What Kind of Bargaining?

Effective collective bargaining could rectify these faults, enabling trade unions to sit down with employers to agree the terms and conditions of employment. That said, the principle of collective bargaining is not straightforward, in the sense that there are different ways by which it can be done.

From the Second World War until 1980, over 80% of workers in the UK had terms and conditions determined by collective bargaining, principally by sector wide agreements. These agreements were negotiated between trade unions representative of workers in a particular sector, and employers’ associations representing employers in the sector.  

The agreement would then be applied as a matter of practice by the great bulk of employers operating in the sector to which the agreement applied. In some sectors, regulated under Wages Councils legislation, the agreements were binding as a matter of law. Hence the term ‘sectoral collective bargaining’ (SCB).  

As demonstrated by British experience, the virtue of this model is that it is associated with high levels of collective bargaining coverage and worker protection. This is replicated by the experience of other developed countries – mainly in the European Union (EU) – where SCB continue to operate successfully.

SCB is a highly centralised form of rule-making which maximises levels of social protection, typically providing standards higher than those prescribed by the government in minimum standards legislation, such as the National Minimum Wage. SCB contrasts with enterprise-based bargaining, now the main method by which residual collective bargaining operates in the UK.

We say ‘residual’ because, under sustained attacks by successive governments, the level of collective bargaining coverage has declined steadily. The percentage of British workers covered now is less than 25% – and even where collective bargaining is still functional, some subjects (such as wages) are often excluded. 

Here too British experience is replicated by the experience of other countries, notably the USA which pioneered the decentralised model and where, today, collective bargaining barely touches 10% of the workforce.

In no country where this decentralised model has been adopted does collective bargaining density exceed 40%. It is a minority and declining activity, which no reform to the model is likely to reverse. The Canadians improved the US model, the British improved the Canadian adaptation, and the Australians improved the British adaptation. None of them works.

They do not work because the model is intentionally flawed. It is designed to facilitate collective bargaining on the employer’s terms, suppressing outcomes and limiting coverage. 

If collective bargaining is to be effective we need to go beyond company-based bargaining and rebuild sector-wide bargaining structures that were once proudly displayed by the now defunct Ministry of Labour in its regularly updated Handbook. Enterprise bargaining can only really succeed where SCB underpins it.

The Benefits of Bargaining

In a campaign for SCB trade unions will not be alone. SCB has been the policy of the Labour Party for the last five years. Internationally, it has been promoted not just by the tripartite International Labour Organisation but also by the OECD.

The IMF has noted its benefits and the EU, in publishing a draft Directive on the minimum wage, has included a provision proclaiming its ‘aim to increase collective bargaining coverage,’ in particular, by ‘building and strengthening of the capacity of the social partners to engage in collective bargaining on wage setting at sector or cross-industry level.’ The Directive will require an ‘action plan’ in states where collective bargaining coverage is less than 70%.

This is not to deny that a reversion to extensive SCB (as was the policy of governments up to 1980) will present challenges for trade unions. It will require significant resources to organise workers in sectors with low densities of membership in order to ensure effective democracy in the formulation of claims and voting on offers.

It will also require organisation across the membership to ensure that local bargaining and involvement builds on, and is not displaced by, reliance on sectoral minimum standards. Above all, it requires a dramatic upturn in union ambition to return to a former world in which the trade union role was seen to be normal at all levels of the company, the economy and political life.

Trade unions and their members must have the aspiration of making the rules, not simply enforcing the rules made by employers or by Parliament. Their role is not to sweep up behind the chaos of capitalism but to alter the balance of power at work by forging and then wielding the solidarity and strength of their members.

SCB will also present challenges for employers and their organisations. Nevertheless, setting industry-wide rates for jobs via SCB has attractions for good employers to prevent bad employers undercutting them. Non-competition on wage rates encourages competition in efficiency, spurring investment in technology and research and development.

One of the reasons that the UK is at the bottom of the OECD table of productivity is that there is no incentive for employers to invest in efficiency because labour here is so cheap, flexible and disposable. A ‘rate for the job’ ensures each job is paid at the same rate across the sector.

But apart from higher productivity with worker involvement through collective bargaining, perhaps the biggest prize is that SCB has a significant redistributive effect. Research shows, unsurprisingly, that SCB causes the real value of wages to rise.

That value has not risen for British workers since 2007. Raising wages sectorally is obviously good for workers. But it is also good for the economy because it increases demand. This stimulates the creation of more and better jobs. Higher wages increase the government tax take and reduce the number of those reliant on benefits to subsidise low wages.

Particularly significant in the unequal Britain is that extensive collective bargaining has been shown to reduce significantly inequality between rich and poor (as in Scandinavia) and also between different groups, so reducing the gender and ethnic pay gaps.

Economic inequality damages individuals and society (both rich and poor, curiously enough). In particular, it is bad for the economy. This is the principal reason that the OECD has been advocating extensive collective bargaining over the last few years.

Towards a Fairer Economy

It is, of course, unlikely that this message will be heard in Downing Street, despite the great contribution of British trade unions during the Covid-19 crisis.

But Covid-19 has also given us a glimpse of what might be possible in a new normal – and revealed the need for trade unions to have an emphatic role. The case for the restoration of SCB is perhaps no more vividly displayed than by the exposure during the crisis of some industrial sectors patently failing the people they employ.

Some examples stand out: garment making (in Leicester and elsewhere) and adult social care (where job turnover is so great because of the health risk and appallingly low pay). Other trades (such as hospitality) are similarly affected by high incidence and death rates from coronavirus and massive losses of income or employment.

Gig workers, those on zero-hour contracts, casual workers, and the bogus self-employed are prevalent in certain sectors. Their low pay and job insecurity are widely recognised, even by the government, as requiring some relief.  SCB is essential to the re-regulation of such sectors.

Sector-wide collective bargaining will significantly increase collective bargaining coverage, ensuring worker voice is heard, enhancing pay and conditions, reducing inequality and benefiting the whole economy. It’s a key demand for producing a more just economy – and for the Left, it’s a no-brainer.