3.3.3.2 Bargaining Power

The labour market differs from other markets:

  • The supply of labour cannot be stored; if not used, it is wasted; and the employee cannot afford to wait long for work.
  • A wage might be a matter of survival for the employee.
  • Those seeking work are not only competing with each other. Employers can introduce automation if labour costs become too high, or they can move the work elsewhere.
  • The bargaining power of individuals is partly dependent upon their willingness to move, which may be inhibited by family considerations. One partner in a family may be particularly reluctant to move if the other partner earns more or would have difficulty finding an equivalent job in the proposed location.
  • A wage which is acceptable to a member of a family with several wage-earners might be insufficient for a sole wage-earner with several mouths to feed.

The last point can be addressed by providing tax-funded income supplements for those in need (3.2.3.3), but all these factors work to the disadvantage of ordinary wage-earners in a negotiation with an employer.

Some employees, particularly those with higher skill levels, tend to have strong bargaining positions as individuals.  Chief executive compensation in America has increased tenfold, relative to that of average workers, between the 1960s and the early 21st century according to Ha-Joon Chang in 23 Things They Don’t Tell You About Capitalism (“Thing 14”).  The high pay of British bankers, particularly their bonuses, became controversial in 2013; a BBC article, Banking bonuses: How much do they matter? canvassed opinions on the subject and found some scepticism about whether they needed to be so high – but several suggestions that top bankers would move to America if their bonuses were capped.

Chief executives and bankers, though, are an exception; other workers fare less well in a free globalised labour market, as discussed later (3.5.4.4).  Trade unions can provide a mechanism for ordinary workers to increase their power by collective bargaining with employers, though union strength has declined since the middle of the 20th century:

  • Some unions failed to recognise reality, with resulting job losses. The Liverpool docks provide a dramatic example.  The port faced a natural decline, with changes in trading patterns and competition from air transport, but the decline was accelerated by a corrosive confrontation between unions and employers.  The employers had abused their power, with unfair employment practices that included the casual labour system, but the unions overplayed their hand.  A new grain terminal at Seaforth was not used, as a result of these disagreements, and almost all the docks have now been abandoned. These problems were so serious that the matter was raised in Parliament, as reported by Hansard on 25 July 1974.
  • Some unions sought confrontation as a route to revolution, as described in Arthur Rosenberg’s paper: Communism and the Communist Trade Unions.

Unions now, though, are more aware of the realities of a globalised labour market – they cannot exert monopolistic power – and some form of collective bargaining is perhaps appropriate to balance the employer’s power in labour market negotiations.  Michael R. Krätke’s paper, A very political political economist: Rosa Luxemburg’s theory of wages, gives some arguments for the necessity of having trade unions.

Levels of unemployment have a considerable effect on employees’ bargaining power.  Employers have the advantage if people have difficulty finding a job.  People are naturally afraid of unemployment, so governments use macroeconomic tools to manage it – as described later (3.3.8).  They try to keep it fairly low, but not so low that wages rise sharply.  Paul Krugman described this issue in his essay, Ricardo’s Difficult Idea:

“countries have central banks, which try to stabilize employment around the NAIRU; so that it makes sense to think of the Federal Reserve and its counterparts acting in the background to hold employment constant.”

(NAIRU is the Non-Accelerating Inflation Rate of Unemployment: the level of unemployment at which, if you try to reduce it still further, inflation starts to rise rapidly as a result of a wage explosion).

If government policies are successful, people will find employment at all skill levels, albeit in different jobs from those that disappear as a result of technology and globalisation.  Some areas and individuals may suffer disproportionately as the result of change though, despite government efforts to soften its impact (3.3.7.1).

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This is a current page, from the Patterns of Power Edition 3a book, © PatternsofPower.org, 2020.  An archived copy of it is held at https://www.patternsofpower.org/edition03/3332a.htm