Thursday, December 25, 2014

Rent attribution culprit to the low French union wage premiums

Profits wake up French union cats. Christina Robinson
It is of no question that unions do push for higher wages, or wage premiums, for union members in unionized firms. If a union can establish a monopoly in labor supply to a particular trade or industry, if they have strong bargaining power or even if the costs of unionization are low, the wage premiums for unionization could be higher. Yet, countries like France still record low wage premiums of about 2 – 3 %. Why is the wage premium associated with French unions so low, and what could it be attributed to?

Most studies believe the average wage premiums or increases in wage rates due to unionization are at the 10 – 20 % gap. Union bargaining power, ability to extract the rents or profits earned by firms due to increased productivity, legal barriers, lobbying for quotas or tariffs, and legal costs of unionization are some factors that impact on the level of union wage premiums. But union power has been attributed to its ability to influence labor demand and supply. With the advent of service-oriented economies in France and many developed economies, reduced dependence on manufacturing industries, the “old economy”, has further reduced union power.

Wage premiums still exists but is low. French unions are reputed to be strong but decentralized. French firms are known to operate an open shop. Non-union workers do not bind themselves to wages bargained by unions. Union density is low; at about 8%. The national minimum wage in France is high and binding, therefore, it creates no extra room for unions to exercise bargaining power. Therefore, the possibility that unions can organize and negotiate high wage premiums for union workers is remote. So, with weak union powers, what can the wage premium be attributed to? On what does unions in French firms base their bargaining power?

Thomas Breda of the Paris School of Economics suggests the French union wage premiums are associated with rent extraction through bargaining for higher wages in firms that are productive and profitable. As the rents available to firms increases, unions push for higher wages. High productivity and increasing profits is the key to the bargaining power of French unions and not competitive stimulus like labor demand and supply and quotas or tariffs as can be obtained in other countries.

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