Skip to content

Effective Collective Bargaining: Lessons from Europe

You may have noticed there was no July Bulletin. I was in Europe, mainly on holiday, but also talking to experts on collective bargaining in five countries. Here is some of what I learned.

The benefits of collective bargaining (CB) include ensuring wage growth does not fall behind productivity growth. It can also encourage productivity growth. It forms a stronger basis for trust in the workplace, encouraging innovation among employees. There is strong evidence that CB and unions reduce inequality via a number of channels. Good design of CB strengthens these roles and addresses potential problems.

New Zealand is an outlier in the OECD… Most of the OECD – Europe – has much stronger CB coverage than New Zealand and the other ‘Anglo’ countries where neoliberalism has been strong. Strong CB is therefore associated with some of the strongest economies and highest living standards in the world.

… but the varieties of collective bargaining are many and varied. No two European countries have the same system. Further, it is deceptive to judge CB solely on what their law says. Its shape and effectiveness depends crucially on ‘cultural’ issues which are often unwritten.

Extension of CB is common in Europe. ‘Extension’ is where collective agreements negotiated between unions and employers are extended to all employees in a firm, sector or industry. Its effectiveness relies on good union and employer organisation and other design features.

Union and employer organisation needed for extension. Extension does not necessarily weaken union membership. But some European countries with effective collective bargaining have similar union membership rates to New Zealand, suggesting that other factors are as important as high union density. Strong industry/sector employer bargaining organisations are also vital, requiring them to take an industry and longer term perspective. In Europe, employers support extension to remove wages from competition, allowing employers to pay higher wages to attract and keep skilled staff, encouraging increased productivity. The public support a wage system they see as just and fair.

Upside down values. Finally, I observed that the neoliberal thinking that has become embedded in New Zealand is upside down compared to Europe: it makes economic activity the goal in its own right, rather than improving living standards and social cohesion.

Download the full bulletin: Economic Bulletin 181 – August 2016