International Monetary Fund offices in Washington DC. Photo: Simone D. McCourtie / World Bank (Creative Commons)
Solving the IMF’s concerns about stronger unions
I have blogged at Touchstone about this week’s bombshell news from the International Monetary Fund that declining unionisation leads to ballooning inequality (which the IMF accepts is damaging to economic growth) and rampaging top people’s pay. Readers of Stronger Unions might have assumed this finding would have led to the IMF proposing mass unionisation drives and the wholesale restoration of collective bargaining. But no, there’s a catch.
The report authors say that they can’t propose such ‘blanket measures’ because sometimes, increasing union membership and collective bargaining power can lead to greater inequality because some people end up unemployed. They admit that this is not a strong effect, or unequivocally supported by the evidence (which also shows that minimum wages set ‘too high’ can have a similar effect), but they figure ‘why take the risk?’ To be fair, they do say that decisions should be made on a country by country basis – their findings would make it difficult to argue against higher union membership or collective bargaining coverage, after all. But they’re cautious.
The problem they refer to is this: if unions grow in only some parts of the economy, or some parts of the workforce, they might raise wages for those groups, making other groups comparatively cheaper to employ, and thus increasing the incentive to reduce employment among the higher waged groups (it’s likely that the most vulnerable members of those higher waged groups will be affected most, eg the young who are relatively inexperienced, or those with least skills.) They are particularly worried about situations when union membership falls far behind collective bargaining coverage, ie where unions are negotiating wages and conditions for those who aren’t members (they don’t say this, but those workers are presumably likely to be more vulnerable to being laid off than the members are, by virtue of not having a union to defend them.)
What they – and so many other politicians and economists – don’t seem to grasp is that there is a public policy solution to this. Governments could actually adopt the objective of getting more people – especially those in the most vulnerable groups, who unions do find it hardest to reach and recruit – into unions.
Why shouldn’t it be an objective of government to help unions recruit young people (eg by mandating work in schools to promote the idea of joining, or assisting union recruitment drives and experiments with new ways of attracting members)? In truth, of course, the 1997-2010 Labour Government did do a little in this area, and initiatives like Unionlearn survived even the coalition. But it was always very limited and was regularly condemned as payback for union affiliation to the Labour Party, even though much of the support went to non-affiliated unions and it’s rare for governments to hold back for that reason on backing business.
The IMF research does show once again that unions are ‘a good thing’ for society as a whole (and of course for their members who benefit directly), and that makes the case for government supports for unionisation rather than attacks. any unintended consequences of union growth could easily be addressed by government support to ensure unions can do what we want to do anyway, and cover as many disadvantaged groups as well as possible.
I know it’s unlikely that the IMF will advocate Government support for trade unionism, especially given their wariness of supporting trade unionism at all. But then until recently, the IMF wasn’t against inequality, and didn’t see the importance of unions in preventing its growth, either!