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Research - 02.11.2021 klo 09.24

Strong trade union movements narrows income differences

Ari-Matti Näätänen studied the trade union movements influence on income disparities and companies' international competitiveness. Picture: Vesa-Matti Väärä

According to a recent study, broad collective agreement coverage appears to be particularly effective in reducing the number of people living below the poverty line and levelling out income differences.

The trade union movement only pursues the interests of working wage earners at the expense of deprived unemployed people and companies’ international competitiveness. You often come across claims like this in public discussions and social media chat forums.

Ari-Matti Näätänen, a researcher at the Faculty of Social Sciences of the University of Turku, wanted to find out if there is anything in this claim. In his study prepared for STTK, he asked how trade union activity affects income differences and companies’ competitiveness.

He searched for answers to his question in earlier research and international statistics. His study compares the OECD countries.

As regards income differences, the study’s findings were clear: trade union action narrows income differences. On the other hand, Näätänen’s study indicates that trade union action does not appear to have any clear impact on companies’ international competitiveness one way or another.

Countries with a strong trade union movement have high levels of social protection

"Statistics clearly indicate that high levels of unionisation among wage earners and broad coverage by collective agreements nationwide are linked to low income differences and lower numbers of people living below the poverty line. The coverage of collective agreements is particularly significant", says Näätänen.

In the Nordic countries, for example, the trade union movement is strong and there are relatively few poor people. Great Britain, Ireland and New Zealand are examples of countries at the other extreme. In these countries, relatively high numbers of people live below the poverty line, but collective agreement coverage is not comprehensive.

Broad collective agreement coverage means that a large share of employees in a particular industry are covered by a nationwide agreement.

"Research indicates that countries with a strong trade union movement conduct social policies typical of welfare states. Trade union action generally increases the level of social protection, and high social welfare spending  appears to maintain a fairly high level of unionisation among wage earners", Näätänen explains.

Highlighting problem areas

In some countries, the labour market organisations are actively involved in shaping social structures. In Finland, for example, both wage earners’ and employers’ labour market organisations are often involved in various tripartite working groups set up by the government. Labour market organisations are currently discussing social security reforms in such working groups.

"The trade union movement also affects income differences through the public debate. For example, it highlights problem areas in working life. And the public debate affects the programmes and policies of political parties, especially those on the left", the researcher points out.

"If everyone had to negotiate their wages themselves, there could be big differences in the wages of people doing the same job."

Comprehensive collective agreements also narrow income differences in a very concrete way. The pay scales in the agreements guarantee a certain wage level to everyone covered by the agreement. If everyone had to negotiate their wages themselves, there could be big differences in the wages of people doing the same job.


Ari-Matti Näätänen on parhaillaan tohtorikoulutettavana Turun yliopistossa. Kuva: Vesa-Matti Väärä

Trade union movement does not deter foreign investors

Does an active trade union movement weaken companies’ standing in international markets?

Previous research findings vary. Some studies indicate that a strong union movement negatively affects companies’ competitiveness, whereas others find that the stability unions  bring to the labour market can be an advantage in international markets.

"My interpretation is that there is no clear link between the position of unions and competitiveness. For example, statistics do not show any linkage between the share of unionised wage earners  and foreign direct investment. Comparing the statistics, therefore, a strong trade union movement neither deters nor attracts foreign capital ", Näätänen says.

"Being a union member is a small step for an individual, but in the bigger picture union membership levels are significant for society."

Being a union member is a practical everyday step

In Näätänen’s opinion, anyone who is concerned about the future of the welfare society should have an interest in the position of the trade union movement and how it is talked about in public.

"Wage earners in particular should be aware of the link between what unions do and wage differences. Being a union member is a small step for an individual, but in the bigger picture union membership levels are significant for society."



Text:: Anu Vallinkoski