Collective Bargaining and Poverty Reduction: OECD Data

Source: Jim Stanford, Progressive Economics Forum, February 6th, 2014

….I used bargaining coverage rather than union membership to capture the fact that in many countries, institutional arrangements (such as works councils, sectoral agreements, tripartite structures, etc.) allow unions to extend their influence over both workplace and social trends more than their formal membership would otherwise ensure. ….For a measure of inequality I chose the OECD’s standard relative poverty index: the share of the population receiving income (after tax, after transfers) less than half of the median. Again, this data is for the most recent year (2010 in most cases), and is available directly from the OECD’s on-line Income Distribution database.

The following figure illustrates the broad negative correlation between bargaining coverage and poverty: that is, the higher is bargaining coverage, the lower is relative poverty (and the more equal is income distribution)…. Low-unionization high-poverty countries are grouped tightly in the top left (including Mexico, the U.S., Turkey, Japan, and Korea). High-unionization low-poverty countries are grouped tightly in the bottom right (including several countries in continental Europe and Scandinavia with near-universal bargaining coverage). The rest of the OECD countries form a broad cloud between those two poles, with much variation but still a clear negative correlation…..

….Despite the limitations of the OECD data, therefore, and the richness of international experience regarding the determinants of inequality, I think it is reasonable on this basis to make the following conclusion: Collective bargaining (rooted in unions and labour law) has a very important impact in reducing inequality and relative poverty. Differences in collective bargaining coverage explain about one-third of the differences in relative poverty across most of the industrialized world…..