Trade union action has been a feature of the British labour market over the past few years, as discussed in this first and second blog. With the government’s austerity measures still in place and ongoing issues over pension provision, there are many explosive issues that will undoubtedly be discussed at this year’s TUC Conference in Brighton.
We have already heard from numerous unions that strike action over the coming year is ‘inevitable’. With rising prices, static or even falling wages, reduced pension provision and increased contributions, the cost of living has become increasingly unaffordable for many members of the trade unions. Dave Prentis, the General Secretary of Unison said:
‘I think people have been pushed into a corner. They are moving into poverty … The threat is that if we can’t move forward in negotiations to find a way through it then we will move to industrial action. There is no doubt whatsoever that we can create disputes throughout next year.’
Although few would argue against the notion that the government’s finances are in a dire state and spending cuts together with tax rises are needed, the controversy seems to lie in exactly when these cuts should take place and how severe they should be. For many, cutting government spending and raising taxes whilst the economy is still in recession is asking for trouble. For others, it’s the right thing to do and everyone should play a part in helping to return government finances to a semblance of balance. The Labour government has traditionally supported trade unions, but even their leadership backed the government’s plan for pay restraint for public sector workers. This, together with the continuing debates over public sector pensions has clearly angered many public sector workers, thus creating this ‘inevitable’ industrial action over the coming year.
Unison and GMB have said that they will be working together in order to try to better pay and conditions for its members, by co-ordinating public-sector strikes around Spring next year. Co-ordinated strikes across a variety of sectors could create havoc for the economy. Not just disruption for the everyday person, but losses for businesses and the economy. A general strike has not taken place since 1926, but it is thought that TUC delegates will be voting on whether or not one should be planned. So, when faced with these inevitable strikes, should the government back down and cut back on austerity or stand up to them and suffer the disruption of a strike, whilst continuing on with bringing its budget back on track? The following articles look at the TUC Congress and the proposed strike action.
Public sector unions plan Spring strikes Guardian, Dan Milmo (9/9/12)
Trade union warns of further strikes Financial Times, Brian Groom (7/9/12)
Trade union officials gather for TUC Congress in Brighton BBC News, John Moylan (9/9/12)
Unite union leader warns of wave of public sector strikes Guardian, Dan Milmo (7/9/12)
Unison and GMB unions planning co-ordinated strikes over pay BBC News, Justin Parkinson (9/9/12)
TUC Conference 2012: a mixture of new and old Channel 4 News (9/9/12)
Government must stand up to these TUC bully tactics Express, Leo McKinstry (9/9/12)
Questions
- What is the purpose of a trade union?
- What is the difference between individual and collective bargaining? Why is collective bargaining likely to be more successful in achieving certain aims?
- If there is co-ordinated strike action, what are the likely costs for (a) the workers on strike (b) the non-striking workers (c) businesses and (d) the economy?
- What are the main issues being debated between unions and the government?
- Explain the economic reasoning behind Dave Prentis’ statement that people are being moved into poverty.
- Do you agree with strike action? Do you think it has any effect?
- When do you think is the right time to implement austerity measures? Has the government got it right? As always, make sure you explain your answer!!
The National Minimum Wage is a rate applied to most workers in the UK and is their minimum hourly entitlement. For adults over the age of 21, it has recently been increased to £6.08 – 15p rise. Rises have also been seen for 18-20 year olds, 16 and 17 year olds and apprentices. Undoubtedly this is good news for workers receiving the minimum wage, but what does it mean for firms and national unemployment data?
Market wages are determined by the interaction of the demand and supply of labour and when they are in equilibrium, the only unemployment in the economy will be equilibrium unemployment, namely frictional or structural. However, when the wage rate is forced above the equilibrium wage rate, disequilibrium unemployment may develop. At a wage above the equilibrium the supply of labour will exceed the demand for labour and the excess is unemployment. Furthermore, firms are already facing difficult times with the economic climate: sales remain relatively low, but costs are still high. By increasing the national minimum wage, firms will face higher labour costs and this may discourage them from taking on new workers, but may also force them into laying off existing workers.
It is hoped that the size of the increases will help low paid workers, as costs of living continue to rise, but won’t cause firms to reduce their labour force. This is one reason, in particular, why the increase in the minimum wage for young workers is smaller than that for adults. Youth unemployment is relatively high and so it is essential that firms keep these workers on, despite their increased costs.
Although the TUC has welcomed the increases in the National Minimum Wage, saying they will benefit some 900,000 workers, the General Secretary of Unison has said that it isn’t high enough.
“The rise to £6.08 is a welcome cushion, but with the price of everyday essentials such as food, gas and electricity going up massively, it won’t lift enough working people out of the poverty trap.”
The following articles consider this issue.
Minimum wage rises by 15p to £6.08 an hour Telegraph (3/10/11)
Minimum wage up by 15p to £6.08 BBC News (1/10/11)
150,000 social care workers paid below legal minimum wage, research reveals Guardian, Shiv Malik (3/10/11)
Unions want £8 an hour minimum wage Press Association (1/10/11)
Hunderds of thousands of women to benefit as minimum wage hits the £6-an-hour mark for the first time Mail Online, Emma Reynolds (29/9/11)
Unions demand minimum wage of £8 an hour Telegraph (30/9/11)
Changes will benefit workers Sky News (2/10/11)
Questions
- Is the minimum wage an example of a price ceiling or a price floor?
- If the National Minimum Wage was imposed below the market equilibrium, what would be the effect?
- If imposed above the market wage rate, the National Minimum Wage may create unemployment. On which factors does the extent of unemployment depend?
- Why is it expected that female workers are likely to be the main ones to benefit? What does this say about gender inequality?
- Why does the General Secretary of Unison not believe the higher National Minimum Wage will help people out of the poverty trap?
- How will the National Minimum Wage affect a firm’s costs of production. Illustrate the likely impact on a diagram.
No, bonfire night hasn’t been moved, but the 30th November could certainly be a day to remember. This day has been ‘selected’ by Unions for a nationwide day of action in response to government plans to increase workers’ pension contribution. The action would undoubtedly lead to massive disruption to public services across the UK and if an agreement is not reached with Ministers, we are likely to see further days of industrial action. In the words of the TUC boss, Brendan Barber, if no agreement is forthcoming, there will be ‘the biggest trade union mobilisation for a generation’.
The so-called pensions crisis has been an ongoing saga with seemingly no end in sight. As the UK population gets older, the strain on the state pension will continue to grow. The dependency ratio has increased – there are more and more pensioners being supported by fewer and fewer adults of working age. If the level of benefits is to be maintained, workers must either work for longer or make larger contributions to make up the deficit.
Plans are already in motion to increase the retirement age, but this in itself will not be sufficient. If pension contributions do increase, workers will undoubtedly find themselves worse off – a larger proportion of their gross income will be taken and hence net incomes will be lower. With less disposable income, consumer expenditure will fall, and given that consumption is the largest component of aggregate demand, the economy will take a hit. This is even more of a concern given the pay freezes we have already seen, together with rising inflation. People’s purses will get squeezed more and more, So, while raising pension contributions may help plug the pensions deficit, it could spell trouble for the economic prospects of the UK economy.
In addition to the potential longer term effects, there will also be a significant short term effect, namely, the loss of output on the day of the strike action. If workers are absent, the company will produce less than their potential and in some cases, the lost output can never be regained. If the postal workers go on strike, businesses may find packages go undelivered, customers experience delays, bills are not paid and so on. In all, strike action on the scale that is planned will have an impact on everyone, so it is in the interests of the economy for some sort of agreement to be reached. As Mr. Barber said:
‘If there’s no progress, then potentially we will see very widespread industrial action across the public services’
The following articles look at this conflict.
Unions plan ‘day of action’ over pensions Financial Times, Brian Groom (14/9/11)
TUC: ‘Strikes will be the biggest for a generation’ says Brendan Barber Telegraph (14/9/11)
Unions call for ‘national day of action’ over pensions BBC News (14/9/11)
Unions call collective day of strike action in November Guardian, Helene Mulholland and Dan Milmo (14/9/11)
Ed Miliband to warn trade unions that they must modernise Independent, Andrew Grice (13/9/11)
Trade unions plan day of action over pensions on Nov 30 Associated Press (14/9/11)
Are the trade unions about to save Britain? Telegraph, Mary Riddell (12/9/11)
Pension row unions in day of action The Press Association (14/9/11)
Unions set date for pensions strike as ‘unprecedented ballot begins’ Telegraph, Christopher Hope (14/9/11)
TUC to attack ministers over public sector pensions BBC News(14/9.11)
Secret plan for union strikes to cripple the country Telegraph, Christopher Hope(14/9/11)
Questions
- What are the main costs of strike action to (a) the individual going on strike (b) the firms which lose their workers (c) small businesses (d) the economy?
- What is meant by the dependency ratio? What action could be taken to reduce it? For each type of action, think about the costs and benefits.
- If pension contributions do increase, explain how workers will be affected. How will this affect each of the components of aggregate demand?
- Based on your answer to the above questions, what is likely to be the impact on the government’s macroeconomic objectives?
- What other action, besides striking, could unions take? Is it likely to be as effective? Do you think strikes are a good thing?
- Illustrate on a diagram the effect of a trade union entering an industry. How does it normally affect equilibrium wages and employment?
You may ask how on earth bins are related to the post. The simple answer is that these are two things that may not be collected. They say that one wedding brings on another, but it looks like that this also applies to strikes. The Winter of Discontent in 1978-9 saw widespread industrial action, where the country almost came to a stop. Is this really where we are now?
The postal strike has been widely publicised, but it’s not just your post that may not arrive. Bus drivers have been striking against First Bus in Greater Manchester and various other places following pay freezes. British Airways is to face the possibility of strike action over new contracts, working practices and pay freezes after talks broke down. The Spanish company Iberia had to cancel over 400 flights over two days due to protests, and in Leeds, rubbish hadn’t been collected for eight weeks.
So, what’s causing all of this discontent? Are we going to see more and more workers protesting over contracts, hours of work and notably pay?
One key thing about strikes is that they affect everyone, whether it’s walking past piles of bin bags; not receiving birthday cards; getting to work late; cancelling holidays or receiving fines for late payment, and even for not submitting your tax returns. These are all problems that people have been facing, not to mention the loss of income some businesses have seen, especially resulting from the postal strike. With the government looking to reduce public-sector debt by increasing taxes or spending cuts, including public-sector pay freezes and controls on banking bonuses, we could be in for another winter of discontent with further disruptions to come.
Articles
Questions
- What is the purpose of a strike and how effective are they likely to be? What are the costs?
- One of the reasons for strike action is pay freezes. What happens in an individual labour market when pay is frozen? What happens to the demand and supply of labour? Illustrate your answer with a diagram.
- Some news articles have referred to ‘picket lines’ forming. What are they?
- What is the difference between collective bargaining and individual bargaining? Which is more effective?
- Illustrate on a diagram the effect of a trade union entering an industry. How does it affect equilibrium wages and equilibrium employment? Is there any difference if the trade union faces a monopsonist employer of labour?
- Do you think the strike action is right? Why or why not? What are the things you have considered?
- Discuss whether we are heading towarads another ‘winter of discontent?’ Can it be stopped?