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The decline of an institution

By Andrew Leigh - posted Wednesday, 8 October 2008


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

To test the impact of these factors, Peetz uses a technique known as “shift-share analysis”, and concludes that they accounted for about half of the decline over the decade 1982-92, but do not explain much of the drop since then. Since the fall in unionisation has been more rapid in the 1990s than the 1980s, this relegates structural change to a fairly minor role in explaining the overall slump in unionisation in the past 25 years. This is consistent with US research, which finds that structural changes were much less important than legal change in the decline of US unions.

Where does this leave unions today? Looking back over the past century, unions can proudly say that they played a substantial role in the two big transformations of the labour market since Federation: the virtual elimination of child labour and the widespread participation of women.

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In the current environment, they may point to the higher earnings of workers in union workplaces. Research by Mark Wooden shows that in workplaces with at least one collective agreement in place, the net union wage effect is in the order of 12-13 per cent. Unions can serve as a bulwark against rising inequality (though as noted above, inequality may also be eroding unions). Trade unions can also claim to provide important advantages to employers - by creating an environment in which firms have a stronger incentive to train their workers. They may even help create social capital, building bonds of trust and reciprocity in the workplace.

Yet the evidence suggests that union members are voting with their feet, and that other structures are springing up to take their place. The fraction of workplaces with joint consultative committees more than doubled between 1990 and 1995, and the fraction of workplaces with ad hoc employer-employee committees also grew substantially. Needs that were once met only by unions are now handled by new organisations.

Writing on the decline of British unions, John Pencavel notes that unions are relegating themselves to their 19th century role as “friendly societies”, providing services such as insurance, adult learning, and legal advice. Such a shift also seems to be occurring in Australia.

With unions on the wane, Australia’s labour markets today are closer to the textbook models of competitive markets than they were in the 1970s. This is chiefly due to a series of legislative changes that have made it harder for unions to organise, but also to greater competition in product markets, rising wage inequality, and changes in the composition of the labour force. It is highly improbable that any of these changes will be reversed. Although the inexorable decline in membership has slowed a little in recent years, a resurgence of Australian unions seems unlikely.

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First published in the Australian Financial Review, March 7, 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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