International approaches to solving the ‘free rider’ problem in industrial relations

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Acknowledgments

The author thanks, without implication, Anthony Forsyth, Alison Pennington, Craig Renney, and Bill Rosenberg for helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. The classic statement on the economic benefits of voice is Freeman and Medoff (1984); see Stanford and Poon (2021) for a modern treatment.

2. See Onaran et al. (2015), Peetz (2019, Ch. 7), and Stanford and Poon (2021, Part II) for surveys of the broader economic and democratic benefits of trade union activity.

3. Opponents of unions explain the erosion of union membership on grounds that unions are not delivering ‘good value’ for their dues, and hence members are abandoning them.

4. In other words, if the benefits of union representation cannot be made ‘excludable’, accessible only to those who pay for them.

5. See for Olson (1965) for the classic statement of free rider problems in public goods provision, and Stiglitz and Rosengard (2015, Part 2) for modern treatments.

6. Although it is worth noting that an individual commitment to ‘individual choice’ has not prevented the establishment and broad legitimacy of binding mechanisms to solve free-rider problems in other contexts, such as corporate governance or the management of shared residential buildings (as discussed below).

7. The cultural and ideological commitment to supporting a union through payment of dues, even though one is not legally required to do so, is important in maintaining union membership even in jurisdictions (like Australia) with unlimited free riding.

8. From a narrow cost-benefit perspective, it is irrational for an individual to pay something voluntarily towards a good or service which they can access without paying.

9. In many cases a strong argument can be made that these goods are best provided through public provision rather than stronger private property rights. Pharmaceutical research and production, for example, could be conducted more efficiently through direct public funding rather than private monopolies over resulting intangible intellectual property (Baker 2008).

10. For a broad overview of the neoliberal shift in industrial relations and labour policy in Australia, see Stanford (2018).

11. The evolution of laws regarding union security and membership supports is reviewed by Weeks (1995), O’Neill (2002) and Stewart et al. (2016, Part 6).

12. Union dues can be deducted at payroll only with an individual member’s written authorisation.

13. Author’s calculations from OECD Labour Market Statistics.

14. For analysis of Australia’s weak wage performance in international context, see Stewart et al. (2018).

15. Australia is an exception to this Anglo-Saxon pattern, as discussed below.

16. Rosenberg (2021) in this edition of Labour and Industry reviews the impact of successive restrictive labour legislation on unions and union membership in New Zealand since the 1980s.

17. A more realistic estimate of free riding in Australia is provided below.

18. New data from the Household Labour Force Survey in New Zealand indicates that union membership and collective agreement coverage may be higher and more similar than indicated in the OECD dataset.

19. This phenomenon occurs in Australia, as well.

20. Pennington (2018) explores the dynamics and consequences of the decline in private-sector collective bargaining in Australia.

21. The estimate of free riding presented in Table 1 is approximate. Two other factors affecting the incidence of free riding are also relevant. First, a proportion of the 14.3% of employees in unions are not covered by an enterprise agreement. Second, a small share of enterprise agreements in Australia are negotiated without union participation (for an overview of Australia’s unusual non-union bargaining arrangements, see McCrystal and Bray 2021). The former would suggest a slightly higher incidence of free riding than indicated in Table 1; the latter, a slightly lower (since non-union workers covered by a non-union agreement are not directly free riding on the services of a union). The two effects are thus offsetting, and their joint effect on the estimates presented in Table 1 is likely small.

22. It also represents a reversal of a trend towards increased free riding noted by Peetz (2005): he found that the proportion of all employees covered by a union collective agreement but without being members of that union had increased from 2000 through 2004. This was due to a period of time (in the first decade after the prohibition of most union security measures) when collective agreement coverage was increasing, even as union membership was falling. Eventually, as union density continued to shrink, unions’ ability to sustain collective bargaining began to diminish, and collective agreement coverage began to fall – converging back towards the (still falling) union density rate.

23. These restrictions now also apply in federal government workplaces in the wake of the U.S. Supreme Court’s historic 2018 decision on Janus v. AFSCME.

24. Author’s calculations from Bureau of Labor Statistics (2021).

25. See Gould and Kimbell (2015) for a summary of economic and social comparisons between right-to-work and other U.S. states.

26. Described in the first issue of this symposium by Kent (2021).

27. See Wood (2021), 11.

28. In some Canadian provinces, workers who hold a moral or religious objection to paying union dues can contribute an equivalent amount to a recognised charity.

29. In New Zealand a bargaining fee can be negotiated to collect money from non-union workers whose individual contract provisions mirror those of a collective agreement which also applies in the workplace.

30. Discussed in the first half of this symposium by Kent (2021).

31. Haipeter (2021) discusses recent developments in the works council system in Germany in the first issue of this symposium.

32. Forsyth (2006) discusses the prospects and challenges of transplanting European works councils and codetermination practices to the Australian setting.

33. See Dimmick (2019) and Lansbury (2021, in the first issue of this symposium), for more on the history, current status, and impacts on union membership of these practices.

34. Except for Australia’s unusual non-union enterprise agreements – which are not negotiated, but rather determined unilaterally by employers and then put to ratification by some group or sub-group of affected workers.

35. For more discussion of the need for sectoral bargaining in Australia, and possible policy frameworks for implementing it, see Roberts (2021) and Kennedy et al. (2021), in this symposium.

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Jim Stanford

Jim Stanford is Economist and Director of the Centre for Future Work, based in Canberra, Australia, and Vancouver, Canada. He is Harold Innis Industry Professor of Economics at McMaster University and Honorary Professor of Political-Economy at the University of Sydney.