Unions and Union Benefits as part of the Inclusive Growth Strategy : The Case of Singapore

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1 Unions and Union Benefits as part of the Inclusive Growth Strategy : The Case of Singapore Professor CHEW Soon Beng and Mr Aaron Neo Nanyang Technological University asbchew@ntu.edu.sg 1

2 Singapore s Gini coefficient is 0.47 in 2010; After transfer payments is 0.45 GINI COEFFICIENTS AND POLICY 42

3 What is a trade union? A union represents union members to negotiate with the management over the terms of employment Collective Bargaining Agreement; Collective Bargaining Benefits; more benefits, higher labour costs; How to form a union at a plant? Secret Ballot; workers will vote to decide Labour unions can hurt a country but can also increase its competitiveness 3

4 Micro-focused Unions Need to induce workers to join the union to remain in existence Trade union sets wage above competitive wage Retrenchment Increase in wages at the expense of employment Retrenched workers join the non-unionized sector Depress wages in non-unionized and informal sectors 4

5 The Hicks Paradox: Zero sum game Union s rent Y A E L S B 75 X Firm s rent Chapter 4

6 Macro-focused Unions The trade union aims to set competitive wage without adverse effect on employment. Employment is maximized The union can increase labour demand by making the economy more competitive Wages would rise gradually and steadily as the country prospers Macro-focused trade unions protect not only the interests of union members, but those of the non-unionized workers as well as future employees of the economy 6

7 Shifting YX line upward to allow bargaining for bonus Union s rent Y Y J 50 E K L 50 X X Firm s rent Chapter 4

8 If the initial positions are wider, they have to work harder Union s rent Y Y E A B L X X Firm s rent Chapter 4

9 A recession would shift YX line down Union s rent Y Y E J K L X X Firm s rent Chapter 4

10 Comparison of Two Regimes Objective Micro-focused unions Protect union members interest Macro-focused unions Seek full employment Wage increases Skills in negotiations Nation s competitiveness Wage System Seniority-based Flexible Free ridership No Yes Attracting foreign investment Not helpful Very good Social Safety nets Unemployment Benefits Employment-based Foreign workers Against Needs of the country Just-in-time system (no inventory) Not possible Encourage

11 National Trades Union Congress (NTUC) NTUC is macro-focused union NTUC s twin objectives are to maintain full employment and to increase union membership. During good times, wages and employment in Singapore are high. During 1986 recession and 1998 currency crisis, NTUC supported national policies to reduce labour costs in Singapore to protect employment. 11

12 NTUC Supports Reduction of Labor Costs During Recession During 1986 recession and 1997 currency crisis, NTUC supported national policies to reduce labour costs in Singapore to protect employment Labour costs are reduced through reduction in employers contribution to Central Provident Fund (CPF) Labour costs are adjusted through flexible wage system 12

13 NTUC Always Supports Training NTUC is one of the main pillars of the Skilled Development Fund (SDF) SDF sponsors more than 600,000 workers a year at the initiative of employers NTUC also carries out training programmes for older workers, low-wage workers and workers who are not too educated 13

14 NTUC provides welfare benefits to all workers NTUC provides vouchers worth one million dollars to 10,000 workers via Family Recreation Fund (25/11/07) NTUC provides medical vouchers to part time workers who very often do not enjoy medical benefits. (14/9/07) NTUC supports raising retirement age to 62 and insists that employers do not reduce wages when they are re-employed (16/11/09)

15 Macro-focused Union s Dilemma NTUC faces free-ridership problem as NTUC provides public good. NTUC uses non-collective bargaining benefits to entice workers to join unions Two related issues: Are non-collective bargaining benefits significant? Can workers in non-unionised firms enjoy non-collective bargaining benefits? 15

16 Examples of non-collective bargaining benefits to only union members NTUC gives $1.6 million to poor union members to offset higher cost of living (20/9/07); NTUC gives $23 million under U Care Immediate Assistance to poor union members to cope with rising prices Discounts on merchandise offered by NTUC cooperatives. Discounts on using union facilities: NTUC club branches, holiday facilities in Singapore, Golf Country Club, Holiday facilities in Perth and Genting Highlands,etc 16

17 Two Types of Union Membership in Singapore Traditional Union Members: They enjoy both collective bargaining benefits and non-collective bargaining benefits General Branch Union Members: They only enjoy non-collective bargaining benefits because they work in nonunionized firms 17

18 No of Union Members of NTUC Year Total No of members of General Union Members excluding members of General Union , , , , , , , , , , ,000 30% 70%

19 The purpose of this paper is to calculate noncollective bargaining benefits enjoyed by union members How do macro-focused unions help low income workers to increase purchasing power of wages? This type of unions will not raise wages at the expense of employment. Hence, wage rate is determined by market forces Unions can shift the demand curve upward 19

20 Demand and Supply curves Wage rate A S W W E E D D AE is non-collective bargaining benefits L Labour

21 In a recession, normal situation will be at B, many people unemployed; Able to go to E, protect employment; inclusive strategy; AE will help to mitigate recession pain Wage rate W W B A E E S D D AE is non-collective bargaining benefits R L Labour

22 How much is AE ; monthly savings for each union member For union members, average monthly saving from purchasing NTUC sponsored items is $51.18 For non-members, if they are union members, the savings would be $44.87 monthly. The monthly union due is only $9. Hence, workers are better-off joining the union in Singapore 22

23 For non-union members, If they know the benefits exceed the monthly union due of $9, 48.7% of the respondents would join the union ; However, 51.3% would not join the union for the following reasons: Still not convinced the discounts coincides with their long term consumption patterns and habits, Monetary incentives not sufficient to persuade workers to join the union because they do not feel passionate about the labour movement 23

24 To what extent, are NTUC package suitable to lifestyle of workers Emphasis on Type of Products Mean Rank Average (Member) FOOD AND NON-ALCOHOLIC BEVERAGES Rank (Member) Average (Nonmember) Rank (Nonmember) Number of Benefits NON-ASSIGNABLE EXPENDITURE Rank ALCOHOLIC BEVERAGES AND TOBACCO CLOTHING AND FOOTWEAR HOUSING AND UTILITIES FURNISHINGS, HOUSEHOLD EQUIPMENT AND ROUTINE HOUSEHOLD MAINTENANCE HEALTH TRANSPORT COMMUNICATION RECREATION AND CULTURE EDUCATIONAL SERVICES FOOD SERVING SERVICES ACCOMMODATION SERVICES MISCELLANEOUS GOODS AND SERVICES

25 Conclusions NTUC arranges with merchants to give discounts to union members More than 22 of 185 merchants have no one visiting them; NTUC effort is wasted Of 185 merchants, 50 had no members visit; 31 had no non-members visit Of the 135 merchants frequented by members, 70% of them members frequent more than non-members 25

26 Regression Results Variables Coefficient (SE) Marital ( )** Age ( ) Gender (male=1) ( ) Student (student=1) ( )* Average Expenditure ( ) Amount of Savings (Actual and Expected) ( ) Constant ( ) * Coefficient significant at 5% Level ** Coefficient significant at 1% Level 26

27 Regression results The predicted probability of becoming an union member increases by 19% when the respondent is married The value of relative risk -> wedded respondents have 2.9 times the probability of becoming NTUC members over unwedded counterpart 27

28 Regression results Student is a dummy variable indicating if the participants is a student or not (student = 1, non-student = 0) It means that student tend to avoid becoming union members despite NTUC launching the junior union membership programme to attract the younger crowd. 28

29 Aggregate benefits If an average union member saves $51.18 per month; there are 655,000 union members, the benefits in aggregate to the whole labour force is $324 million a year NTUC said they have spent 107 million in

30 Policy Tools (1) Fiscal Policy (2) Monetary Policy (3) Exchange Rate Policy (4) Incomes Policy based on macrofocused union; lowering wage costs to protect employment during a crisis 30