The Effect of Labor Relations Laws on Unionization Rates within the Labor Force: Evidence from the Canadian Provinces

• Date: 01 October 2017
• Author: Tammy Schirle,Mikal Skuterud,Scott Legree
• DOI: http://doi.org/10.1111/irel.12187
• Published date: 01 October 2017

The Effect of Labor Relations Laws on

Unionization Rates within the Labor Force:

Evidence from the Canadian Provinces*

SCOTT LEGREE, TAMMY SCHIRLE, and MIKAL SKUTERUD

We examine the potential of labor-relations reforms to address wage inequality by

relating an index of the favorableness to unions of Canadian provincial labor-rela-

tions laws to changes in industry, occupation, education, and gender-specific

provincial unionization rates. While we find some evidence of larger unionization

gains among high-school–educated workers, the differences across groups are

small and in some cases suggest larger gains among professionals. Overall, the

results suggest a limited potential for reforms in labor-relations laws to mitigate

growing labor-market inequality.

Introduction

According to data from the Organisation for Economic Co-operation and

Development (OECD), union membership as a proportion of the workforce

declined in all but five OECD countries between 1980 and 2010.

1

In Australia,

New Zealand, the U.K., and the United States the declines were particularly

dramatic. While there are sharply diverging views on whether a smaller role

for unions in labor markets is desirable, there is little disagreement that it mat-

ters. On the one hand, unions have been shown to reduce corporate profits and

investments and dampen employment growth. On the other hand, unions have

clear beneficial impacts on the wages, fringe benefits, and working conditions

*The authors’affiliations are, respectively, University of Waterloo, Waterloo, Ontario, Canada. E-mail:

slegree@uwaterloo.ca; Wilfrid Laurier University, Waterloo, Ontario, Canada. E-mail: tschirle@wlu.ca; and

University of Waterloo, Waterloo, Ontario, Canada. E-mail: skuterud@uwaterloo.ca.

JEL: J50, J58, K31.

1

Exceptions are Belgium, Chile, Iceland, Norway, and Spain. The data are from: http://stats.oecd.org/

and measure the proportion of the workforce that is union members.

INDUSTRIAL RELATIONS, Vol. 56, No. 4 (October 2017). ©2017 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

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of unionized workers.

2

Moreover, recent evidence examining potential spil-

lover effects of unions on nonunionized workers suggests that the decline of

unions in the United States may have had much broader distributional effects

than previously thought (Western and Rosenfeld 2011). Consistent with this

evidence, the set of Anglo-Saxon countries that have experienced the largest

declines in unionization internationally have also experienced the largest

increases in inequality. These developments are resulting in heightened interest

in the potential for policies aimed at reversing deunionization trends to miti-

gate growing labor-market inequality.

3

Whether unionization can provide a policy lever to affect inequality depends

critically on the extent to which deunionization has been a consequence of

government policies (and can therefore potentially be reversed through policy),

as opposed to an inevitable development driven by broad globalization and

deindustrialization trends. The relative stability of unionization rates in Canada,

despite its legal, political, and cultural similarities and close economic ties to

the United States, suggests that the phenomenon was not inevitable. Compar-

ing survey and opinion poll data, Riddell (1993) found that the vast majority

of the Canada–U.S. gap in unionization rates cannot be accounted for by struc-

tural economic differences or social attitudes and inferred that the gap is most

consistent with differences in legal regimes. Following on this evidence, there

now exists a substantial Canadian empirical literature linking changes in

provincial labor-relations laws to administrative data on certification success

rates (Bartkiw 2008; Johnson 2002; Martinello 1996, 2000; Riddell 2004),

applications for certification (Johnson 2004), as well as successful negotiations

of first contracts (Riddell 2013).

4

This research consistently finds a significant

effect of the labor relations regime on the ability of unions to organize new

bargaining units. Of particular importance appear to be rules for certification

and for insuring that a first contract is successfully negotiated.

5

2

For reviews of the evidence on the economic effects of trade unions, see Addison and Hirsch (1989),

Kuhn (1998), and Hirsch (2004a, 2004b).

3

For a formal analysis of the link between deunionization and inequality trends across OECD countries

see Jaumotte and Buitron (2015).

4

Directly relating labor-relations laws to unionization is more difficult in the United States and U.K.

where labor law falls under the federal jurisdiction and, therefore, provides no cross-sectional variation. Con-

sequently, one has to rely exclusively on time-series variation to identify the effects of laws. This is the

approach of Freeman and Pelletier (1990) and Farber and Western (2002). An exception is at the local gov-

ernment level within the United States, where laws vary across occupation groups (e.g., firefighters, police,

and teachers). This variation was exploited by Freeman and Valletta (1998) and Farber (2005). For an earlier

review of the evidence, see Godard (2003).

5

For evidence of the alternative view that deunionization trends in Canada and the United States are pri-

marily driven by broader economic factors beyond the influence of public policy and therefore unlikely to

be reversed through labor relations reforms, see Troy (2000, 2001).

606 / SCOTT LEGREE,TAMMY SCHIRLE,AND MIKAL SKUTERUD

In establishing that labor-relations laws matter for union formation, the cur-

rent literature is both extensive and highly compelling. However, in informing

the potential for legal reforms to not only reverse deunionization trends, but

also mitigate inequality trends, it falls short in two key respects. First, changes

in unionization rates at the aggregate level depend not only on the rate of

organizing new union members, but also on relative changes in employment

levels within the union and nonunion sectors, including those resulting from

expansions and contractions of existing bargaining units and firm closures

(Farber and Western 2001). The current literature has, however, largely over-

looked the effect that labor-relations laws have on employment levels. For

example, in examining the impact of mandatory certification votes on the

Canada–U.S. union density gap, Johnson (2004) explicitly assumed that the

law has no impact on employment. One would, however, expect such effects

to be important as a more union-friendly legal environment, for example,

affects employers’perceived threats of unionization or their relative bargaining

power and, in turn, investment, capital utilization, scale, and locational deci-

sions.

To identify the general equilibrium effects of labor-relations reforms, includ-

ing employment effects, one has to relate the cross-sectional and/or time-series

variation in laws directly to unionization rates. We are aware of four studies

that do so: one using Canadian data (Martinello and Meng 1992), one British

(Freeman and Pelletier 1990), and two from the United States (Farber 2005;

Freeman and Valletta 1998). However, the evidence provided in these studies

falls short in another key respect. By restricting the effect of legal reforms to

be identical across workers within the labor force, these papers tell us nothing

about where in the earnings distribution unionization rates are expected to

increase most.

6

However, from a standard model of rational union organizing

activity (Pencavel 1971), we expect that legal reforms will primarily affect

workplaces in which the net marginal benefit of organizing a new bargaining

unit is close to zero. The reason is that where the net benefits of unionization

are large, workers will already have incentive to unionize regardless of small

changes in legislation. Where unionization is very costly, on the other hand,

small reductions in the marginal cost of unionization resulting from legal

reforms will be insufficient to alter unionization decisions. It is where the net

6

There is, of course, evidence on how rates of deunionization have varied across worker types. For

example, we know that deunionization has been particularly dramatic among men employed in manufactur-

ing. But, this does not necessarily tell us anything about how legal reforms affect workers differentially.

There is also evidence that the existence of unions serves to reduce earnings inequality among men, but

have little impact on inequality among women (Card 1996; Lemieux 1993). But again, this does not tell us

anything about the effects of legal reform, which are likely to affect the unionization rates of some types of

workers more than others.

Labor Relations Laws and Unionization / 607