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Workers solidarity, but only for a few

By Andrew Leigh - posted Friday, 11 March 2005

For most of the 20th century, unions have been a central part of the working life of many employees. From 1914 until 1990, two in five workers were members of a union. Although the union movement experienced a few fluctuations - membership grew rapidly in the 1920s, the postwar decade and the Whitlam era, and waned during the Depression and the 1960s -  for the greater part of the 20th century, unions were the dominant force on the Australian industrial scene.

How times have changed. Twenty years ago, 50 per cent of all workers were members of a union. Today the unionisation rate is just 23 per cent. Even in the public sector, once a bastion of union strength, union members are now in the minority. Even in an era of casualisation, computerisation and feminisation, deunionisation is probably the most significant change to have hit the labour market over the past generation. A marker of the decline in union power is how rare strikes have become. The number of days lost to industrial disputes today is just one-quarter of its level in the early 1980s.

In this, Australia is not alone. Declining unionisation is a common pattern across the developed world. With the exception of Denmark, Norway and Sweden, union membership has fallen in most rich countries over the last two decades. But the collapse of the union movement has been more rapid in Australia than in any other country, save perhaps New Zealand.


What has driven these changes? To understand the transformation, it is useful to briefly dismiss two common explanations for union decline. The first is that unions declined because workers became more sceptical about them. In fact, attitudes tend to be a mirror image of union strength. When union membership swelled during the 1970s, Australians became more likely to tell pollsters that they thought unions had too much power, and less likely to agree that unions had been a good thing for Australia. Correspondingly, as unions waned during the 1990s, the fraction of people who thought unions had too much power, or that Australian would be better off without unions, steadily decreased.

Another interpretation is that deunionisation was a result of the decline in real wages that took place under the Prices and Incomes Accord of 1983. Yet as David Peetz points out in his 1998 book Unions in a Contrary World, this explanation implies that unionisation should have declined more during the 1980s (when real wages fell) than in the 1990s (when real wages rose). In fact, the reverse is true. The biggest fall in unionisation occurred during the 1990s.

If not because of changing attitudes and the Accord, then why? The decline of Australian unions comes down to the following factors: changes to laws governing unions; more product market competition; rising inequality; and, structural change in the labour market.

The most significant of these is the changes to the legal regime governing Australian unions. Peetz points out that between 1990 and 1995, conservative governments in five-out-of-six states introduced legislation aimed at prohibiting compulsory unionisation (banning “closed shops”), encouraging individual bargaining, and making the transition to non-award coverage easier. (Ironically, this mirrored the process that occurred in the 1920s when a succession of state Labor governments enacted legislation favouring compulsory unionism and wage arbitration, leading to a surge in union membership.)

In the late-1980s, more than half of all employees were required to be a union member as a condition of their employment. In the 1990s, freed from the requirement to belong, large numbers of workers chose to opt out. Unsurprisingly, the unions hit hardest were the ones which were most reliant on compulsory unionism laws. The new regime was locked in place in 1996 when the newly elected Howard Government virtually abolished compulsory unionism nationwide, and made it more difficult for unions to recruit or strike.

The second most important driver of deunionisation is rising competition. Spurred by microeconomic reforms, tariff cuts and a revitalised Australian Competition and Consumer Commission, the markets for buying most products and services are now substantially more competitive than they were in the 1970s. When firms enjoy a monopoly or oligopoly position, it is easier for them to pay higher wages to their employees. Prices are higher in non-competitive markets. In the jargon of economics, higher prices generate “rents”. These rents are then shared between employers (who enjoy higher profits than they would in a competitive market) and workers (who earn more than in a competitive market). When monopolies are broken down, and markets become more competitive, management must start cutting costs. This places pressure on management to adopt stronger anti-union tactics in order to reduce the wage bill.


The third explanation for falling union membership is the growth in earnings inequality. To understand how this works, it is important to recognise that unions do not just aim for higher wages, but also for greater pay compression. This occurs through standardised pay schedules, and claims which request the same increase for all workers (for example $10 per week). The less pay dispersion there is within a company, the easier it is for unions to organise: workers are more likely to make common cause with those who earn similar wages.

In general, economists have focused on the way in which deunionisation affects inequality. Studies in Britain, Canada and the US have identified deunionisation as an important factor in the growth of inequality in those countries. In Australia, Jeff Borland found that, between 1986 and 1994, 30 per cent of the increase in earnings inequality among among males in full-time employment could be explained by declining unionisation. But the reverse could also be true. If inequality rises (because of technological change, globalisation, or some other factor), unions could find it harder to forge a successful coalition between low-paid and highly paid workers.

The final factor is structural labour market change. Across the developed world, unions have a better time recruiting in the manufacturing and public sectors, among full-time workers, and in large firms. The rise of the service sector, downsizing of government, casualisation of the workforce and the rise of smaller firms are all trends that disadvantage unions.

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Article edited by Leah Wedmore.
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First published in the Australian Financial Review on March 8, 2005.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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