Although long past its heyday, collective bargaining remains a potent symbol for trade unions of a fading socialist ethic and an expression of their fundamental rights. It is encapsulated in the ILO Declaration on Fundamental Principles and Rights at Work and in Article 28 of the EU Charter of Fundamental Rights it states that “Workers and employers, or their respective organisations, have, in accordance with Community law and national laws and practices, the right to negotiate and conclude collective agreements at the appropriate levels..”
Yet what is collective bargaining and why does it really exist? Why do employers freely enter into such a process when it would appear to only strengthen the hand of a power base that undermines their own workplace authority? For some employers it is one way to “keep the peace” amongst otherwise alienated employees that could, if they wished, hold the company to ransom. Of course, withdrawing labour is one thing that can hardly be challenged in a democratic society, but using the threat of a strike should be – like any threat to do damage, an unlawful act. Yet curiously classifying an act as one concerned with ‘labour relations” sets it sometimes outside the law.
This is curiously the case with collective bargaining itself. If two rival firms conspire to fix the price of their goods they would fall foul of anti-trust/competition laws and could face severe penalties. But if two rivals conspire to fix the price of their labour inputs (which often make up over 50% of their operating costs) then it is perfectly legal. In fact governments in France, the Netherlands and South Africa even reinforce the wage cartel by making sectoral collective agreements apply to companies in the sector that are not party to it. In the USA the National Labour Relations Act 1935 even exempts unions from the anti-trust law so that they can fix the price of labour in this way. This exemption is, of course, not just to cover their role in collective bargaining, but also to further their aims of creating labour market monopolies – by excluding non-union labour.
Wage cartels are now so much part of the labour relations scene few people regard sectoral agreements as morally or economically questionable. Yet they come with a cost. Not only do they raise wages higher than they would otherwise be, but they inflict disadvantages onto smaller and poor performing enterprises. They also encourage particularly new employers to search for investments that will replace labour – thus destroying potential jobs. Because their essential objective is to drive out competitors by forcing up the price of labour they also create the unusual phenomenon (usually denied) of employers talking up the value of individual groups to the pleasure and astonishment of union negotiators across the table.