HR Policy Global

BEERG Reflections #3 - Sectoral Bargaining is...

Published on: September 26, 2023

Authors: Tom Hayes

Topics: Employee Relations, The UK and European Union

In a recent column in the Financial Times, Sarah O’Connor, the paper’s employment and labour correspondent, suggested that a return to sectoral collective bargaining, even on a limited basis initially, may be the way forward for the UK to bring pay fairness back into the labour market.

But, it seems to me, she significantly underestimates the issues involved in trying to put such a system in place… or, back in place, if you will… because sectoral bargaining once dominated in the UK. Those were the days when the UK was a manufacturing powerhouse, not the service economy it is today. And the union “closed shop” was widespread.

Sarah O’Connor is not alone in thinking that sectoral bargaining may be the solution to stagnant wages and bad working conditions. Oren Cass of American Compass, a US Republican-affiliated think tank, offers the same solution. He proposes that:

All workers in a given industry will collectively bargain with all of their industry’s employers, establishing sector-wide standards for compensation and working conditions, and eliminating the risk that unionization will render an individual firm less competitive than its low-wage rivals.

Cass, like O’Connor, suggests that sectoral collective bargaining is widespread in Europe and could act as a model for the US. It is and it isn’t. Europe – or the European Union – is no longer just a handful of Western European countries. 

For a start, collective bargaining of any sort, much less sectoral bargaining, is completely absent in the eastern European members of the EU. This will be even more true if the EU pushes ahead with expansion to take in Ukraine, Georgia, Moldovia, and countries in the Western Balkans. Romania did recently legislate to facilitate a form of sectoral bargaining, though whether this will be taken up by employers is another matter.

In the western European countries where it exists, it exists for historic reasons. And it is a shell of what it once was, with plenty of companies opting out. In these countries sectoral bargain is confined to the “old economy”. You won’t find it in the new digital economy. Sure, there is some appearance of sectoral bargaining in the French gig economy, but it is a complete charade, a caricature, with little or no support from the actual workers covered.

Across Europe trade union density runs at about 25%, and around two-thirds of all union members are in the private sector. It comes as a shock to many when you tell them that union density in Germany is only 18%. It also needs to be kept in mind that in the Scandinavian countries where union membership is very high, and also in Belgium, the so-called “Ghent system” is in effect where certain social benefits are accessed through union membership. Would membership be as high in these countries without “Ghent”?

No wonder, the unions still see sectoral bargaining as the way forward. Maximum return for minimum effort. (See here for a union perspective, full of wishful thinking).

And they may not even have to have members. In France, only 8% of the workforce are union members, 5% at most in the private sector, yet 98% of French workers are covered by a collective agreement. This works because the government legally extends collective agreements to the entire workforce. In countries where this does not already happen, it is not going to happen, because there is no political consensus to back such a move. As O’Connor notes, an attempt to move in this direction in New Zealand could be torn up if there is a change of government.

Have a look at Australia where sectoral bargaining, of a sort, is also making a comeback. We say “of a sort” because it is not really collective bargaining as we know it, where the outcome is decided by the relative economic strength of the parties. This is what is currently happening in the US with the UAW strike against the three major automakers. This is collective bargaining “in the raw” with a union pitted against employers over the size of pay increases and terms and conditions of employment, including a right to strike when a company proposes to shutter a plant.  

In Australia, under new laws, the Fair Work Commission (FWC) can legally order sectoral bargaining into existence, even where employers are opposed. The FWC can issue an “intractable bargaining order” when negotiations break down, opening the door to it handing down a legally binding ruling on pay and working conditions. In a way, a return to the old Australian tradition of sectoral “awards” that was the mainstay of the system before Hawke and Keating in the 1990s started to introduce enterprise bargaining, that was then turbo-boosted by the Liberals with WorkChoices.

The new system in Australia was legislated for by the Labor government, which has a “joined-at-the-hip” relationship with the union movement. The unions are concerned that the new system, while it may deliver on pay and conditions, will not see an increase in membership. Why join and pay a sub if you are going to get the benefits anyway? The unions are talking about demanding “bargaining fees” from non-members.

Can anyone see any government anywhere else in the legacy market economies of the Western world backing such a system? Will the Australian system even survive a change of government? Where sectoral bargaining does not exist, employers are simply not going to buy into it. As a recent Uni Europa report comments :

Where there is no multi-employer bargaining, this is mostly due to the employers’ unwillingness to negotiate such agreements and the lack of [a] legal system enabling multi-employer agreements.

Employers have no reason to sign up to sectoral bargaining. They are in competition with one another, and their labour cost structure plays an important part in such competitiveness. 

Union arguments that “wages should be taken out of competition” may have had traction in the days of mass manufacturing, but not in today’s service economy. Pay packages play a critical role when it comes to being able to attract the best and the brightest.

For the unions, the real problem preventing a return to sectoral bargaining is this: they simply do not have enough members to be able to wrest recognition from employers. If this is true of individual companies, then it is even more true of entire business sectors. 

To come back to Sarah O’Connor’s column, what UK government, of any stripe, is going to agree to unions with just a handful of members negotiating of behalf of millions of workers who are not members? You only have to ask the question to know the answer. Especially when too many unions are dominated by political cliques with their own agendas. 

Unions are what they are. Economic organisations that represent the interests of their members. They are not the voice of the working class, however that class is defined. They have no mandate to represent workers who are not members. It is unlikely that the law is going to give them that mandate when workers themselves do not. There is no political consensus in Europe to go down the Australian road.

One reason, and a very big reason, why employers will not sign up for sectoral bargaining is because sectoral bargaining invites sectoral strikes. Which is more or less what is happening in the US with the UAW auto strike. But that just involves three companies with unions, representing less than 40% of all workers in the industry. Where would things be if the entire industry was involved?  Why would any rational employer want to hand such leverage to unions? 

If strikes are not an option, after all you have to have members to call strikes, then some other settlement procedure is necessary if agreement cannot be reached. In Australia, as we have seen, the answer is legally binding arbitration by the Fair Work Commission, on pay and terms of employment. European countries are unlikely to opt for that model.

Sectoral bargaining in the private sector in the UK was of a time which has now passed. It is not coming back. Other ways will have to be found to address issues of low pay and bad working conditions in sectors where they exist. Maybe it is time to revisit “wages boards” the last of which were abolished by the Thatcher government. Such boards brought together employers, unions, and governments which were able to set basic pay and working conditions. See this from Wikipedia. Wages Boards were championed by Winston Churchill back in the early days of the last century. 

The State of New York has done something along these lines in recent years for the fast-food industry. So also has California. In California, the recent agreement of employers and worker representatives on a wage floor of $20 has caused many to refer to this as a form of sectoral bargaining. 

But the agreement includes no other terms and conditions of employment. Moreover, it was the result of protracted battles in the legislature and the threat of an industry-backed proposition that California voters may very well have passed. It was clearly not a result of concerted activity by the actual workers, the wellspring of a genuine traditional union. The potential evolution of this new “wage board” into full-blown sectoral bargaining would face many obstacles, including strong resistance within the industry.

How such boards could be constituted could be looked at with, perhaps, civil society also having seats. The entire experience shows that unions are not the only ones who speak for workers. Given the political headwinds they are up against even in a liberal bastion like California, they need more than traditional organizing and economic weapons to achieve their goals. That would pose a stiff challenge to any attempt to go beyond mere wage-setting boards to full blown sectoral bargaining.

O’Connor suggests social care in the UK as a sector in which sectoral bargaining could be trialled. It is a sector riddled with low pay and bad working conditions, which simply cannot recruit enough workers. The ultimate funder of social care is the government. Where this is the case, you are always going to run into the problem of competing government priorities for the cash available. Boost pay at the expense of tax cuts? The strikes in the NHS underscore the point. Bargaining structures will not solve an underfunding problem. O’Connor argues that sectoral bargaining:

More ambitiously, it might start the UK down the road towards a more grown-up system of industrial relations, in which employers and unions treat each other as negotiating partners rather than adversaries.

If you look across Europe, sectoral bargaining does not mean an end to conflict. Just ask the French! And as I write, there are plenty of strikes, or threats of strikes, in various European countries. See what is going on in Finland, for example, or the long-running dispute in Belgium over the franchising of 128 Delhaize supermarkets. Airlines are riddled with disputes. 

Conflicts of interests are baked into collective bargaining, no matter how it is structured. Distributive bargaining is always a tough game, with winners and losers. That is not going to change anytime soon.

As Colin Crouch argues in Industrial Relations and European State Traditions, the system of labour relations in any country is deeply rooted in history, culture, traditions, and even religion, often stretching back to pre-industrial days. For this reason, what works in one country generally will not work in another. Even where a common framework of law exists, as in the European Union, it gets interpreted differently from one country to another. The clash of expectations rooted in different traditions become clear when you bring workers together in a European Works Council.

It seems to me that trade unions will continue to lose relevance in the private sector, especially as older industries and ways of working slowly disappear. They have not found an offer to attract membership in the newer industries, whose workers are more used to voice complaints through social media that garner media attention. They do not want to put in the hard slog on hard boards in cold halls that was the hallmark of union life in the 20th century. Governments are not going to come to their assistance and recruit members for them. In today’s world, you simply cannot force workers to join unions if they do not want to join, or to be represented by unions of which they are not members. 

In Europe, through EU laws, there will be multiple opportunities for workers to engage with their employers through information and consultation processes mandated by laws such as those on Pay Transparency, Platform Workers, and the AI Act. Who needs unions when they can speak for themselves?

Where unions continue to exist, they will increasingly be confined to the public sector or the quasi-public sector, private employers publicly funded, though why “middle men” are needed who take a slice off the top will increasingly be called into question.

Sectoral bargaining has an attractive allure about it. Everything agreed at one negotiating table for an entire industry. An efficient way of doing business. Just one problem. Employers just don’t find it alluring. So, they are not attracted to it. 

It is difficult to tango, if one partner does not want to dance. 

(I want to thank Dan Yager for his invaluable assistance and advice in researching this paper)


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