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

Professor CHEW Soon Beng and Mr Aaron NeoNanyang Technological Universityasbchew@ntu.edu.sg

Singapore’s Gini coefficient is 0.47 in 2010;

After transfer payments is 0.45

GINI COEFFICIENTS AND POLICY

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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

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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

Chapter 4

The Hicks Paradox: Zero sum game

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Union’s rent

Firm’s rent

50

40

E

A

B

75

75

L

S

50

40

25

Y

X

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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

Chapter 4

Shifting YX line upward to allow bargaining for bonus

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Union’s rent

Firm’s rent

J

E

X’

Y’

L

K50

Y

X

Chapter 4

If the initial positions are wider, they have to work harder

Union’s rent

Firm’s rent

E

A

B

X

Y

L

Y’

X’

Chapter 4

A recession would shift YX line down

Union’s rent

Firm’s rent

J

E

X

Y

L

K

Y’

X’

Comparison of Two Regimes

  Micro-focused unions Macro-focused unions

ObjectiveProtect union members’

interestSeek 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

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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.

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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

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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

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)

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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?

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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

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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 non-unionized firms

No of Union Members of NTUC Year

Total

No of members of General

Union

Members excluding members of

General Union

０１ ３ 45935 112,009 ２ 33 926

02 389,676 147,706 241,970

03 417,166 175,383 241,783

04 443,893 206,684 237,209

12 655,000 30% 70%

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The purpose of this paper is to calculate non-collective 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

Demand and Supply curves

W

S

D

Labour

Wagerate

W’

D’

L

EE’

A

AE’ is non-collective bargaining benefits

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

W

S

D

Labour

Wagerate

W’

D’

L

E

E’A

AE’ is non-collective bargaining benefits

B

R

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

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

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To what extent, are NTUC package suitable to lifestyle of workers

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Emphasis on Type of Products Mean Rank Average (Member

)

Rank(Member

)

Average(Non-

member)

Rank(Non-

member)

Number of

Benefits

Rank

FOOD AND NON-ALCOHOLIC BEVERAGES 3.446281 1 3.34 1 3.473958 1 1 11ALCOHOLIC BEVERAGES AND TOBACCO 11.61983 14 11.66 14 11.60938 14 4 7CLOTHING AND FOOTWEAR 5.119835 3 5.5 5 5.020833 3 9 5HOUSING AND UTILITIES 5.830579 5 4.24 2 6.244792 5 0 13FURNISHINGS, HOUSEHOLD EQUIPMENT AND ROUTINE HOUSEHOLD MAINTENANCE 8.756198 10 7.8 8 9.005208 10 2 8HEALTH 5.450413 4 4.86 4 5.604167 4 5 6TRANSPORT 4.268595 2 4.84 3 4.119792 2 2 8COMMUNICATION 6.68595 7 7.5 7 6.473958 7 2 8RECREATION AND CULTURE 8.42562 9 9.18 10 8.229167 9 67 1EDUCATIONAL SERVICES 6.442149 6 6.44 6 6.442708 6 15 3FOOD SERVING SERVICES 6.913223 8 7.94 9 6.645833 8 64 2ACCOMMODATION SERVICES 10.79752 12 11.24 13 10.68229 12 0 13MISCELLANEOUS GOODS AND SERVICES 10.1157 11 10.64 12 9.979167 11 13 4NON-ASSIGNABLE EXPENDITURE 11.1281 13 9.82 11 11.46875 13 1 11

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

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Regression Results

Variables Coefficient (SE)

Marital 1.309038 (0.4899546)**

Age -0.0055471 (0.0182417)

Gender (male=1) -0.5738437 (0.370069)

Student (student=1) -1.854693 (0.6591931)*

Average Expenditure -0.000148 (0.0001212)

Amount of Savings (Actual and Expected) 0.0022729 (0.0031479)

Constant -0.4381738 (0.927605)

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* Coefficient significant at 5% Level** Coefficient significant at 1% Level

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

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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.

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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 2010.

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Policy Tools

(1) Fiscal Policy (2) Monetary Policy (3) Exchange Rate Policy (4) Incomes Policy based on macro-

focused union; lowering wage costs to protect employment during a crisis

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