Working for the economy: the economic case for trade unions

The share of wages in national income has declined across the developed world over the last thirty years. At the same time, and despite political rhetoric, growth in wage rates is significantly down on the levels achieved in the post-war period. The slide in the wage share is, among other factors, the outcome of deliberate government policy, enacted more forcefully in the UK than in much of Europe, to reshape labour market institutions. Trade unions have been legally curtailed and unionisation has declined from a peak of nearly half the workforce (49.9%) in 1981, to its low point today (25%). Research shows that, for nearly all European countries, including the UK, growth is ‘wage-led’. This means that the boost to demand from rising wages outweighs other impacts on profits and international competitiveness; growth in national income is driven by growing wages more than by growing company profits. Declining union presence has, as a result, fed directly into lower growth overall. The evidence we present suggests that the decline in union density, from its peak in 1975 to today, has reduced UK GDP by up to 1.6% – a significant and permanent loss. Restoring union density to the levels seen in the early 1980s would, thanks to the impact on the wage share, add up to £27.2bn to current UK GDP. The UK has paid a heavy economic price for three decades of anti-union policy and law. If the recovery from the recession is to be placed on a secure footing, the status of trade unions as an essential part of sound economic policymaking must be restored.