COLLECTIVE BARGAINING AND THE LABOUR MARKET

Collective bargaining is a process of negotiations between employers and a group

of employees aimed at reaching agreements that regulate working conditions. The

interests of the employees are commonly presented by representatives of a trade

union to which the employees belong. The collective agreements reached by these

negotiations usually set out wage scales, working hours, training, health and

safety, overtime, grievance mechanisms, and rights to participate in workplace or

company affairs (BLS Information Glossary 2008).

Introduction

The right to bargain

• Every employee and employer has a right to bargain collectively

• The South African constitution and the labour legislation acknowledges this

fundamental right

• The reason for these structures is that individual employees and individual

employers do not have equal bargaining power.

• This becomes evident when the worker is unskilled or when unemployment

is high

• Protecting employees from exploitation is accepted in most countries as

well as the international labour standards.

• The right to bargain includes the right to form unions and employee

organisations.

Factors determining the outcome of collective bargaining

• The results of the collective bargaining are not only influenced by the bargaining power of the parties but also by the market forces and the economic environment

• Factors that have contributed to collective bargaining in recent years include inflation rate, profitability, the standards of leaving, market conditions as well as productivity

• South Africa’s severe unemployment rate has led to the parties in the wage settlement to misunderstand the link between wages and employment

• Unions have argued that employees should receive higher wages when the employment rate is high.

• This is because those individuals that work need to support the unemployed relatives and family

• Elasticity of demand influences the outcome for the collective bargaining

especially when the demand for products/services is inelastic i.e. The

demand for products/services does not vary much with price increase.

• Since the price of the product does not change buying behaviour of

consumers, employers may agree to increase wages wit the back-up plan of

increasing product prices. This applies to monopolistic conditions as well

• The employer’s ability to deal with strike actions effectively.

• The standard of leaving of the workers will affect the collective bargaining

results

Factors determining the outcome of collective bargaining(continued)

Factors influencing the strength and Impact of unions

Union Density

Extent to which a union builds a significant proportion of the workforce

Capacity to mobilise

The extent to which a union a union can bring workers out on strike or

organise national protest action.

Union Structures

The extent to which a union has developed structures and capacity to deal with labour

issues locally, regionally and globally

Threats to Union movement and how unions have responded

GlobalisationDevelop wage policies to accommodate productivity differentials, this will lead to greater efficiency in resource allocation.

More insecure employmentBuild distributive institutions to defend the interests of workers at the lower end of the market, especially those in the informal sector.

Small businessesTechnology has made it easier for small businesses to produce products and services that would be produced by large businesses in the absence of technology.

Skills CompositionIf skills are high there will be lesser strikes due to higher wages

Women workersThe commitments to family and the lack of interest to participate in union activities

Increased unemployment An increase in unemployment leads to employees demanding an increase in wages since they have to support unemployed families and relatives

The Impact of Unions on the cost of labour

• Most researchers accept that unions cause an increased wage differentials

between unionised and non-unionised sectors.

• If a union bids up wages in the unionised sector it may lead to lower

employment in that sector

• In turn this may mean an oversupply of labour in the non-unionised sector,

which will lead to lower wages there. Unions may thus cause an increase

in the wages differential between unionised and non-unionised sectors

Barker, F. 2007. The South African Labour Market: Theory and practice. 5th Ed. Pretoria: Van Schaik

Assume that half of the labour market is unionised and the other half is not.Total labour market Is equilibrium in both halves wages are W and the number of workers employed N.

Unions in unionised sector succeed in increasing wages to Wu. Wu-W is the real union/non-union wage gap.

However wage increase results in employment in the unionised half being reduced from N to Nu workers.

N-Nu workers will be unemployedThey now migrate and look for work in non unionised half.

Instead of N workers working in non-unionised sector, the supply of workers will be N+ (N-Nu)=Nu. This will force wages down to Ws in the non-unionised sector. In the unionised part wages will be at level Wu

Nu N

Wu

W

Unionised Sector Non-unionised SectorNnN

Ws

W

Wt

Wu

Wage rate

Employment

Impact of unions on flexibility and productivity

• Unions may impose work rules that decrease productivity in an enterprise

• Feather-bedding practices

• Hamper introduction of new technology

• Strikes can have a negative impact on productivity

• Union wage increases may accelerate the search for cheaper labour

Conclusion

Inflation rate, profitability, standards of living have a significant influence on wages, and the outcome of collective bargaining.Unemployment places union under pressure to persuade employers to increase wages.

BLS Information Glossary. 2008. U.S. Bureau of Labor Statistics Division of Information Services. [Online]. Available at: http://www.bls.gov/bls/glossary.htm. Accessed: 9/9/2012.

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