Relative Wages and Trade Unions in the United Kingdom

Abstract

British economists in the last decade or so have concentrated their efforts on the part played by unions in wage inflation. This paper is addressed to a somewhat different question: by how much have trade unions in Britain raised the pay of unionized manual workers relative to the pay of non-unionized manual workers? The derived estimates pertain not to a single occupation or industry, but are an economy-wide average and so, no doubt, conceal some important differences within particular sectors. Nevertheless an examination of the British experience affords a valuable opportunity to consider whether the institutional setting of collective bargaining acts as a neutral factor in determining the influence of unions on relative wages. Many observers have drawn attention to the existence in the high employment postwar British economy of two systems of industrial relations; in its Report, the Royal Commission on Trade Unions and Employers' Associations (1968) presents a cogent, if rather strong, summary description of the characterization of the two systems. On the one hand, there are those industries where average hourly earnings (net of overtime pay) do not differ substantially from the wage rates negotiated between representatives of the employers and of the unions at the industry level. On the other hand, there are those industries (the large engineering sector being the standard example) in which actual hourly earnings are considerably in excess of the industry-wide wage rate agreements and it is in these industries that, as far as the pay of manual workers is concerned, bargaining at the plant or firm level takes on paramount importance. These differences in the industrial relations systems may imply corresponding differences in the opportunities available to unions to secure an hourly earnings differential for their members vis-a-vis non-union workers. To investigate this possibility, a framework for measuring the relative wage effect of trade unions is presented in Section I. There follows a brief description of the British industrial relations systems. Section III contains estimates of the effect of unions on relative wages using industry crosssection data. A summary of these results is offered in the concluding section.