Falling union membership is ‘holding down wages by £100’, report says

The report comes as employers and workers battle with rising inflation and further speculation of strike action.

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Low worker power, after four decades of dwindling union membership, may be dragging average weekly wages down by £100, says a new Resolution Foundation study.

Power Plays, the 29th study for The Economy 2030 Inquiry, a cooperation with the LSE financed by the Nuffield Foundation, explores worker and employer power changes in the UK labour market over the past few decades and what it means for wages.

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The report comes as employers and workers battle with rising inflation and speculation of strike action this year.

The paper observes that while the fall of trade unions in the labour market is widely recognised – membership has more than halved from 53% in 1980 to 23% in 2021, and to 10% among low-paid private sector employees – the cause of this drop is less well understood.

It hasn’t been caused by unionised workplace closures or modifications. Newer workplaces don’t recognise unions since the 1980s.

Less-than-10-year-old firms are a third less likely to recognise unions. The authors think this shows the struggle unions will face in the next years.

Focusing on strikes in the few unionised areas might mask other ways worker power has decreased. In an economy without formalised worker power, the capacity and desire to take another job is crucial. In the past decade, the percentage of workers with transferable skills has nearly halved (from 9.1 to 5.5 per cent).

The research emphasises that worker control over pay setting has reduced as the minimum wage has grown. National wage-setting only covers the lowest earnings and doesn’t cover the entire spectrum of workplace concerns unions tackle, from training to working conditions.

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Power Plays finds that management-led wage-setting has supplanted unions’ pay-negotiating function. In 2011, management determined pay in 45% of businesses, up from 70% in 1998.

Employer power has stayed stable while worker power has declined. Employer power has reduced recently, but only after growing before the financial crisis. Firms with ‘monopsony’ dominance can pay higher salaries than in a competitive market.

These movements in employer and worker power, both inside enterprises and at multi-employer or industry-wide levels, affect people’s living conditions.

The analysis shows that decreased worker power compared to company power has likely lowered salaries by 15 to 25%. Even a modest estimate suggests a £100 weekly salary loss for the average worker.

The power balance between employees and corporations has shifted in recent decades, and future developments might effect wage growth in the coming decade.

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