This paper will analyze an article entitled “Trade unions, collective bargaining, and macroeconomic performance: a review” by Toke and Zafiris. The article discusses trade unions in respect to bargaining and macroeconomic performance in the market. According to this article, trade unions coordinate the microeconomic performance and results of labor market determinant through collective bargaining. The article gives a systematic empirical literature review of the subject where by what comes up in the review is from the different bargaining coverage and coordination. I agree with the author’s views that the economic impact on trade union varies in different countries based on the application of organizational and institutional arrangements.
Furthermore, bargaining coverage with high levels seems to relatively associate with poor economic performance, which can be mitigated through high bargaining coordination. I disagree with the author’s argument that with or without the presents of consequences, labor market coordination is based on monetary policy to eliminate unemployment problem or else associated with the collective bargaining levels of industry. However, my view is that the collective bargaining consequences depend on various factors such as degree of coordinators to bargain, labor market share covered by the collective agreement rejected by individual contracts. The author, according to Marshall (1890), states that employers and union organizations are developed in asymmetry through contracting between employers and individual workers regarding bargaining power and access to information. Employment relations concerning different perception and labor rights are governed by individual agreements as compared to collective agreement. The collective agreement effects are conditional under any circumstances, which includes monetary policy regime, government, political orientation, and the governance capacity of the state provision.
The authors’ view on the centralization is true. The article is of the opinion that national employers and nation union confederation can control wage levels, influence, and change economy patterns across the nation when collective bargaining power is centralized. This is only possible when the bargaining coordination is at the primary level, and national organization is controlling constituent organizational behaviors and avoiding wage drift. Furthermore, ideas on centralizing collective bargaining facilitate the internalization of externalization, which receives attention as far as some of the discussions were warranted. I oppose the fixing of ideas since there is no society whereby workers are under organized unions.
It is true that due to externalities, negotiated wages are rather high. Centralizing bargaining process on the national levels makes the wage setters carry the burden of bargaining due to the increase in bargaining coalition. The economic improvement is a chivied by centralizing and coordinating bargaining power to create incentives in favor of wage restraints leading to higher total employment. According to Calmfors and Driffill (1988), in this article, the argument neglects the facts about competitive pressure of the labor market, the product, and systematic changes of demand due to the moderating effect on centralizing level. This is true since the competitive pressure has influence on the labor market hence it should be considered as one of the determinants. In addition, this is real since when the unions requested high nominal wage, firms avoid increasing product real wage and pass the burden to consumers through raising product prices. Unions view it as an unpleasant side effect in conjunction with lowering the consumption real wage. This can cause the increased rate of unemployment since the reduction in consumption of the product is directly proportional to the reduction in demand of the product; thus few productions are required by the firm and low income is earned.
The pressure from competitors in the same field at the firm’s level can provide better incentives to moderate the demand of wage. At the national level, there is relatively weak competitive pressure, which is compensated by a federation of unions taking the full cost of the action. Social partnership unions are the next ones to bear the burden of action; employer’s organization sufficiently encompasses to make unprofitable rent seeking. According to the views of Heitger and Olson, which are also featured in this article, there is no wage moderation on the above factors at the industry level. On the contrary, firms within the industry are able to pass substantial portion of demand wage to consumers and lower employment cost. Furthermore, industry-based unions frequently form lobby groups effectively looking for distributive favors from the government at the expense of the entire society.
In conclusion, it is clear that the article tells about the difference in the union density with little effect on the economic performance and with high bargaining coverage which can associate with a relatively poor economic performance. Those countries with the systematic coordination of bargaining process may arrive at a better economic result and get a more flexible labor market contrary to those countries whose systems are less coordinated and supported.
It is important to consider different aspects of collective bargaining for micro economic impact. For instance, the high level of bargaining coordination reduces the side effect of high bargaining coverage on the unemployment. There is another view saying is that informal coordination of the wage bargaining process is frequently developed in labor markets with the absence of formal bargaining coordination. Bargaining coordination matters in times of social changes and rapid economic growth when the contribution differences appear less often in comparison to economic performance on stable economic conditions. Finally, the article was well elaborated, and the relationship between the bargaining coordination and centralization was well stated. This article details the authors’ view on economic improvement by reducing unemployment rates in the country.