4.5k-word paper(3rd)

The Decline of Collective Bargaining and its influence on Pay Management in Britain

Table of Contents

2The Decline of Collective Bargaining and its influence on Pay Management in Britain

Factors behind Collective Bargaining Decline 3

Globalization 3

Technology 3

Public Sector and Decline of Collective Bargaining 4

Private Sector and Decline of Collective Bargaining 4

Impact of Economic Recession 6

Employment Growth Differences 6

Pay Determination in face of the Declining Collective Bargaining 7

The Pay Determination outside Labor Union Influences 9

Redefinition of Collective Bargaining in Future – Less Role in Pay Determination 11

Conclusion 12

References 14

The Decline of Collective Bargaining and its influence on Pay Management in Britain

Pay determination and management is an area of fundamental importance in employee relationship. The very construct of employee relationship is formed around the labor payment. The strategy of pay determination in Britain has gone through many changes over the past few years, especially in the face of declining trade union influences and increasing competition. The paper looks into the management of pay and its determination over the course of recent years as a result of declining collective bargaining in UK. The individual discretion that an employer can exercise is also discussed in the face of changing industrial climate. The paper goes into a literature review and theoretical discussion of pay management and its ability to secure productive effort. The trade union’s role is examined in the face of the declining collective bargaining in Britain. The influence is examined along with discussion of employer pay strategies in firms around the world.

Collective bargaining refers to the representation of employees through unions in the bargaining matters with employers including the pay determination. Jose (2000) observed that trade unions have been, for quite a long time, an important institution of the very industrial society. Their past roles have been extremely important in their ability to legitimize the struggles of the laborers, empowerment of the labor union members and working towards a balance of power between the employers and the employee. The post 80s era has seen greater difficulties for trade unions in the recruitment processes. In the public sector as well, the union density has declined in almost all of the European countries (Ebbinghaus and Visser, 2000). There was a greater degree of decline in union membership in OECD countries situated outside the Europe (Traxler, Blaschke and Kittel, 2001). While some scholars have believed that the European Social Model, one that stresses on a collective model of employment regulation, is a reason of less weaker labor union in Europe as compared to other countries (Streeck, 1999). However scholars have agreed that the decline in density of trade unions is a pressing problem and can be explained. The changes in socio economic landscape around the world as well as the growth of private sector is one of the biggest reasons behind the decline in density of labor unions in the public sector (Ebbinghaus and Visser, 1999).

Factors behind Collective Bargaining Decline

A decline in the density of trade unions has been seen in most of the developing countries over the course of the past 25 years (Visser, 2003). There has been significant decrease in the workplace level union acknowledgement by firm management in pay determinations and bargaining. This decline in trade union density can be explained due to a number of reasons. While the change in the structure of economy around the world is one of the most obvious reasons, this decline can also be seen as voluntary in nature.

Globalization

Globalization of the economy around the globe is one of the primary factors behind the decline of density in labor unions. The evolution of globalization has meant a greater resulting pressure on all local firms to become more competitive. This requires greater flexibility in terms of the productivity of the human resources resulting in the very way of organizing labor and functioning as an organization. Some of the most relevant changes have been a much more flexible job design, broadening of the definition of the roles, greater set of skill requirements as well as a consistent form of human resource development. Globalization and the resulting need for being more competitive has also resulted in the need for greater numerical flexibility as well. This implied practices that required part time jobs, per hour job rates, outsourcing of certain business processes and contractors/consultants.

Technology

Another important factor behind the decline in trade union density is the evolving role of technology. Greater technology has meant a much different logistics for organizations. It is now possible for production to be distributed as set of processes across the world. This has strong implications for human resources and where they need to be placed. This means a number of labors intensive machine intensive processes are now replacing processes. These two changes in the environment have meant strong implications on the effectiveness of collective bargaining around the world.

Public Sector and Decline of Collective Bargaining

The public sector trade unions seem to have been able to survive the decline in trade unions in countries that can rely in institutionalized partnership such as Germany and Italy (Thelen, 2001). However, as compared to the private sector, the public sector continues to remain the most organized sector. In some Nordic states such as Sweden and Finland, union membership in the public sector is significantly higher than that of the private sector (Thelen, 2001). Less risk of unemployment in public sector is seen as one of the reasons there is less decline in the trade union. In Britain, the union density is three times as compared to the private sector. The Public Sector provides better recruitment conditions for the trade unions as compared to the private sector (Keller, 2001). Some of the reasons trade union density decline is lesser in public sector include the greater acceptance to collective bargaining of payment, greater bureaucracy, greater says of unions in staff policy (resulting in greater effectiveness) and acceptance of union membership by the employers themselves as a choice. Traxler (1999) believed that since the state is the employer, the ability to regulate the relationship with a union in a much better way.

Private Sector and Decline of Collective Bargaining

The decline in the density of trade unions within the private sector can also be attributed to a decline in recognition. In Britain, before 1979, the recognition rate of unions in workplaces was double as compared to 1980s and later. Milward et al (2000) observed that one could trace this move away from the recognition of union to as early as post World War II. Blanchflower and Bryson (2005) seem to disagree with their observation. They showed that the recognition rate of trade unions was 50 percent before 1979 and fell to as low as 32 percent in 2004. This 1/3 rd decline is extremely prominent in this era as compared to earlier. Earlier studies such as Willman et al. (2007) had argued that the decline of density in trade unions could not be attributed to de-recognition, specifically in Britain. Since the closure rates of workplaces have been observed by scholars as being non-dependent on the phenomenon of trade unions (Bryson and Dale-Olsen, 20008), therefore one could attribute the decline in trade union densities in old workplaces to de-recognition. Bryson and Gomez (2003) observed from their studies that the recognition of trade unions has lesser probabilities in workplaces where the proportion of manual workers is low. Bryson and Gomez (2003) also observed a favoring relationship between low ratio of female employees and union recognition. Since these factors have changed and disappeared over the course of past three decades, the effect on recognition can be seen as weakening too (Bryson and Gomez, 2003).

Millward et al (2000) argued that the decline in the destiny of trade unions could be attributed, mainly, to the decline of old industries and workplaces of large scales that created room for strong trade unions. Blanchflower and Bryson (2005) disagreed with this hypothesis and proved that the density of trade unions declines across all industries and categories of workplaces. They concluded that the size of industries and scale of workplaces did not account largely for the decline of the unions. They believed that two-third of the decline in trade union density can not be explained by compositional changes such as structure of workplaces and their sizes. This is a high percentage of the decline and has been as a change that comes in the form of choices made by employers. Bryson et al. (2004) concluded with the same results. They believed that the biggest reasons for the decline in trade union density is explained by choices made voluntarily by employers by preferring a state of non-union or de-recognizing them.

These choices made by employers can be explained by the costs that have evolved over the course of past thirty years by keeping unions in a workplace. In order to understand this, one needs to look into the effects of unions on both workplaces with unions as well as the ones without them. Freeman and Medoff (1984) observed that unions have a strong impact on a workplace as a voice overall and specifically on pay determinations. The power of unions have been seen to be declining primarily as a cause of greater competition from the sector that is non unionized as well as competition with lower costs of labor around the world. Successful bargaining on the side of unions in getting wages above the market rates will always result in a decreasing competitive advantage unless it is met by much greater productivity as well. Those firms and workplaces that do not face strong competition in the domestic or international sector have the least to lose in the face of union bargaining in pay determination (Milward et al., 2000). For majority of the firms, however, the impact of unions in the workplaces would spill over to the non-union sector as well. First it would create an over supply of labor transferring from the union sector to the non-union sector. The employers without union are able to bargain more on their own terms and keep lower conditions. Rosen (1969), however, believed that a successful and strong union sector would result in higher wages in non-union sectors too. Since there has been a decline in the trade union density, the latter begins to hold less value and truth to it over the past few decades.

Greater competition in the private sector means more pressure to reduce the costs as compared to the public sector. The private sector has had to cut down on the wages without affording to face strong bargaining from the unions. The rise of the services sector is also instrumental in the decline of the labor unions around the world. Some scholars also feel that a more skeptical human resource is also the reason for declining labor union density. The legal structures have also changed around the world that removes the necessary and compulsory need for employers in accepting labor unions.

Impact of Economic Recession

The recent economic recession has renewed and reinforced the needs for cost cuts in the private sector for sustainable success. This will result in less acceptability of trade unions in the employers around the world as well as less room for collective bargaining.

Employment Growth Differences

The decline of trade union density in the private sector can also be explained by the shifts in employment growth in the union and non-union sector. The WIRS literature on the effects of unions’ employment focuses on these employment levels and explains them in context. Recent studies have been able obtain accurate information that allows them to make estimates about the effect of unions on the changes in employment trends (Addison and Belfield, 2004). Theoretically speaking, the ability to achieve greater productivity as a result of union-bargained pay increases would justify greater capital investment and ultimately result in higher employment (Bryson, 2004). However, the past many decades has seen that employment growth rate has always been faster in workplaces that are without unions than union workplaces. Over the course of past three decades, specifically from 1979-2004, as per studies carried out by Blanchflower and Bryson (2005) shows that union slows down employment growth.

The declining rates of trade union in the private sector over the last two and a half decades have been feeding on itself. While the decline can be partly attributed to structural changes and compositional elements within the workplaces, most of these changes could be seen as voluntarily made choices by the employers. Most of these reasons are also independent of the nature of industry and scale of the operations. One of the biggest explanations of this decline in the private sector can be attributed by the negative impact on employment growth and financial performances in the period when union was its highest power.

Pay Determination in face of the Declining Collective Bargaining

Understanding the pay determination in context of collective bargaining and its decline is a multi dimensional construct. A basic question that needs to be addressed is the definition of discretion that employers should have when determining the pays of their employees. It is important to understand why a worker might be paid different rates while performing the same jobs in the same market for two different employers. The rise in competition and globalization has influenced a lot of this differentiation and discretion on the employer side.

Nolan and Brown (1983) concluded from their study that an increase in pay in the same labor market is more aligned with pay increments in other individuals within the same organization rather than other firms.

The decline of collective bargaining has resulted in greater pay dispersion. Abowd et al. (1999) suggested that the framework of competition can explain this dispersion where the labor’s pay can be defined by his/her ability and productive capacity for the particular organization. Other approaches to explain this dispersion include lack of information in the employee’s choice of a job and the compensation being an incomplete representation of overall benefits (Freeman, 1989).

While collective bargaining usually results in determination of a whole construct such as job design, working hours, standards of discipline and efforts that have been put; pay determination is the most significant and primary of these bargains (Flanders, 1975). Britain received significant amount of support from governments up until the 1980s. The decline of collective bargaining could be seen most significantly in the end of 80s. The derecognizing of trade unions was instrumental in this withdrawal of collective bargaining as a means to determine the pay for employees (Claydon, 1999). Milward et al. (1992) believes that the change in pay determination structure through collective bargaining could be attributed less to conscious managerial decisions and more to lack of support from the members i.e. employees.

Moreover, employers who were still recognizing trade unions in terms of collective bargaining were beginning to diminish the influence of bargaining in terms of all agendas including pay determination (Milward et al., 2000). The proportion of worker started to decline from mid 80s to the end of 90s (Milward et al., 2000). Even in workplaces where trade unions were not derecognized, the very scope of collective bargaining began to diminish quite significantly as the employers started to consult with them over minor pay details within the budget limitations instead of open-ended negotiations (Brown et al., 1998).

1997 saw the change in government that had a more pro trade union stance than the previous ones. This lead to the passing of the 1999 Employment Relations Act. While the act itself points towards a shift back towards labor unions, this was done so under the dictated terms and conditions of the employers. The employers were still able to keep discretion with regards to pay determination in the face of re-recognition trends in organizations around the country (Oxenbridge et al., 2001). Collective bargaining as the tool for pay determination continued to be more prevalent in the public service as compared to the private sector. Collective bargaining was covering around 60 per cent of the public sector workforce by 1998 as per WERS survey as compared to the private sector where the coverage was just below 25 percent. Even within the context of collective bargaining, there seems to be a greater number of employees who are now being covered under a decentralized pay determination setting as compared to centralized one. The picture of employee relations had changed quite dramatically by 1998 as most of employees were getting pays determined by the management and employers as compared to trade unions. By 1998, four out of five organizations, in the public sector, were determination pays through unilateral arrangements made by the management while one was engaged in collective bargaining (Cully et al., 1999). The diminishing influence and sometimes completely eliminated role of trade unions from the fixing of pays and conditions has not been replaced by any other institutions. No form of collective bargaining is now in place as a tool to determine the pay structures with the employers. Even personal contracts are not that prevalent. Private institutions with are barely implementing personal contracts, which might bring smaller negotiations on the table between the employees and employers since individual workers have much less bargaining power as compared to complete unions (Cully et al., 1999).

Cully and Marginson (1995) concluded from their survey that non-union employee representatives were not consulted in matters of pay determination in 95 percent of the cases.

The Pay Determination outside Labor Union Influences

Modern times bring a lot more discretion to the employers in terms of pay determination. The first issue that comes up in this matter is the potential rising of tension between the locative and productive attributes of pay. The fact that firms have to make recruitment decisions of labor from the market means that there is no escaping the influence of the external labor market. Within a firm, if the employer raises the pay structure of one group, it will have an impact on the other groups of the workforce in the firm. There is a disruption in the internal environment with consequences ranging from morale damage and strikes. Such influences, however, have diminished in the lack of collective bargaining construct where it is becoming more common for groups to be paid at a more privileged rate as compared to others.

The product markets dynamics do not single handedly mould the discretion that is available at the employers when it comes to pay determination. The influences of product market can be seen in permissive way in an upward direction and coercive in the downward direction.

Most important factor in pay determination is a strategic construct of choices to be made by the organization. Strategic direction of a management will have a huge influence on the pay determination (Clark, 1980). Two firms who are in direct competition in the same market can take up varying strategic approaches in human resource management and production control. Firms who are working in a high value added product/service need to place a lot of importance high quality work performance and high performance management. This usually results in higher pay structures for low labor turn over. The greater the need for employee satisfaction, the greater the pay levels relative to other employers (Ramaswamy and Rowthorn, 1991). Firms who are producing highly standardize, cost conscious goods with low value addition may pay less in relation to the quality-based productions. Pay determination, in the face of globalization, therefore is a tool that is often determined by the strategic choices or road map taken by the organization and the basis of differentiation in the market.

Pay can no longer be seen in an isolated manner as a device for employers to use. They are to be used in the context of the bigger picture as a driver to worker productivity. The productivity and pay determination depends on variables and factors such as the nature of labor and the construct of motivation. Some job designs place pay as being more important in the motivating construct as compared to others where internal satisfaction might be a bigger driver.

The motivating construct is perhaps one of the most relative new determinants of pay structures in the global market minus the labor union influence. Pay structures are related to competence of worker, performance and the expectation from the career in the long term for the worker.

Within the firm, pay structure and its stability are extremely important. The determination of pay also takes into consideration the pay scales of the coworkers and comparative reference units.

Changes in the external environment such as technology, market dynamics and social factors can consistently change the inner dynamics of employee-employer relationships. This is why a mismanaged pay structure can greatly damage the organizational stability (Brown and Sisson, 1975). Modern pay determination, therefore, depends a lot on the external environment and changing factors so as to make sure that stability can be achieved within the organization.

Following the restructuring of collective bargaining, pay arrangements are now determined in a different manner. Firstly the control of pay within the firm is very important, especially in large companies with multiple firms. A study that was carried through in the United Kingdom in 1992 showed that corporate management were involved in local pay management and negotiations in two third of the cases while one third of the pay determination was completely determined by local managers (Marginson et al., 1993). However, even in the cases where local management of a large organization has been given the autonomy to make pay related and determination decisions, it still has to operate and function within a framework established by the corporate headquarters with regards to the budgetary limitations.

Another important part of pay determination outside the influences of trade unions and collective bargaining is the positioning of pays within an organization in context of competition and its practices. Without the presence of sector based agreements there is no common reference framework of pay structures. The first impact is greater diversity in the pay structures. Ingram. (1999) looked into pay determination and found that annual settlement is the norm throughout the organization and the lack of pressure from the unions has resulted in greater dispersion throughout the 90s.

Redefinition of Collective Bargaining in Future – Less Role in Pay Determination

Trade unions have to regain more power by taking up a new bargaining role in welfare policies in the occupational context. There needs to be a redefinition of strategy such that their role in the state can be more legitimate and effective. The effectiveness of organized labor unions can increase through a more political role in the state. More active participation in reforms and defense for wage earners in the context of employer/government policies will result in a much more functional labor union. Martin et al (1996) discusses three different scenarios for the role of trade unions in the future. They believed that the trade union could completely collapse, could decline in an uneven rate, or could work on new opportunities of reinvention based on the changes in economic and social structures. While the 90s saw the second scenario playing out, there was also an increased membership ratio for women which is the third scenario playing out. One of the biggest roles for these trade unions could be the greater participation of women and minority as a collective bargaining unit. The conventional model of union was more accessible to men than women (Campbell, 1986). The evolution of part time jobs as well as greater employment rate for women and their empowerment has implications for the role the trade union has been beginning to play. The future of trade union in terms of structure and composition represents a greater representation of women and minorities. The potential for building upon opportunities created by new economic structures (part time jobs and diversity in human resource) as well as social changes (greater women empowerment) represents a new role for the labor union.

The trade unions have to redefine the range of their services provided to the members. Trade unions can provide education and training courses to their members. Employees can be educated on their health, safety and rights issues on a regular basis. Educational assistance can be provided outside the context of the corporation to enable a better rounded skill set for the employees. Trade Unions can also provide legal assistance on a formal basis. They can provide legal advise on matters such as wills, personal matters and financial issues.

The trade union also needs to solidify its role in promoting greater equality in pays in organizations. An environment in which the equality of workers is bargained for and to ensure that there is less disparity between pays of executives and workers. The decline in collective bargaining has resulted in a greater disparity in pay. Blau and Kahn (1996) analyzed the international trends and reached the conclusion that the decline of collective bargaining has resulted in great consequences for the structure of pay such as greater inequality of wages.

Conclusion

Trade unions in Britain and around the world are now facing challenges on multiple fronts. The role of the union in the face of these challenges need to take into consideration the changing driving forces of the external as well as internal environment. Union leaders are facing issues such as structural modifications in the economy, social trends and political conditions which are providing less favorable landscape for the unions to operate. The future role of trade union membership directly depends on its ability to bargain. While the present environment is not friendly for unions to be effective in bargaining better pay patterns, they might able gain better positions by involving themselves on an institutionalized basis. Greater legitimacy and resources may be achieved by acquiring state support. Labor unions may achieve support through agreement to non-organized workers and firms without union support. In the face of this decline, there has been a diminished collective bargaining instrument for the purposes of pay determination. The structures of pay are now determined more at the discretion of the employers. The very definition of pay structures is, however, influenced by a variety of paradigms. For example, the strategic choice made by an organization has a great influence on the structure of the pay within a firm. A firm that focuses on differentiating itself through quality in the market, for example, might have a far different approach towards pay determination as compared to a firm that takes the approach of cost leadership. The report looked into the decline of the bargaining in collective terms for pay determination in England with the decrease in union membership throughout the country. With time, the pay determination is done at the unilateral decision of the management with little influence coming from the employee representation. There are economic as well as political explanations provided in the paper with respect to this declining influence of collective bargaining on pay determination. Moreover, greater competition and strategic approaches have resulted in different payment structures in firms operating in same market. Decline of collective bargaining, however, has also resulted in greater wage inequality in England.

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