Collective Bargaining: Analysis of Theoretical Background

To fully address the above question, it is crucial to establish an understanding of the regulatory processes within the employment and labour market. To accomplish this, a systematic comparison of industrial relations between 3 countries can help to realize that understanding, as these countries possess many divergent characteristics which determine their practices and therefore, outcomes. These comparisons can be used as an explanatory device, coupled with the application of theoretical frameworks to develop an understanding of the role and status of trade unions within the system of industrial relations.

As described by Webb S & Webb B (1894), a trade union is a ‘continuous association of wage-earners for the purpose of maintaining and improving the conditions of their working lives which require them to be representative of the interests of its members and achieve progress on their behalf. The intensity of that representation is dependent on a number of contextual factors that affect the employment relationship between trade unions and organizations. The main instrument used by trade unions when communicating with employers is defined as ‘collective bargaining, which is the decision-making process which represents the two parties’ interests with the intent of applying an agreed set of rules to govern the utilitarian and bureaucratic terms of the employment relationship. However, trade unionism does not have a universal format that is applicable to every state; organizations are often bureaucratically complicated by the governments of the countries in which they operate, this rule of governance is what gives unions an identity. Hyman (2001) states that these identities are viewed as inherited traditions that shape current choices, pursued agendas, and the type of power resources that are cultivated and applied.

Drawing from theories regarding convergence and divergence can elucidate the challenges faced by trade unions, particularly when discussing comparative industrial relations. The convergence theory focuses on economic forces which tend to override diversity both culturally and institutionally, with ‘best practice’ production and employment systems defining industrial relations (Kerr, et al., 1960). Conversely, there are example nations such as the US and UK which hold institutional similarities that have contrasting economic performance that debunks the convergence theory. Divergence theory deliberates the enduring of cultural differences and societal structures, incorporating a societal effects framework that focuses on ‘nationally characteristic solutions’, the interactions between institutions, and their roles in relation to one another (Maurice, et al., 1980). These theories can be applied in an effective manner when discussing cultural and institutional differences at a national level; this paper will explore examples within the United Kingdom, Germany, and Hungary to address themes in relation to trade unionism.

When analyzing the role of trade unions among different countries, initially defining their theoretical approach to industrial relations provides a comprehensive indication to the state’s relationship with the unions. The United Kingdom historically a corporatist state now adopts a pluralist approach whereby there is conflict amongst employers and works (Budd, et al., 2004), however, it is contained by an appropriate regulatory system. Operating in a liberal market economy, union representation and bargaining power is fairly weak, with a lack of state support meaning individual protection is limited. This voluntarist (Kelly & Frege, 2013) identity bestowed on the trade unions arose out of various union immunity legislation that became a tradition in British industrial relations. Kelly (2013) describes features of Britain’s voluntarist traditions to include non-legally binding collective agreements and a voluntary framework of state-provided dispute resolution facilities, meaning the State possessed no power to arbitrate union disputes.

When comparing this model to the German industrial relations system, it is of stark contrast. The post-wartime Collective Bargaining Act of 1949 established the ‘direct and enforceable power of collective agreement’ (Behrens, 2013) meant that the results of any collective bargaining agreement become legally binding until any new agreement is reached. This bargaining occurs at industry level; however, it is difficult to pinpoint Germany’s exact theoretical approach. With aspects of pluralism and corporatism, there are complexities in the relationship between the state and the employers than cannot be inferred by conventional theories of interest representation. The state is able to lend trade unions organizational support through rules of ‘political influence’ that are favourable with them (Streeck, 1983). Streeck goes onto mention that business associations also become effectively involved in the formulation and implementation of public policy through this approach, preferring autonomy from the state and influence. Trade associations in Germany represents industry to the public and the state (Behrens, 2013) and may fend off legislative state interference with association members (Streeck, 1983) which could negatively affect sectoral level relations.

A more radical theoretical approach is adopted by Hungary; with a history of political and financial volatility such as the collapse of the Soviet Union and it’s 2006 financial crisis, the Central European nation has been governed by Viktor Orban’s authoritarian, neo-liberal approach since 2010 (Stanojevic, 2014). The current industrial relations system does not prove fruitful for trade union membership with only 12% density (European Trade Union Institute, 2016) compared to the United Kingdom and Germany which are 21% and 26% respectively, this has resulted in the majority of bargaining occurring at an organizational level and the state operating unilaterally. An example of this is the wage bargaining structure reform in 2010, whereby a tripartite negotiation council was replaced by a multi-partite system which resulted in the minimum wage being set by the government. The importance of trade unions in Hungary diminished further in 2012 with the introduction of the labour code legislation, which placed restrictions on strikes and union representation, additionally decentralizing the collective bargaining structure (Stanojevic, 2014). It is evident that as a labour market institution, trade unions within Germany can provide institutional acting regulation at a national level, as proven through German trade union involvement in policy-making. The United Kingdom is positionally unclear with no truly centrally-regulated industrial relations system, and with Brexit jeopardizing the influence of EU membership on domestic employment legislation (Coulter & Hancké, 2016), defining a clear union identity is proving to be problematic.

Using Hyman’s eternal triangle, you can identify trade unionism in the United Kingdom along the Market-Class line. The ‘Market’ annotation describes union interests as a focus on the standardization of terms and conditions of employment, with an emphasis on collective bargaining. Whereas, the ‘Class’ annotation portrays unions as ‘schools of war’ meaning they are used as an instrument to generalize class demands within states possessing anti-capitalist ideologies (Hyman, 2001). The United Kingdom has traits of the ‘Class’ principles, with increasing merger activity; three of the biggest British trade unions are a result of various mergers which highlights the idea of creating a generalized viewpoint from various unions combining. Relating this to the collective bargaining stance, the majority of workplaces are covered in ‘single-table’ bargaining (Kelly & Frege, 2013) where unions all negotiate together, highlighting the ‘Market’ ideologies of the prominence of collective bargaining and ensuring the standardization of the terms of employment (Hyman, 2001).

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German trade unionism adopts a similar approach, employing aspects of the ‘Market’ orientation with the introduction of the 1949 Collective Bargaining Act to establish bargaining at industry and company level. However, Germany differs to the United Kingdom and interprets unions as social partners as well; focusing on the importance of a social dialogue between labour and capital and the emphasis on integration through institutional mechanisms (Hyman, 2001). This is made apparent through the rebuilding of trade unionism in Germany after 1945, whereby the new program had the objective of reorganizing the economy and society based on the concept of ‘social ownership’. (Behrens, 2013). This was comparable to the Hungarian industrial relations model, that focused on creating a social dialogue within its public sector. Nevertheless, this system was not based on collective bargaining, and state decree was much more prominent (European Trade Union Institute, 2016), which was conflicting of relations in Germany where state intervention was minimal thanks to the autonomist approach of its bargaining actors when negotiating the conditions of employment.

The effect of globalization on the labour market, in particular the presence of multinational corporations emerging as powerful political actors allows us to explore regulatory relationships on an international level. Globally, these is no central regulator or national laws where multinational operation is weak, poorly enforced or simply non-existent (Scherer & Palazzo, 2008) which draws these firms into roles with greater political influence (Ruggie, 2017) carrying out legislation traditionally associated with the state. Drawing on Piazza’s (2005) work, globalization fuels international competition which in turn, can promote wage restraints. Hungary is an example of a country that has bared the negative effectives of multinational competition and globalization in general. German organizations setup their Central European subsidiaries in Hungary due to low labour costs (Meardi, et al., 2009) and its ability to operate in an isomorphic manner with Germany as a result of similarities in industrial relations models. Firms from the United States opted to invest in business subsidiaries in Hungary as well, allowing German firms to operate under the American model for employment practice, meaning the codetermination style adopted in Germany was not meaningfully implemented in Hungary (Meardi, et al., 2009). This influence of macroeconomic forces has an effect on trade unions and workers (Piazza, 2005), decentralizing the wage bargaining structure and negatively manipulating union density and creating a labour quiescence. German employers operate with extremely competitive strategies, relying on high quality and efficient production which is evidence particularly in the automotive industry. This strategic approach means that the firms are immensely reliant on stable relations at company level, also increasing their vulnerability to ‘overt industrial strife’ (Thelen, 2000; Thelen & Kume, 1999). This draws from Hall and Soskice’s (2001) ‘institutional complementarities’ concept which explores the idea that two institutions can complement each other if the presence of one increases the returns from the other. However, this is a notion that is highly critiqued with Frege and Kelly (2013) asserting that it ‘understates the nature of conflict and power within capitalist social relations and attacks welfare and employment rights.

Conversely, the United Kingdom has an industrial relations system that is very liberal, meaning societal trends and working life remain relatively consistent. Therefore, globalization in this case is prolific; there is growth in foreign direct investment and a multinational company presence containing isomorphic employment practices. Furthermore, like Germany and Hungary, globalization is standardized by the fact all three nations have membership to the European Union meaning there is influence on labour practices and standards. Although, the aforementioned impact of Brexit on employment and industrial relations is still unclear.

Looking towards the future of systematic European industrial relations, the weakening of collective actors appears to be the defining threat, along with the positioning of bargaining structures. In the German model, trade union density has declined from 30-40% in the 1970s to 21% in recent times (Eurofound, 2015). This may be a result of the increasing autonomism amongst unions that are attempting to establish an identity with increasing competition from confederal unions. The employers themselves are gradually moving away from employers’ associations and new firms are not joining these associations at all. Financial capitalism has been the driving force of German industrial relations in recent years thanks to the liberalization of financial markets and the changing or corporate strategy and state regulation (Brinkmann & Nachtwey, 2013). Increasing shareholder-value orientation of German multinationals and the privatization and liberalization of industries owned by the state created a tendency toward bargaining decentralization. This collective bargaining system and the decline of overall coverage resulted in an increase in wage dispersion, particularly in the lower third of society (Lehndorff, 2009) has resulted in a growing low-wage economy with ‘precarious’ employment affairs (Brinkmann & Nachtwey, 2013) and rebuilding those relations is Germany’s biggest challenge; the introduction of a uniform national minimum wage in 2015 infers the intent from the state to rectify this.

In the current context of Hungary, trade union density is very low at 12% and membership has halved over the last 20 years (European Trade Union Institute, 2016). The union movement is fragmented into 4 separate federations which although provides a plethora of options for workers, the lack of standardization in relations is unsettling for workers in regard to employment security. A further challenge is that political affiliations are a dominant actor within industrial relations. Socialist parties are weak, with the conservative FIDESZ government operating under an overwhelming majority; there are vast constraints on the independence of the judiciary (Stanojevic, 2014) meaning it is legislation reform and labour market regulation is problematic. The inevitable result of a system where regulation is needed but the state possesses the overruling power is affirmative action. However, the government’s abolishment of the tripartite negotiating body and its statutory rights make it practically impossible to call a strike legally (Toth, 2015) leaving workers in a motionless position.

Another challenge unions will encounter incorporates political uncertainty which is mainly ostensible in the case of the United Kingdom, but also within Hungary. Hungary’s criticism of the European Union, hailing the European model as ‘doomed to decline (Toth, 2015) separates the country from the rest of the continent and potentially weakening its negotiating position within the European union. Political uncertainty within the UK ha also affected trade unions with much of the discussion concerning employment rights, industrial policy and corporate governance reform being marginalized by the focus on exiting the European Union. UK unions are already struggling to establish a clear identity and Brexit will place restrictions on their attempts to urge for legal reforms as the state will be largely unreceptive (Sippitt, 2016). The role of unions in the will therefore be reduced to the simple representation of members in the workplaces of the UK, facing potential periods of cut backs in the initial economic uncertainty of Brexit.

In conclusion, this paper addresses the role and status taken up by trade unions within the industrial relations systems of three nations that contain variables within the macro and micro environment which affect the identity and actions of said unions. In general, it would appear that aspects from pluralist and corporatist approaches to industrial relations result in the most positive outcomes. Hungary’s radical, authoritarian government and state-controlled legislation places major constrictions on the role of unions and this fragmented system creates vulnerability in terms of regulation. The Hungarian industrial relations system does promote multinational corporation connections, with many western industries building their subsidiaries in central European countries with a similar system to Hungary. Due to the financial influence of multinational corporations, the structure industrial relations within the ‘host’ nation is altered to accommodate that of the ‘home nation’ meaning new reforms to legislation can transpire and benefit the industry workers of that country. The positioning of a nations bargaining structure diminishes the power of trade unions, however, this is not a uniform concept; the United Kingdom and Germany have both seen a dramatic decentralization of collective bargaining in recent decades, however, the degree and timing of this process has significantly differed between the two countries and in turn, affected the level of power retained in the respective unions. Bargaining coverage is almost twice as high in Germany compared to Britain and the German unions have been more successful in maintaining low wage differentials within industries (Wergin-Cheek, 2012). This is a result of external factors such as the political environment, institutional infrastructure, and the economy, all of which vary greatly between Germany and the United Kingdom. So, from this, it is inferred that the institutional context of a nation will affect its implementation of a model of capitalism such as trade unionism. We can attribute the vast decline in trade union membership to the structural alterations many countries have seen in the last few decades; Hungary are a key example of this process hence their reference in this paper. The nation has historically and politically fluctuated to a huge degree over previous decades; for example, the move toward an economic and political liberalization were met with the Soviet invasion, the collapse of the union in the 1990s resulted in a move to a market economy resulting in trade union developments and mass privatization. Additionally, the country has joined the European Union and had a financial crisis, all of this causes volatility in regard to the role and status of trade unions hence the underlying theme of this paper deliberates the ideology that union challenges are comparative to industrial actors and the state frameworks in which they operate.