THE DISTRIBUTIONAL AND EFFICIENCY EFFECTS OF TRADE UNIONS IN BRITAIN*
| DOI | http://doi.org/10.1111/j.1467-8543.1977.tb00081.x |
| Date | 01 July 1977 |
| Author | John H. Pencavel |
| Published date | 01 July 1977 |
British
Journal
of
Industrial
Relations
Vol. XV
No.
2
THE DISTRIBUTIONAL AND EFFICIENCY EFFECTS OF TRADE
UNIONS IN BRITAIN*
JOHN
H.
PENCAVELt
I.
THE
SE~ING
During the
last
two decades, the major public policy issues in the United
States
with respect to the operation of labour markets have been concerned with income
maintenance, manpower training, and anti-discrimination programmes while
interest in the activities of trade unions has waned. On the other hand, in Britain
trade unionism has become one of the most keenly debated issues of public policy.
Normally, academics are not tardy in reallocating their time to the study of new
public policy questions and in this case the public’s concern with the operations of
trade unions in Britain has generated
a
flurry of work by industrial relations
researchers. By contrast, notwithstanding the potential for high returns in terms
of professional esteem and perhaps public recognition, analytical economists
appear not to have redirected their energies to the study of trade unions.
To
provide
one indicator of this, in the first half of this decade (i.e. from
1970
to
1975)
ofthe
350
major articles published in the forty-nine issues of the Economic Journal and
Economica, Britain’s two leading journals in applied economics, I identify merely
three that set as their task the causes or consequences of trade union behaviour.’
Over the same period these two journals published twenty-eight articles on issues
in the history of economic doctrine, matters that hardly arouse the same public
concern. Again, of the
611
titles of theses for degrees awarded in the
U.K.
and
published in theEconomic Journal from
1973
to
1976,
only sixteen (or
2.6
per cent)
fall into the category ‘Trade unions, collective bargaining, and labour-manage-
ment relations’ and it appears that most of these were in the industrial relations
vein rather than in analytical economics. This general observation should be
amended perhaps in light of the research into the role of trade unions in the process
of inflation, but this work has rarely gone beyond measurement without theory.
This unresponsiveness on the part of British economists to the problems thrown
up by trade unionism requires some explanation. No doubt
a
number of factors are
at work here, but
I
suspect a contributory reason is the widespread belief in Britain
that trade unions are not amenable to the sort
of
analysis economists apply to
consumers, firms, or government policy. The argument runs that the constraints
under which unions operate or the purposes that guide their behaviour are either
too complex or involve too many ‘non-economic’ elements for the economist to make
a useful contribution to
a
proper understanding of them. Or that the consequences
of bargaining are
so
critically linked
to
the interplay of bluff, pressure, threat and
misperception which in their turn elude straightforward quantification that the
economist searches in vain for systematic and measurable relationships.
It
would
be comforting if these arguments could be countered with a carefully reasoned,
well-articulated theory of union behaviour buttressed with an inventory of empiri-
’
This work was supported by National Science Foundation Grant
SOC74-11446-A01
at the
Institute for Mathematical Studies in the Social Sciences, Stanford University.
I
wish to
thank the editors of this symposium, John Gennard and especially David Metcalf, for their
useful comments on a preliminary draft
of
this paper.
I
also owe a debt accumulated over
many years to David Rozkuszka of the Stanford University Library for his unstinting
assistance
to
me in obtaining British government statistics for my research.
t
Associate Professor, Department of Economics, Stanford University, California.
137
138
BRITISH JOURNAL
OF
INDUSTRIAL RELATIONS
cal evidence, but I am not in a position
to
do this. Notwithstanding some brave and
worthy efforts,2 there is no prevailing model of the trade union that permits the
economist to derive useful inferences about labour market behaviour.
And yet
I
shall argue in this paper that the analytical economist is particularly
well suited to an examination of a number of issues highly relevant to an evalua-
tion of the operation of trade unions. My purpose here is not to present the
conclusions of an exhaustive programme of research; on the contrary, the evidence
below should be understood
as
merely
a
first pass
at
several problems and subse-
quent enquiry may well reverse these results. The work reported here is merely
suggestive of the
sort
of analysis that the economist can pursue with advantage.
The purpose of this paper is
to
identify the kind of information required from
research by economists in order to answer some critical questions concerning the
activities of trade unions in Britain. At present, this information is lacking,
SO
that
any judgements involve
a
good deal of speculation and should not be held with
a
great degree of confidence. If there is one message from this paper it is that we
remain woefully ignorant of the distributional and efficiency aspects of British
trade unions today. In the efficiency case, economists have not seriously examined
the issues
at
the empirical level, while the literature on the effects of trade unions
on wages is severely hampered by the quality of the available data. Confident
inferences must await further research. However, the editors of this symposium
have encouraged me not
to
allow ignorance to prevent me from expressing some
opinions and
I
have willingly followed their invitation!
It
should be emphasised
that naturally these opinions are conditional on the present state of knowledge and
may well require reassessment in the light of future research.
My
procedure in this paper is to follow the economist’s familiar device of dis-
tinguishing the efficiency from the distributional aspects of unionism. Of course,
any implications for the efficiency of resource allocation will normally have dis-
tributional consequences,
so
the distinction
is
solely for analytical convenience. In
Section 11, I sketch the arguments relating
to
the effects of trade unions on the
efficiency of production and then present some estimates of
a
production function
for the British coal industry. Incidentally, let us not commit the vulgar error of
thinking that questions of efficiency are out of place in an evaluation of the
activities of trade unions. This argument would contend that trade unions have
secured for the worker
a
sense of self-esteem and dignity which transcend and
render inapplicable narrow criteria like the maximisation of output. Whether
or
not these worthy goals have been gained, in fact, by unionism,
a
proper considera-
tion of such a position is well beyond the scope of this paper. It seems worthwhile,
however,
to
find out
to
what extent, if at all, these ends have been pursued at a net
cost to society.
I
then turn in Section
I11
to the influence of trade unions on wages,
first
their effects
on
wages
at
a
given point in time and then their effects on wages
over time. This naturally leads in Section
IV
to some discussion of government
economic policy and labour law. It will become clear that many important topics
such
as
the causes and consequences of industrial strikes, the internal organisation
of trade unions, and the participation of unions in upper-management decisions
will be ignored here. This silence does not mean that these are inconsequential
issues in the evaluation oftrade union activities, only that limitations on space and
time demand that some matters be postponed to
a
future occasion.
11.
TRADE
UNIONS AND
THE
EFFICIENCY
OF PRODUCTION
11.1
Wage-Znduced and
Non-
Wage-Induced Inefficiencies
Suppose
a
trade union effects an increase in the price of labour and then leaves
the firm free to a4ust
to
this change in relative input prices. This wage increase
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