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The economic effects of industrial relations legislation since 1979.



Industrial relations legislation has played a central part in the labour market policy of the Conservative government that came to office in 1979. The government has attempted to achieve a fundamental change in the legal position of trade unions and thereby in the conduct of collective bargaining. It is a legislative policy that has been popularly credited with considerable economic success.

The purpose of this article is to examine this verdict and to assess the economic consequences of the legislation. We attempt this in the knowledge that it is an unusual and in some ways rather artificial task. Other analysts have preffered to consider the government's labour market policy more broadly. The justification for our approach is that policy makers have placed particular emphasis on these legal instruments, and that consequently they both deserve and require to have their specific effects examined, so far as is possible.

Legislation cannot be considered in isolation. Its impact is strongly affected by the broader policy stance adopted by the government in power. An evaluation of its effects must also take into account concurrent changes for which government policy may claim no direct responsibility. Space constraints prevent our discussing many important but less directly relevant aspects of labour market policy such as training, income distribution, and public sector pay.

We commence with an outline of the theoretical rationale of the legislation. Then follows a summary of the background and nature of the legislation. Next we look at the evidence of its impact, first on industrial relations behaviour and then on economic outcomes. We conclude with a discussion of the explanation of these outcomes. Our conclusion will be that the economic effects of the legislation have been limited and, to some extent, perverse.

The government's theoritical position

`The Government believe that improvements in our industrial relations are essential to an economic recovery', stated a Green Paper issued in 1981 (Cmnd 8128: para 383). In late 1988 the Secretary of State reviewed the government's overall legislative strategy in a policy document (Cm540) which spelled out its underlying theoretical position. The government's view was that ` unions have used their power in ways which adversely affected labour costs, productivity and jobs' (para 2.4). Given that ` unions tended to push up the earnings of people they represented' (para 2.4) allied with the view that 'excessive pay increases...hit jobs' (para 3.1), there is a tendency for unions to reduce employment. It was argued that workers who are displaced from the union sector will tend to put downward pressure on wages in the non-union sector. As a result, non-union wages may compare unfavourably with unemployment benefits and unions will have ended up increasing unemployment (see Hayek, 1980; Minford, 1983). The government has thus seen its industrial relations legislation as, in part, an attempt to curb the power of unions to push up wages. On this view, legislative success would have effect of reducing the so-called 'non-accelerating inflation rate of unemployment' (NAIRU), and will consequently assist in the battle against inflation.

The 1988 White Paper repeated the argument of the 1981 Green Paper in asserting that in the 1970s restrictive practices were a barrier to the creation of new jobs, to growth and to investment' (para 2.1). As evidence for this view, it pointed to studies (Blanchflower et al, 1988; Metcalf, 1988) which claimed that during 1980-84, '... managements who recognised and negotiated with trade unions were less likely to experience job gains and more likely to suffer job losses than managements who did not' (para 2.4). The implication is that industrial relations legislation designed to encourage the reduction of restrictive working practices should lead to employment being higher than it would otherwise have been.

The government believes that 'inflexible pay arrangements' have acted as a `barrier to jobs' (para 3.1). Principal among these are national agreements; that is, industry-specific, multi-employer pay agreements. The government claims to have taken substantial steps to reduce the influence of national bargaining both by setting an example as an employer in its own right and also by attempting to increase competition in the product market through deregulation and privatisation. The government also maintains that wages should have become more responsive to firm-specific factors because it has removed provisions of the Employment Protection Act (1975) and the Fair Wages Resolution (1946) which encouraged the transmission of wages comparisons. The EEC's Charter of Fundamental Social Rights has been opposed on similar grounds. These steps to encourage the decentralisation of pay determination should, it is argued, improve employment prospects.

As corollary to this analysis, two particular features of trade union behaviour have become the focus of legislative attention. The White Paper notes that the use of strikes interrupts production, distracts managers, and damages the country's economic reputation. It is consequently necessary to reduce unions' capacity to deploy sanctions. There is also a belief that the character of trade unions' conduct is influenced by the manner of their internal government. In particular it is implied that unions will better serve the national economic interest if their leaderships are more directly accountable to their members.

The legislative background

The involvement of trade unions in labour management, which is generally known as collective bargaining, is a feature of all Western industrialised societies. The form it has taken in Britain is distinctive in its comparatively slight legal foundation. This has discouraged the enforcement of collective agreement through the courts and has minimised trade unions' statutory rights. The Donovan Royal Commission of 1968 reviewed the short-comings of British industrial relations and concluded that there was little scope for legal intervention other than to encourage individual employers to tighten up their bargaining procedures and, if necessary, to make a clean break from the industrywide agreements that were then still supreme in form if not in substance.

In rejecting this diagnosis Mr Heath's government sought to introduce a radically new legal framework whereby collective agreements could be enforced through a special court and unions made legally responsible for their members. The stormy circumstances in which his Industrial Relations Act (1971) was rendered still-born, and also the limited success of some of the pro-union measures with which Labour replaced it, reinforced the view that there was little scope for legal intervention. It appeared that employers were reluctant to use the law against their own employees, or to make martyrs of those who defied the law.

This view was initially shared by Mrs Thatcher's government when it was elected in 1979. Its first legislative steps were a tentative patchwork and the 'step by step' biennial legislation that subsequently developed has not been the result of a pre-ordained strategy. It has been devised in a piecemeal fashion, with policy makers being greatly influenced by the immediate experience of contemporary disputes (cf.Wedderburn, 1989). It gradually became apparent during the course of the 1980s that some employers were willing to use the law that unions could be penalised without anyone being imprisoned, and that some of the greatest damage could be inflicted on unions by their own disaffected members.

The legislation of the 1980s

There has been a constant stream of legislation. The Employment Act 1980 and the Employment Act 1982 dealt with various aspects of collective action and trade unions' civil liability to fines. The Trade Union Act 1984 was mainly concerned with the use of ballots in union decision-making. The Employment Act 1988 was primarily aimed at increasing the rights of individual members against their trade unions. The Employment Act 1989 inter alia made it more difficult for shop stewards to organise multi-plant bargaining. The prospective Employment Bill 1989 concentrates on the control of unofficial strikers, a ban on all secondary action and pre-entry closed shops. The Wages Act 1986 stands apart, being mainly aimed at reducing the scope of wages council's statutory minimum wage rates. A proposal in a 1988 Consultative Paper to abolish wages councils altogether has been indefinitely postponed.

There were also provisions of earlier legislation that were repealed. The Fair Wages Resolution 1946 which obliged public sector contractors to observe established pay and conditions was rescinded. The effective extension of this to the private sector in the form of Schedule 11 of the Employment Protection Act 1975 (EPA) was also repealed in 1980; it had briefly provided a procedure whereby employees could press for 'recognised terms' or the 'general level' of pay through the Central Arbitration Committee (CAC). Another provision of the EPA that was repealed was its Section 11 whereby trade unions could use the Advisory, Conciliation and Arbitration Service (ACAS) to help them obtain recognition from reluctant employers. More distant but still relevant to collective bargaining have been changes which have substantially diminished eligibility for individual rights, the more important being social security entitlements, compensation for unfair dismissal, and maternity provisions, and the repeal of legislation regulating the hours and conditions of work of women and young persons which traditionally were a floor on which adult male bargaining could build (Deakin, 1986; Hepple, 1986). A major factor depressing eligibility for individual entitlements during the 1980s has been the influx of part-time labour with the increased employment of married women (cf.Hakim, 1989).

Two legislative issues have concerned industrial phenomena which have become recurrent political bugbears. The first is the closed shop, an arrangement under which it is understood that union membership is a necessary condition for retaining a job. Originally closed shops were important for union solidarity, especially where union strength relied upon the control of the supply or qualifications of labour. But in recent decades the nature of closed shops, which cover something under a half of union members, has changed. It is now generally the employers who play the key role in maintaining them. Their view is that so long as they have to deal with trade unions, a closed shop is an important means of enforcing procedural discipline, of assisting shop steward accountability to the rank-and-file, and of inhibiting splinter unions and multi-unionism. The 1980 and 1982 Acts attempted to regulate the enforcement of 'post-entry' closed shops but the 1988 Act made all action to enforce a closed shop illegal. The 1989 Bill promises to ban the fairly small proportion of 'pre-entry' closed shops where union membership is a prior condition of employment (Dunn and Gennard, 1984).

The second politically conspicious issue is picketing, the attempt to consolidate strike action by the act of trade union representatives publicising their cause outside the workplace in question. In 1984 picketing occurred in some form in approximately 15 per cent of strikes. But it has been a small minority of 'mass' picketing episodes with accompanying civil disorders that have prompted new laws. The police have long had powers to prevent the obstruction of highways, and the 1980 Act, which restricted who is entitled to picket, is difficult to enforce in practice. The successful management of picketing remains primarily a discretionary matter for negotiation between police and trade union representatives (Kahn et al, 1983; Geary, 1985).

Of much greater significance has been the change in the circumstances in which unions involved in industrial action are liable to be sued for damages. Under British law the qualified 'immunity' from such action is the equivalent of a right to strike in other countries. The 1980 and 1982 Acts removed such immunities when action is taken against employers who are secondary to the dispute, or when the action is for political objectives, or when the dispute is between employees. Hitherto it had not been possible to obtain compensation for civil wrongs ('torts') committed during industrial action from unions themselves, but only from individual union members. The 1982 Act narrowed unions' immunities to very specific torts and the 1984 Act tied them to particular balloting requirements. The result is that substantial damages can now be awarded against unions in a variety of tort actions and failure to pay may result in sequestration of assets. This has substantially increased both the opportunity and the incentive for strike-hit employers to obtain court injunctions against unions to require their members to desist. The 1989 Employment Bill promises to make unions responsible even for unofficial action if they have not expressly repudiated it.

The other important area of legislative intervention has been trade union government. The main emphasis has been on encouraging the balloting, with its accompanying secrecy, of members on union issues. The 1984 Act has been tightened up by the 1988 Act to require full postal ballots every five years for the members of unions' ruling national executives. Ballots of those likely to be involved in strike action are necessary if the union is not to lose immunity. A ballot of members has to be held every ten years if the union is to use funds for political purposes. The 1988 Act also provides several means whereby individual members can pursue complaints against their union, including a new Commissioner who in effect provides legal aid. Unions can no longer discipline their members for failing to take part in official industrial action.

It is difficult to make any simple statement about where the new structure of British labour legislation stands in relationship to that of other countries. It is not only legal structures but employment practices that provide unions with rights and members with entitlements, and there is no easy way of comparing their level and incidence. The government's attitude to the EEC Charter, and to the criticism it has received from the International Labour Organisation over a number of major shortcomings of British labour legislation (ILO, 1989; Napier, 1989) leave no doubt that it does not aspire to raise employees' collective rights to the internationally accepted standards. An authoritative comparative study concludes that during the 1980s the distinctive features of the development of British labour law in international terms have been the tendency to increase the subordination of many employees and to diminish their rights to participation (Hepple, 1989).

We now consider the consequences of this legislation for strikes, union government, and employer behaviour and then go on to investigate the effects on wages, employment and productivity.

The consequences for strike behaviour

The legislation has had two distinct objectives with regard to strike action. One is to make the conduct of industrial relations more orderly and less subject to the disruption caused by strikes. A separate objective, not necessarily implied by this, is that of reducing the capacity of trade unions to take strike action and thus of diminishing their bargaining power. We consider first the overall statistics and then look at other evidence of behavioural change that might underlie them.

Table 1 provides average annual data on strike numbers and working days lost since the 1960s. It demonstrates the substantial decline in the number of stoppages in the 1980s. The average number of working days lost per 1000 employees also fell sharply, although only to the level of the 1960s. It can be seen from the third column that the proportion of strikes that are shorter than three days has risen during the 1980s. But the fourth column highlights the fact that an increasing proportion of total working days lost comes from strikes involving large numbers of workers, reflecting the importance of public sector disputes during the period. An upsurge in strike activity in the year after the data provided in the table counsels caution about extrapolating these trends. [Tabular Data Omitted]

The declining strike incidence should, however, be placed in its international perspective. Table 2 provides a comparison of working days lost per 1000 employees in 20 countries during the decade 1978-87. Of those 20 countries during the decade increase in this measure of strike propensity between the two halves of the decade, and most saw a greater proportional decline than the UK. In each five-year period Britain was the seventh most strike-prone country. Britain's declining strike record during the 1980s has thus reflected an international pattern. With due allowance for the technical difficulties of making international comparisons of strikes, Britain remains slightly more strike-prone than average in the international 'league table' of days lost per thousand employees. [Tabular Data Omitted]

In what ways might the new legislation have influenced strike behaviour? The most immediate effect of the narrowing of their strike immunities has been to weaken some unions financially. There is an upper limit of 250,000 [pounds] on the damages a plaintiff can obtain from a union of over 100,000 members, but legal fees and fines for contempt can rise far beyond that. The three unions which were separately involved in disputes at the Stockport Messenger (1983), News International (1986), and P & O Ferries (1988), (respectively the NGA, SOGAT and NUS) all suffered combined fines and legal costs of the order of 2m [pounds]. The NGA and NUS had their head offices taken off them for a time. To place these figures in perspective, the combined total income of the two print unions involved, as reported by the Certification Officer for 1987, was 33m [pounds] and their combined total assets were 47m [pounds]. It should be noted that the much greater legal costs of the order of 7m [pounds] incurred by the NUM during the 1984/5 miners' strike mostly did not arise from the use of 1980s legislation, but from action by union members alleging breaches of union rules at common law.

These initial shocks to trade unions are unlikely to be repeated. It has been expensive for some of them to learn the new procedures, but they have generally done so rapidly even in complex disputes such as the 1989 railway and engineering conflicts. It is clear that the risk of sequestration has become a major deterrent to unions in the conduct of disputes. There are always uncertainties with regard to judicial interpretation of the legislation-as with the question of a 'political' dispute in the 1989 docks dispute - but these uncertainties cut both ways, and are themselves important in discouraging employers from seeking legal redress.

The narrowing of their legal immunities has affected trade unions' bargaining power partly by inhibiting secondary strikes, defined as action involving an employer who 'is not a party to the trade dispute' and who is not 'first customer and first supplier' of the employer in dispute. The tactical benefits to a union from secondary action depend very much upon the extent of commercial integration of the production and distribution process in question. Legal interpretation of the new restrictions has proved to be complex and uncertain, but there can be little doubt that unions which traditionally relied upon secondary action have been weakened. A survey-based comparison of industrial action in 1980 and 1984 found that the incidence of picketing had halved, but reported that this was probably a consequence of the fact that strikes had become shorter in duration over the period (Millward and Stevens, 1986). It will be recalled that legislative innovation achieved by mid-1984 was fairly limited.

By the end of the 1980s it was still the case that relatively few employers were willing to press even clear-cut legal action against their employees' unions. For those that have, such as News International and P & O Ferries, the process has tended to be expensive in terms of both public and employee relations. Whether or not their legal victories were Pyrrhic, they have undoubtedly eased the bargaining road along which their competitors have followed. Highly publicised examples are likely to have a major impact upon perceptions of bargaining strength.

What has probably proved more important for the normal run of employers has been the greatly increased opportunity of getting strike action aborted by interlocutory injunctions, even if the employer has no intention of extracting damages. Of the 77 instances of employers requesting injunctions that were reported in the three-year period up to 1987.73 injunctions were granted but only three resulted in damages being sought (Evans, 1987). An increased awareness by both employers and trade unionists of the potential use of injunctions is likely to reduce the impulsive calling of secondary action and of unballoted strikes.

The new legal provisions oblige trade unions to approach strike action with greater procedural caution. This reduces the scope for the sort of rapid strike action which previously might have prevented a dismissal or an unpopular change in working methods and to this extent reduces union power. Once a union has followed the new procedures to the brink, however, the consequences for bargaining power are less clear. When the grievance is of a type that fades with time, the delay necessary for a strike ballot can 'cool off' members' passions or provide employers with time to buy them off. The 1989 dock strike was an example. On the other hand, when the ballot does lead on to a strike, the legalism and publicity of the procedure tends to rally the rank-and-file to the leadership and may cause the resultant strike to become more disciplined and whole-hearted. On balance, however, the legislation is likely to make strike action more costly to the unions and more difficult to use.

The number of formal strike ballots coming to ACAS attention has increased each year since the legislation came into operation. Balloting improves the information available to each side about their relative bargaining strength, and in this sense is likely to increase the efficiency of bargaining. The procedure makes it safer for both employers and unions to test their position by pushing a failure to agree to the test of a ballot. If the ballot goes in favour of action the employers generally make sufficient concessions without waiting for the consequent strike. Of the 951 strike ballots of which ACAS was aware during the three years 1987, 1988 and 1989, 92 per cent went in favour of industrial action, and in the great majority of these cases the employer then settled without the strike occuring (ACAS sources). While the new procedure may thus reduce the actual occurence of strikes, it may not commensurately diminish the impact of the strike threat. A decline in overt disruption does not necessarily imply reduced union power.

The consequences for trade union government

The legislation was intended to increase the participation of trade union members in the government of their unions. It was implied that this would make collective employee behaviour more responsive to external economic circumstances. We must ask how far the legislation has altered trade union government, and to what extent it might have made union behaviour more sympathetic to national economic needs. It should be noted that for at least twenty years British governments have shown considerable ambivalence as to how desirable it is for union leaderships actually to lead their rank-and-file.

The new requirements for the internal government of trade unions have been assimilated without many difficulties. The balloting requirements for union executives have been largely accepted although a minority of unions needed to alter their constitutions in order to comply. The requirement to ballot members if a union is to have a fund for political purposes had the unexpected result of commanding a high level of support for such funds. Of the 53 unions which had balloted on the issue by mid-1989 only one had a vote against.

Approximately 80 per cent of union members are now in unions with approved political funds. Indeed, as a result of the 1984 Act, at least 20 unions now have these funds for the first time. The expense of balloting arrangements has been met partly by the provision of the 1980 Act whereby trade unions have been able to reclaim the cost of postal ballots from the Certification Officer. Unions were successful in reclaiming ballot costs of strikes and elections amounting to #4.2m over the four years up to 1988.

But these are comparatively minor developments in comparison with the underlying change that the legislation has, at least, accelerated. Unions have been obliged to develop computerised membership records, to keep better accounts, to run more orderly elections, to exert greater influence over their shop stewards, and to communicate better with their members. Developing alongside more elaborate trade union organisation is the trade union sponsored bank, the Unity Trust, which is providing a range of balloting and other services. It is true that through the 1988 Act unions have had the power to discipline non-strikers removed, but strike solidarity, like the closed shop, is predominantly sustained by informal group pressures from work-mates. Far outweighing this relatively slight reduction of formal disciplinary powers is the fact that other legislation has increased the need for unions to tighten discipline because they have become more financially vulnerable to procedural clumsiness by their shop stewards. As the NUS demonstrated at Dover in 1988, there can be massive costs incurred by a union unable to control its local lay activists.

This has far-reaching implications. The British trade union movement's growing dependence upon workplace-based shop steward activism during the 1960s and 1970s became a grave source of weakness when faced with the closures and redundancies of the 1980s (Brown, 1986). As was demonstrated by British Leyland at the start of the decade, disunited factory-based union organisations were a poor match for a management able to adopt a companywide strategy (Edwardes, 1983). Despite internal controversy, the legislation has given union leaderships both opportunity and incentive to reverse their unions' fragmentation. An important by-product of the legislative innovation of the 1980s is thus likely to be a union movement more disciplined and co-ordinated than would have otherwise been the case.

Underlying the new balloting provisions is a recurrent belief that greater membership participation results in greater moderation of trade union behaviour. A difficulty in assessing this belief is that the notion of `moderation' can be taken to mean such different things - unwillingness to strike, the adoption of a less self-interested position, or of a longer-term perspective. The stance adopted by the rank-and-file relative to their leaders depends to a considerable extent upon the issue in contention. Studies of union decision-making suggest that successful leaders tend to have a more long-term, less volatile view of events, not least because they have to sustain bargaining relationships with employers (Batstone et al, 1987; Behrend, 1974; Glendon et al, 1975). When nationwide unions move from indirect elections to direct elections, the rank-and-file are less likely to have personal knowledge of the candidates than they had previously of the local delegates to whom the final executive election was entrusted. To overcome this information problem it becomes necessary to organise factions and to put more energy into gaining publicity and into organising around voting `slates'. The 1988 Act is precise in its requirements for electoral publicity. By comparison with indirect election, direct election in unions with geographically dispersed membership tends to favour the better organised faction, irrespective of their supposed moderation (Undy and Martin, 1984).

A strike ballot has more immediate implications than a union election for the voter because, in most cases, the voter will bear the costs of striking. The legislation seeks to reduce the influence of group pressures in these circumstances by replacing open voting by ballots and, if possible, postal ballots. Survey data from just before the relevant Act in 1984 suggests that union negotiators generally use an informal show of hands when testing the acceptability of an agreement (Millward and Stevens, 1986), but balloting on strikes was common for complex constituencies before the Act. The resolution of a dispute may be more difficult if a formal ballot has been used because the union negotiator will usually have to ballot members on the final offer.

`Decision-making procedures do not determine outcomes: in different circumstances the same procedure is likely to produce a different outcome' concludes an authoritative study of the issue (Undy and Martin, 1984). The importance of continuity for the maintenance of effective bargaining relationships between managers and union leaders would suggest, on balance, that where the rank-and-file decide a matter by direct vote they will tend to respond more timidly in adversity and more aggressively in prosperity than their elected leaders. In an economic upswing the greater use of strike ballots is thus likely to result in wage claims that are more extravagant, and in negotiators with less room for manoeuvre than would otherwise be the case. In times of rising expectations, governments may come to regret that the 1984 Trade Union Act was born of the politics of recession.

Employers' policy towards collective bargaining

It is by actions as well as laws that governments implement their policies. It would be misleading to assess the effects of the legislation in isolation. A feature of Mrs Thatcher's government has been its willingness to countenance, one by one, direct confrontations with some of the most powerful sections of trade unionism. The most immediate challenges have been in the public sector. The dismissal of the senior shop steward at British Leyland's Longbridge car plant in 1979 was followed by set-piece battles in the steel and railway industries, the ousting of civil service unions from GCHQ, and the careful preparation in anticipation of the miners' strike of 1984/5. In addition the government has provided encouragement for similar confrontations in the private sector in, for example, shipping, national newspapers, and the docks and in 1988 made unprecedented use of the Monopolies and Mergers Commission to enquire into restrictive working practices in independent television.

It might have been expected that the combination of a hostile government and the recession would lead to a retreat from collective bargaining as the preferred means of labour management. There has certainly been a substantial decline in the proportion of employees in trade unions, from 55 per cent in 1979 to 46 per cent in 1984 and probably 43 per cent in 1988, (Kelly and Bailey, 1989). Table 3 provides international comparative data with a slightly different basis of calculation. It shows the British decline has been relatively large in international terms but that Holland, Ireland and the United States have had comparable experience. It is unclear how far the government's policy posture might have contributed to trade union decline in the 1980s. Competing explanations cite the effect of the business cycle and the changing composition of employment, with the decline of highly organised industries and relative growth of private services undoubtedly playing a major part (Disney, 1990; Freeman and Pelletier, 1990).

Table : Table 3. Union membership
 (percentage of all employees 1970-85)
Country 1970 1975 1980 1985
United Kingdom 48 51 53 43
Australia 50 54 52 51
Canada 36 34 30 30(a)
France 23 23 19 na
Germany(FR) 37 39 39 37
Holland 37 38 37 29
Ireland 52 53 55 46
Italy 33 42 43 40
Japan 35 34 31 29
Sweden 74 79 88 88
United States 27 25 23 16

Note: (a) break in continuity of measurement in Canadian data in 1978 causes approx 4 percentage points fall

Despite this decline in union membership, there does not appear to have been a substantial retreat from existing collective bargaining arrangements. The CBI, surveying the same member firms in 1986 as it had surveyed in 1979, reported no net change in union recognition (CBI, 1988). In its annual report for 1988, ACAS commented that `formal de-recognition continued to be rare'. There are a number of instances of bargaining rights being withdrawn from managerial groups but, at lower levels, one review of the evidence concludes that new plants are no less likely to be unionised in the 1980s than comparable plants would previously have been (MacInnes, 1987).

There is evidence that the extent of the closed shop has been declining since the late 1970s. The number of employees covered by closed shops was estimated as at least 5.2 million in 1978, between 4.7 and 4.9 million in 1980, 4.5 million in 1982, and between 3.5 and 3.7 million in 1984 (Dunn and Gennard, 1984; Millward and Stevens, 1986). But much of this is probably explicable in terms of job loss in traditional closed shop industries.

A more reliable indicator of employer attitudes to union membership than the closed shop is the extent of the `check-off', the practice whereby employers collect union dues from their employees on behalf of their unions. Between 1980 and 1984 the use of check-off, already almost universal in the public sector, spread substantially in the private sector and by 1984 it is estimated that the number of employees covered approached 6 million (Millward and Stevens, 1986). Furthermore, shop stewards continue to be the preferred employee representative (as opposed to unions' full-time officials) throughout most of industry, with no decline in the incidence of individuals recognised by management as `senior' shop stewards, but a significant fall in the number of them who spend their whole time on trade union duties (Edwards, 1987).

But if collective bargaining continues to be well-established, its conduct has altered; or, rather, the change in its conduct that was well under way in the 1970s has continued. The clearest indication of this is the continued decline in multi-employer bargaining in the private sector. In the early 1950s the resultant industrywide agreements were the principal means of pay determination for perhaps four private sector employees out of five, but by the late 1960s the Donovan Commission noted a substantial decline and by the late 1970s it was probably below two in five (Brown, 1980). By 1984 it had declined to one in five (Millward and Stevens, 1986). Many more industrywide agreements have been terminated of fundamentally weakened since then, examples being independent television, banking, retail food distribution, engineering and shipping.

In moving to single-employer bargaining, firms have had the objective of tightening their internal controls over pay and productivity. They have generally reduced the number of levels at which pay is bargained and the number of bargaining units involved (Millward and Stevens, 1986; CBI, 1988). In multi-plant firms employers have followed different routes to tighter control, with elements of both centralisation and decentralisation, the most common fixing arrangements by product market (Marginson et al, 1988). Lucas, Pilkingtons, and National Freight are examples of the many firms that have decentralised pay bargaining not according to where their employees work, but according to the product-related profit centres for whom they work.

The character of bargaining has also changed, with more individualistic treatment of employees and with trade unions relegated more to a consultative than negotiatory role on non-pay matters. The influence of the union outside the workplace has continued to diminish with the decline of industrywide pay and training arrangements. There has been an increase in the `domestication' or procedural isolation of trade unionism within the enterprise. A much publicised (but statistically not very substantial) spinoff from this has been experimentation with `nostrike' deals, pendulum arbitration, single-union agreements and employee share ownership (Bassett, 1986; MacInnes, 1987). Much more important in economic terms has been the increasing opportunity that the continued development of single employer bargaining has offered to innovative employers to reshape the job descriptions, career patterns, skilling, pay levels, work practices, and contours of employment security of their workforces.

Macroeconomic outcomes

Looking at the behaviour of the economy as a whole, we find that unemployment more than doubled during the period 1979-82 and then remained stable until 1986 before declining thereafter to a level in 1989 that was still substantially higher than that inherited by the government. As table 4 shows, the increase in unemployment percentage was greater than in the United States or the leading European economies.

Table : Table 4. Comparative economic indicators

1973-79 1979-86

Average level of unemployment (%)
 United Kingdom 4.0 10.0
 United States 6.4 7.6
 Germany 2.5 5.3
 France 4.3 8.3
 Italy 5.9 8.0

Real wages growth(a) (% per annum)
 United Kingdom 1.5 2.4
 United States 0.5 0.0
 Germany 0.3 0.9
 Germany 3.4 2.0
 France 3.5 2.4
 Italy 2.5 1.3

Unit labour costs growth(c) (% per annum)
 United Kingdom 0.2 0.5
 United States 0.2 -0.7
 Germany -0.9 -1.1
 France 0.2 -1.0
 Italy 2.2 -0.1

Notes: (a) Change in hourly earnings in manufacturing deflated by GDP


(b) Change in GDP-divided by employment

(c) Difference of two previous sets of data

The decline in wage pressure that might have been expected to follow an attack on union power has not materialised. Wage inflation in Britain has remained stubbornly high with money wages rising at about 7 1/2 per cent per year from 1982 to 1989 despite record levels of unemployment. Britain is the only major OECD economy for which the trend in unit labour costs deteriorated between 1973-9 and 1979-86. An examination of the question of whether there has been any change in the trade-off between inflation and unemployment found no evidence of any improvement (Layard and Nickell, 1989). The authors note that an equally large disinflation in 1975-7 was carried out with substantially less unemployment.

We can conclude that there has not been the expected decline in the NAIRU as a consequence of the measures to reduce trade union power. Indeed, the fact that a fall in the NAIRU has failed to occur despite a substantial fall in trade union membership suggests that unions have a rather modest effect upon the NAIRU. One macroeconomic variable that has moved in the predicted direction is productivity growth, which has risen in the U.K. while it fell in the other main European economies, a point to which we shall return.

Microeconomic evidence

Wages It is dangerous to focus solely on macroeconomic aggregates, which are affected by many factors other than those to do with labour. We therefore attempt to infer something of the effects of the legislation by turning to microeconomic evidence and comparing the differential behaviour of unionised and non-unionised firms. If the legislation were to reduce the capacity of unions to bid up wages it should result in a relative decline in the wage of unionised workers. Similarly, if the legislation were to reduce the capacity of unions to sustain restrictive working practices it should lead to a relative improvement in the unionised over the non-unionised sector in terms of productivity and, in the government's view, employment.

Stewart (1987) estimated the union/non-union `mark-up' from Workplace Industrial Relations Survey (WIRS) establishment data, and concluded that there was no evidence that it had fallen between 1980 and 1984. If anything the mark-up for semi-skilled workers may have risen. Using data on individuals from the Family Expenditure Survey, Symons and Walker (1988) were unable to detect any change in the mark-up between 1979 and 1984. Both these studies controlled for a variety of possible alternative explanations for the stability of the mark-up, including changes in industrial composition and in firm size and differences in gender mix.

It is sometimes argued that a rise in unemployment can cause the mark-up to widen because trade unions are better equipped to protect the interests of the employed `insiders' during a recession. But Stewart (1987) does not find any evidence for this view in that the effect of local unemployment on wages was the same in union and non-union establishments. His cross-section finding also receives support from the time-series analysis of Nickell and Wadhwani (1989), who concluded that the response of wage increases to unemployment is the same in union and non-union firms.

It is not necessary to claim that the union/non-union mark-up picks up all the effects of unions on wages. There are clearly spill-over effects because many non-union firms deliberately relate their pay levels to those prevailing in unionised firms. Our contention is simply that if there had been any weakening in the effects of unions on wages during the early 1980s, not withstanding spill-over effects, it would have been manifested in a change in the mark-up and the evidence suggests that this did not occur.

Employment and productivity By the argument of the 1988 White Paper, the decline in the relative wages of unionised workers that was expected to result from the legislation should have led to employment being higher than it would otherwise have been. The undermining of restrictive working practices should have augmented this employment effect. Analysis of WIRS data over the 1980-4 period suggests that controlling for a variety of industrial size and other factors, unionised establishments were more likely to lose jobs than their non-unionised counterparts (Blanchflower et al, 1988). To explore this further it is necessary to consider the evidence on productivity growth.

Managers were asked in the 1984 WIRS survey about `organisational change', which was defined as `changes in the organisation of work or working practices not involving the introduction of new plant, equipment or machinery; although far from perfect the responses do provide some indication of the extent to which workforces had recently accommodated to change. A higher proportion of the unionised establishments reported that this had occurred (33 per cent) than non-unionised (21 per cent). Analysis of these data controlling for, among other factors, establishment size, industry, region and product demand still found unionised plants 17 per cent more likely to report `organisational change' than the non-unionised (Machin and Wadhwani, 1989).

A further analysis used company accounts data and a survey of companies in an attempt to explain differences in total factor productivity growth between unionised and non-unionised firms, comparing the period 1975-9 with the period 1980-4 (Nickell et al, 1989). It controlled for the possibility that firms might have experienced exceptional productivity growth if they had suffered exceptionally harsh recession (using the lagged change in employment), or if they had had exceptional financial distress (using data on borrowing ratios), or if they faced an exceptionally competitive product market (using the changes in concentration ratios). Despite allowing for these factors, it was still found that unionised firms experienced greater total factor productivity growth than non-unionised firms, by an annual rate of 2.9 per cent over the 1980-4 period. This differential performance was markedly greater than that of 0.3 per cent for the earlier, 1975-9 period.

These studies suggest that the early years of the legislation were associated with an increase in productivity growth that was especially marked for unionised establishments. They suggest that this might have been associated with an increased capacity by unionised workplaces to accommodate organisational change. But contrary to the White Paper's expectations, the wages of unionised workplaces did not appear to fall relative to the non-unionised, and employment in unionised plants did not rise relative to their non-unionised counterparts.

An alternative explanation

Part of the explanation for these results may be that the effects of changes in work practices are more complex than implied by the 1988 White Paper. Under certain circumstances an improvement in working practices can lead to an overall fall, not rise, in employment. This would occur, for example, if a reduction in number of workers per machine is not offset by the stimulus to output arising from the greater competitiveness of the firm, which is especially likely if the change in working practices had been precipitated by a fall in product demand. The fact that employment loss in unionised establishments was only higher than in non-union establishments (over the period 1980-4), if it was also true that the unionised establishments reported organisational change (Machin and Wadhwani, 1989) fits the picture of employers bargaining for increased productivity and shedding labour as a result.

Far from the slower employment growth in unionised plants being a consequence of union restrictions on working methods during the period 1980-84, as the 1988 White Paper suggests, it was probably a consequence of the fact that such restrictions were actually being bargained away. Whether or not unionised plants experience differential employment growth in the longer run as a result of their increased competitiveness remains to be seen (cf.Nolan, 1989).

The difference between unionised and non-unionised firms in the extent to which they reported changes in working practices may also help explain the observed failure of the union mark-up to fall. Theoretical models in which unions and firms bargain over both wages and working practices generally predict the contrary, that is that a weakening of unions would lead to the union making concessions with regard to both wages and working practices. But there is WIRS survey evidence that, on balance, workplaces reporting organisational change also experienced above average pay rises. The implication, that the workers remaining in employment might have been partially sharing out the savings from lost jobs, would fit with other evidence on innovation and investment.

A WIRS-based survey of technological innovation over the three years up to 1984 found that `there was very little association in either direction between trade union organisation and the introduction of change', but that where there was, it was positive: 'in other words, places where trade unions were recognised were more likely to introduce technical and other forms of change than places where unions were not recognised. Similarly, the higher the level of trade union membership at workplaces, the more likely there was to have been change' (Daniel, 1987). There is also evidence from company accounts data that unionised firms invested more than non-unionised firms during the period 1980-4. A part of the explanation for the resilience of the union mark-up may thus be that it is associated with a differential rise in the capital-labour ratio over non-union firms. This would fit with the complaint of many union officers in the early 1980s that shop steward organisations were selling jobs and skills in their efforts to keep their factories afloat.

It is one thing to explain the resilience of the union mark-up; it is another to explain the internationally exceptional level of overall British wage inflation illustrated in table 4. A part of the explanation is likely to lie with developments in the country's bargaining structure. We have described the steady movement of private sector pay bargaining away from multi-employer industrywide agreements towards single-employer bargaining. We have referred to the campaign that the government has run against multi-employer bargaining in both private and public sectors, with tax incentives for profit-related pay and employee share ownership. But whatever the advantages of these developments from the point of view of labour productivity, the increased fragmentation of the bargaining structure has a major short-coming. There is considerable international evidence to suggest that many countries with substantial unionisation avoid unacceptably high levels of inflation and/or unemployment by some degree of centralised co-ordination of bargaining (Bruno and Sachs, 1985; Brown, 1985; Calmfors and Driffill, 1988). Has the increased decentralisation of British pay fixing acted against policy efforts to restrain wage bargaining?

Decentralisation can be expected to affect the elasticity of demand for labour. To the extent to which industries consist of firms producing the same product, a move to increased decentralisation is likely to raise the price elasticity of demand for the product facing the firm and, consequently, also the wage elasticity of demand for labour, thereby reducing, not increasing, wage pressure. If, however, industries contain firms that are vertically disintegrated, that is involved in different stages of the production of the product, then a move towards single-employer bargaining may reduce the wage elasticity of demand for labour by reducing the proportion of labour costs in total costs at the level of specific firms and so increase, wage pressure.

Furthermore, the move towards decentralisation may increase wage pressure because it increases the degree of insularity of `insiders'. We have described how developments in collective bargaining in the 1980s have combined to increase the isolation of workforces within their enterprises. When bargaining over wages, existing insiders may acquiesce in job losses through natural wastage and voluntary redundancy. But when bargaining is at the industry level employees who leave one firm do not necessarily leave the bargaining unit but may have an interest in joining other firms within the industry (cf. Nickell and Wadhwani, 1989). In organisational terms, union officials bargaining at the industry level have a more distinct interest in keeping their constituents in employment than the shop stewards who usually take the lead in single-employer bargaining.

Much of the pressure to decentralise pay bargaining in the 1980s has arisen from the exceptionally high relative wage levels in the South-East. Between 1979 and 1989 average male earnings in the South-East rose from 10 per cent to 23 per cent above the national average, a magnitude without precedent this century in the country's regional pay structure. This has fostered the government's view that excessive inter-linking of wages throughout the economy has been a vehicle of inflation. But, looked at more closely, the picture is more complex. If we set aside the South-East, average earnings in other regions have continued to converge, not diverge, during the 1980s despite all official efforts to undermine national pay-fixing arrangements such as the Fair Wages Resolution, the comparability claim role of the CAC, wages councils, and multi-employer agreements. The explanation for this lies in part in the way in which geographically dispersed enterprises choose to decentralise their pay-fixing arrangements. Rather than establish different bargaining units for different parts of the country they tend, as was mentioned earlier, to base their bargaining units upon their product-based divisional structures. Decentralisation within the public sector has tended to follow the same pattern. In brief, there appear to be strong reasons for firms' internal bargaining structures to reflect less where employees work than what they work at (Brown, 1989).

Our explanation of the statistical findings fits with our description of the developments in collective bargaining. The increased isolation of `insiders' through single-employer bargaining and associated developments may have facilitated improvements in labour productivity. But these have been achieved at the expense of continued high unemployment, and of a national bargaining structure whose fragmentation gives rise to continued vulnerability to internationally uncompetitive levels of wage inflation.

The contribution of legislative change

This discussion of institutional and economic change in the British labour market in the 1980s has left open the question of the extent to which it was influenced by the `step by step' changing of industrial relations legislation. We shall consider first the question of whether action to weaken trade unions might be expected to have substantial consequences for employment.

British labour law had remained relatively static for most of the century until the brief episode of the largely unused 1971 Industrial Relations Act. The return to the status quo ante of the Trade Union and Labour Relations Act 1974 was followed by the Employment Protection Act 1975 which provided a number of measures broadly supportive of trade union and employee rights. Unsympathetic judicial treatment reduced the effect of these pro-union measures which, in any case, were generally not widely used. But the fact remains that the change in government in 1979 brought perhaps the sharpest reversal in legislative intention of the century with regard to trade unions.

It is consequently notable that the union mark-up hardly changed between 1975 and 1980. Stewart (1983) estimated the mark-up to be 8 per cent in 1975 which was insignificantly different from his estimate of 7 per cent for 1980. There is also evidence suggesting that there was no noticeable difference in either productivity growth or employment growth between unionised and non-unionised firms in the 1970s (Nickell et al, 1989; Machin and Wadhwani, 1989). While it is always possible that there were off-setting macroeconomic forces at work in the 1970s, it is notable that the union mark-up does not appear to have been affected by legislation that was either sympathetic to unions or hostile to them. Further, if it were the present government's legislation that helps explain faster productivity growth in unionised workforces in the 1980s, one then has no explanation why it was that unionised workforces did not experience slower productivity growth than the non-unionised in the 1970s.

Table : Table 5. The proportion of firms in the CBI pay
 databank citing threat of industrial action as an
 important factor in determining the wage
Year Percentage
1979/80 3.1
1980/81 3.2
1981/82 2.7
1982/83 1.8
1983/84 3.2
1984/85 2.3
1985/86 1.9
1986/87 3.6
1987/88 2.8

One conclusion that might be drawn from this is that there has been a tendency to exaggerate the impact of trade unions on both wages and employment. Space prevents a substantial discussion of this complex issue, but it is notable that CBI surveys through the 1980s suggest that the threat of industrial action has generally not been regarded by employers as an important factor influencing wage settlements. In no year between 1979 and 1988 did more than 3.6 per cent of establishments cite a threat of action as a reason for conceding a particular wage increase. The steadiness of these data from year to year is consistent with the stability of the union mark-up over the period.

To place the employment effects of trade unions in perspective let us assume that the union mark-up is (as the studies cited suggest) about 8 per cent. Its ultimate effect on overall unemployment in the economy depends, according to conventional microeconomic theory, upon the extent to which workers displaced from the unionised sector into lower-paid non-union jobs do not find it worth their while to work. The relative attractiveness of work depends on, among other things, the `replacement ratio', that is, the ratio of income out of work (primarily unemployment benefits) to income in work. Provided that the elasticity of labour supply with respect to the replacement ratio is small - evidence suggests it to be about 0.3 per cent (Narendranathan, Nickell and Stern, 1985) - then the effect on unemployment of a union mark-up will be small. For example, if the elasticity of labour supply is 1/2, and an exogenous rise in union wages of 5 per cent leads to a fall in competitive wages of 2 1/2 per cent (generating a mark-up of 7 1/2 per cent) then the unemployment rate would only rise by 0.6 per cent. Even on these assumptions, which probably exaggerate the effect of a union mark-up on unemployment, the effect would be slight.

Undue emphasis upon the role of trade unions tends to neglect the vital role played by employers in managing labour. Perhaps the crucial question is not whether the weakening of unions by new laws permitted hitherto constrained employers to manage their labour better, but whether the new laws and the combative example set by the government provided employers with the impetus to initiate major changes. Our account has made clear that the underlying shift towards single employer bargaining predates the 1980s. The defeat of unions in public confrontations may have emboldened some employers to move faster than they would have considered prudent in the 1970s. But it is notable that they have generally done so in a relatively consultative way through the established channels of collective bargaining.

Whatever the demonstrative effect of the government's public stance, of which the legislation was a part, it is undeniable that the most dramatic changes in working practices have been achieved in industries with product market crises. Examples are provided by independent television, air passenger transport, national newspaper, and Channel ferries. It has been competitive pressure that has forced employers to act and the stance they have adopted towards their trade unions - whether collaborative or combative - has been of secondary importance. Supporting this is econometric evidence which shows that organisational change was more likely in plants which were both unionised and experienced a reduction in their product market power (Machin and Wadhwani, 1989). This suggests that the driving force behind changes in industrial relations practices in the 1980s was not government policies aimed at increasing competition in the labour market and at weakening trade unions. The driving force has been increased product market competition, precipitated by a variety of circumstance, which has obliged employers to put their own houses in order. This has, among other things, required them to manage their own labour more effectively.


The legislators' primary intentions have been to curb the power of trade unions and to increase their responsiveness to their members. This was expected to have beneficial economic consequences in terms of pay restraint, employment and productivity. As the volume of legislation has been steadily built up over a ten year period the government has also set a clear and combative example as an employer in its own right. We now summarise our evaluation of the consequences.

British strike activity has diminished substantially from the levels of the 1970s, but since this is in line with a world-wide decline in strikes it would be wrong to link it too closely to the legislation. The use of strikes has, however, been made more costly for unions. The increased opportunities for employers to use injunctions, and the increased risk for unions of having their assets sequestered, have encouraged them to observe greater procedural caution than in the past. This is reducing the scope for strike action, further reduced by the denial of secondary action. These consequences have been partly offset by the relatively costless use of strike ballots for unions. Ballots may have improved the bargaining information available to both sides and thus reduced the likelihood of strikes occurring, but they have probably made strikes harder to settle once they have started.

The balloting requirements have been important among the many ways in which the new laws are forcing unions to tighten up their internal organisation and discipline. But there is no reason to suppose that their behaviour will consequently become more responsive to what might be seen as the national economic interest. The views which are reflected in union leaderships are more than ever likely to be those of their better organised factions, and the increased use of strike ballots will probably make collective behaviour more volatile in response to changes in economic circumstances than was previously the case.

Britain has not been alone in seeing a substantial decline in union membership in the 1980s, and it is unclear how much, if any, of this is the consequence of legal change. Employers have generally continued to engage in collective bargaining, but its character has altered in the 1980s. Again, it is hard to attribute much of this to legislation. The main factor has been the continued development of single-employer bargaining, along with the various elements contributing to the isolation of employed `insiders' from the labour market and labour movement outside the firm.

The legislation was expected to assist employment both because it would facilitate more efficient working practices and because the union/non-union wage differential would be eroded. The evidence suggests that, in the short run, the effect of changed working practices was to reduce employment in unionised firms although in the longer run employment might recover. The evidence suggests that the union mark-up has remained relatively stable. Part of the explanation may be that unionised firms have achieved more change than non-unionised firms in the 1980s, and employers have seen fit to pay extra for this change. In addition, wage bargaining has become more decentralised, which has increased the isolation of `insiders'. The wage restraint that the government expected to come from the decentralisation of bargaining may have been thwarted by the tendency of firms to decentralise pay according to the boundaries of their product markets rather than of their labour markets.

The application of realistic estimates to the relevant empirical magnitudes suggests that, even on its own theoretical assumptions, the government's industrial relations legislation could not be expected to have a substantial effect upon unemployment levels. Nor is it plausible that employers were stimulated to manage their labour better as a result of the altered legal circumstances of trade unions. Far more likely is that they were given more freedom to do so by high unemployment, And more incentive to do so by product market crisis. The impact of the legislation on British trade unions is undeniable; its impact upon Britain's economic performance is far less obvious.


(1) Faculty of Economics and Politics, University of Cambridge. (2) Centre for Labour Economics, London School of Economics.


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Title Annotation:for Britain
Author:Brown, William; Wadhwani, Sushil
Publication:National Institute Economic Review
Date:Feb 1, 1990
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