?

d) How do unions make membership attractive to workers who have seen their pay increase steadily without union membership and at a faster rate than among union members? (Clue: Unions have achieved better results since 2008)

e) If non-unionised worker’s incomes have risen faster that unionised workers incomes over the last 15 years, when union rights have marginally improved, can we really expect a further increase in Union rights to reverse this?

My view is still that, all other things being equal, union membership will have the effect of increasing workers wages, but this data certainly makes me feel much less comfortable with the view that the private sector is holding down the incomes of non-unionised workers, and makes me feel that an argument reliant on this view might not meet with as receptive an audience in the workforce as some on the left think, especially so if we do see a recovery in the next three years.

 

*Union members have performed better since 2008 when the premium had almost disappeared, perhaps reflecting Unions ability to protect members from wage cuts?

**I suspect this is a result of a consistent policy of increasing the wages of those on lowest incomes in the public sector, who tend to be the non-unionised part of the workforce. Whether this is as a result of union pressure is an open question, I suppose.

2 Responses to “Will higher Trade Union membership lead to higher pay?”

  1. Andreas Paterson

    I was thinking about this when reading your earlier pre-distribution post, I was drawn to the example of the Honda workers who took a voluntary pay cut in order to safeguard jobs at their plant. In this case the workers were aware that the factory needed to remain competitive internationally and that their pay demands were limited by these international constraints.

    One thing worth considering when talking about expanding unions is the constraints that globalisation has put on the demands unions can make. Because of this I think I tend to share your view that there are limits to what can be gained by expanding union power.

    On a slightly different note, from a personal point of view as a non unionised worker I’ve considered joining a union but only really as a token leftie gesture. I don’t really see what I would gain from it since as someone with a fairly sought after set of skills (software development) I’ve been able to raise my wage effectively by moving between jobs.

    Reply
    • hopisen

      It’s similar for me. I’ve been a union member my entire adult life, and only when I worked for the Labour party did the union have anything to do with my pay. Ironically, that’s the worst I was paid my entire career, because I had taken a huge pay cut to do the job (of the order of halving salary). At £11 a month, it’s a pretty expensive gesture I’ve been making.

      Reply

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