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The Impact of Unions on Workplace Financial Performance:
An Empirical Study in the French Context
Patrice Laroche
Université Nancy 2
Abstract
Using data from a nationally representative survey (1998
REPONSE survey), we examine the relationship between unions and workplace
financial performance in the French context. In accordance with the literature
based on previous surveys in the United Kingdom (WIRS) or Australia (AWIRS),
the paper uses a subjective measure of workplace performance provided
by the French managerial respondents. Union presence was found to have
no impact on workplace performance. Furthermore no significant union rent
was evident even when the workplace faced few or no competitors in their
main product market. The earlier U.S. and UK literature found unions had
a negative impact on workplace financial performance. Our results are
quite different and reflect the particular French industrial relations
context. This may be symptomatic of the general decline in union strength
since the early 1970s and the weakness of the collective bargaining at
the workplace level in France.
Since the early 1980s, collective bargaining has been experiencing
a rapid development at the workplace level in France. At this level, collective
bargaining appears to influence a wide range of workplace outcomes such
as employment, training, and participatory programs. However, at the same
time, we can notice a continuous drop in union membership and a loss of
union influence in France since the 1970s. This paradox is very surprising
since a growth of collective bargaining in the workplace has been accompanied
by the growth of union power in several other countries (Groux 1994).
The "union crisis"--often mentioned in French publications (Mouriaux 1998;
Amadieu 1999)--leads to the question of the union's impact on workplace
performance.
There currently exists a large body of literature dealing with the impact
of unions on firm performance in the United States and in Great Britain
(see Metcalf [2003] for a recent review). Unfortunately, this question
has never been clearly answered in the French context. To date, little
empirical research has been undertaken on the link between unions and
workplace performance in France. The only existing study using French
data has found no association between union presence and firm financial
performance in the automotive equipment industry (Mathieu-Morvan 2001)
while most of the U.S. and British studies have argued that the presence
of unions has a negative impact on establishment or firm-level financial
performance (Hirsch and Addison 1986; Metcalf 2003).
Extending this perspective to the French context provides an opportunity
to more fully explore the basic question of whether and how unions contribute
to the performance of firms. Thus, the purpose of this study is to assess
how unions influence the workplace performance in the French context using
a survey which was conducted under the auspices of the French Ministry
of Labor in 1998.
This paper is organized in the following manner: previous research is
presented in the first section, methodology is discussed in the next section,
the third section summarizes the main results, and conclusions and implications
are drawn in the fourth section.
Theoretical Background and Existing Evidence According to the neoclassical economists, the impact of unions
on firm financial performance stems from their ability to extract rent
in the form of higher wages (Booth 1995). One of the most well established
effects of unions is the ability to increase wages above competitive levels
(Lewis 1986). These high wages can have a detrimental impact on firm profits
if unions do not have any other positive effects to compensate for firms'
higher expenditures on wages (Hirsch 1991). Union impact on financial
performance depends on the scale of potential rents, which is related
to the market structure facing the firm, and also dependent on firm-specific
advantages like R&D or advertising. Firms with a competitive advantage
or those evolving in a less competitive market are more able to earn monopoly
profits. Thus, unions will more easily obtain higher wages for workers
(Hirsch and Addison 1986). Unions' bargaining power and, in particular,
ability to mobilize workers on wage grievances make it possible for unions
to change wage levels.
Finally, this economic approach is based on the idea that the relationship
between unions and employers is a zero-sum game, in which gains obtained
by one party are the exact compensation of losses suffered by the other
party (Walton and MacKersie 1965). However, there is a theory to indicate
that union presence can have a positive effect on productivity and this
effect would balance the negative impact of unions on wages. This conceptual
framework is the so-called "two faces" view of unionism (Freeman and Medoff
1984): the monopoly face and the collective voice/institutional response
face. The collective voice and institutional response (CV/IR) model draws
on the exit-voice dichotomy of Hirschman (1970). By providing workers
with a means of expressing discontent at the workplace, unions can reduce
the extent to which resignations and absenteeism lead to a sub-optimal
degree of labor turnover. By presenting unions as an alternative to resignation
and apathy, Harvard scholars deliver an argument in favor of union representation.
High labor turnover can reduce productivity in a workplace through a direct
loss of firm-specific training (Addison and Barnett 1982). According to
Freeman and Medoff (1984), unions can also enhance productivity by improving
communication between workers and management. The opening of communication
channels between management and workers can result in integrative rather
than distributive bargaining. Unions may provide additional information
to a firm about the preferences of employees, thus permitting the firm
to choose a better mix among working conditions, workplace rules, and
wage levels. The opening of these channels can result in a more satisfied,
cooperative, and productive workforce. In addition, unions may be responsible
for a "shock effect." Unions can induce managers to alter methods of production
and adopt more efficient personnel policies (Freeman and Medoff 1984).
There have been a number of empirical studies on the relationship between
unions and productivity. Doucouliagos and Laroche (2003) provide a meta-analysis
on seventy-three existing studies on unions and productivity. Their results
suggest that "if all of the available evidence is pooled together, measures
of central tendency indicate a near zero association between unions and
productivity. However, there exist country and industry specific associations
between unions and productivity." In these conditions, it is theoretically
difficult to predict the impact of unions on firm financial performance.
When unions use their bargaining power in order to obtain higher wages
at the expense of the firm, it reduces profits. However, by giving a voice
to the unsatisfied workers, unions can improve worker motivation and,
therefore, improve labor productivity (Freeman and Medoff 1984). Thus,
this higher level of labor productivity may compensate union rents obtained
by collective bargaining.
Some of the extensive literature on the impact of union presence on workplace
performance is summarized in Table 1. The summary of the literature indicates
a wide range of financial performance measurements, units of observation
(country, sector, firm, establishment, etc.), and period considered. A
large majority of Anglo-Saxon studies conclude that unions have negative
effects on financial performance, whatever the methodology adopted. It
seems that workplace economic performance does differ with the market
the workplace operates in, and with the interaction of unions with other
employment practices.
Turning to France, there are at least three reasons to believe that the
effectiveness of voice provision by French unions is weak. First, since
unions have a small number of members,1 union activity within the workplace
is likely to be weak. Second, the union voice is fragmented at the workplace
level because of multiple-union representation on site and because each
union competes for the same employees with the same preferences and job
attributes. Third, a further concern in France is the incidence of the
labor law and public policy within the industrial relations system. Incentives
for unions to act in close accord with the needs and preferences of the
workers they represent are weakened further by the law, which states that
collective agreements can be applied at the workplace if only one union
signs the agreement, even if this union represents a minority of workers.
There are good reasons to believe that the effectiveness of the union
voiceis weak in many French workplaces, and hence the positive effects
of unions observed in the United States are far less obvious in France.
Several empirical studies in the French context showed that the impact
of French unions on productivity is weak and that the union wage effect
is difficult to assess (Coutrot 1996; Laroche 2002). The only concrete
results have come from a recent study (Mathieu-Morvan 2001) which suggests
a non-significant effect of unions on financial performance for workplaces.
Moreover, the author found no significant union impact was evident even
when the establishment faced few or no competitors in their main product
market or when the establishment invested in R&D. Finally, it appears
that these first results in the French context cannot lead to definitive
findings and must be validated otherwise, considering the nature of the
sample and the existence of several methodological limits.
Finally, the main research questions that we wish to address in this study
are:
- Does the presence of unions have an effect (positive or
negative) on workplace performance in France ?
- Does the presence of unions have a more pronounced effect on workplace
performance when the workplace faces few or no competitors in their main
product market, as in the U.S. context?
Methods
Sample and Data Collection The data used are derived from the 1998 Relations Professionnelles
et Négociations d'Entreprises (REPONSE) Survey,2 a nationally representative
survey of workplaces with twenty or more employees, covering all sectors
of the French economy. This is the second survey in a series; the first
was conducted in 1992. Interviews were carried out with the most senior
manager responsible for employee relations in 2,978 French workplaces.
The REPONSE survey collected information from managers and from union
representatives. This survey contains a lot of information on the establishments,
their organizations, workplace practices, and the environment in which
they operate. The survey gathered objective and perceptual data on union
presence and perceptual indicators of workplace performance. For some
measures, such as the workplace performance, respondents were asked to
provide their perceptions on Likert-type scales. For other measures, such
as establishment size, informants provided factual data.
Measures
Dependent variable. In
this study, the unit of analysis was the establishment rather than the firm.
Consequently, the use of objective financial measures of performance was
not possible and we used a qualitative assessment of workplace performance.
While the use of perceptual measures of performance is open to criticism,
such measures are often the only ones available at the establishment level
and have been used in a large number of other studies in the United States
(Voos 1987), United Kingdom (Machin and Stewart 1990, 1996), or in Australia
(Drago et al. 1992). Cooke (1992) has argued that the use of perceptual
measures permits the comparison across establishments in a variety of industries
and that informed managers should be able to provide reasonable approximations
of workplace performance within a restricted response range. In addition,
some research has found measures of perceived workplace performance to correlate
positively with objective measures of firm performance (Laroche 2002).3
The dependent variable was constructed from one item assessing respondents'
perceptions of their workplace's performance over the past three years relative
to that of other establishments in the same industry. Responses are coded
along a five point ordinal scale, from "a lot better than average" to "a
lot below average."
Table 2 lists the percentage distribution across the relative performance
categories of the workplaces included in the different sectors of the
French economy. A greater percentage of the workplaces reported that their
relative performance was above average than the percentage that reported
that their performance was below average. Finally, respondents have a
tendency to view their workplace performance as better than average. We
can also notice that there is little difference in the reporting of workplace
performance by sector.
Primary independent variables. The major objective
of this study was to examine whether union presence was associated with
workplace performance. In order to test this relationship, different approaches
to measuring union presence were used. Table A1 in the appendix includes
information on the union presence measures included in our empirical models.
Although we were constrained by the questions contained in the REPONSE
survey, we sought to use as wide a variety of union presence indicators
as was possible.
In line with U.S. studies, these indicators include especially union presence
and union density. First, we measured union presence using a variable
that captures the presence of a "union delegate" (délégué
syndical) at the workplace (see Table A1). Second, we measured the
extensiveness of unionization at the establishment. The variable included,
labeled union density, is simply the proportion of the workforce unionized
and can be considered as a proxy of union strength. Aside from variables
describing union presence or union density, numerous variables measuring
aspects of union activity within the workplace were considered as proxies
of union voice. First, because of separate and competing unions in France,
an attempt is made to allow for different stances taken by French unions
on workplace performance. A variable for each representative union is
also used and is based on the union's majority in the establishment. A
second variable, "multiple union," is based on whether there are at least
two different unions in the workplace.
Control variables. It is important to investigate
workplace characteristics in order to be able to understand the link between
unions and performance. Our models include several control variables to
capture other factors that are related to both union presence and workplace
performance.4 Because of differences in external and internal environment,
we included a dummy variable that indicates whether the establishment
belongs to the public or private sector. In order to reduce the influence
of the size of the workplace and other scale effects, we included several
dichotomous variables to indicate the number of employees in the workplace.
We also include the age of the establishment to capture any maturation
effects. Another control variable that we used was the existence of a
holding. Establishments which are single independent entities will be
less able to capture rents than those which are part of large organizations.
The quality of the industrial relations climate can also be directly correlated
with the workplace performance. Belman (1992, 45) argues that "the relationship
between unions and firm performance may be influenced by the industrial
relations climate . . . and the consequent attitudes of labor and management
affect firm performance." A number of additional variables entered the
estimates as control variables such as the percentage of female workers,
the percentage of part-time workers, and if the respondent is an HR manager.
The importance of market power in relation to union effects on workplace
performance has already been made clear. The REPONSE survey includes a
range of market status measures. These include measures of the market
share for the main product or service of the workplace, the geography
of the market--local, regional, national, or international, and whether
the current state of the market for the main product or service is growing,
mature, or declining (see Table A1). Identification of union effects across
these different market conditions is also an element of the following
analysis. Finally, we include sixteen dummy variables representing industries
(NAF 16) to capture any other industry characteristics associated with
performance perceptions.
Analysis and Results The workplace financial performance variable is a dichotomous
indicator, hence a binary logit model is used. Logistic regression analysis
has been used previously in the study of union effects by Hirsch and Link
(1987), Machin and Stewart (1988), and Drago and Wooden (1992). As the
simplest probability model, our binary logit models have only two categories
in the response variable--workplace financial performance is better or
a lot better than average and workplace financial performance is below
or a lot below average. Finally, significant positive coefficients indicate
variables associated with better financial performance.
The basic results for union presence models are reported in Table 3. The
predictive power of the equations is relatively good.5 Turning to the
estimates parameters and looking first at the non-industrial
relations influences on workplace financial performance, HRM score and
a rising value of sales are both significant at the one percent level
and positively linked to workplace performance (see Table A1). The value
of sales result is as expected, while the HRM score effect
is consistent with the argument that HRM practices have a positive impact
on firm performance (Huselid 1995) or that profitable firms are more willing
to implement HRM practices. Also significant (at the five percent level)
are the fact that the establishment is in the public sector and that the
establishment's market share is over 50 percent. The negative effect of
being in the public sector probably reflects the difficulty of assessing
performance in a noncompetitive market and the positive effect of market
share is as predicted. Since this latter variable indicates high levels
of market share, it was expected to be positively associated with workplace
performance. Finally, a cooperative industrial relations environment would
appear to be important for workplace performance (at the ten percent level).
The detailed analyses of the impact of unionism
on workplace financial performance across the three sectors is available
from the author. The presence of a union delegate is not associated with
the likelihood that an establishment has a financial performance "a lot
better than average" (see Table 3). This result suggests that the presence
of unions in a workplace is not associated with financial performance.
The distinction between single and multiple unionism is shown to be not
important in explaining the likelihood of having a performance "a lot
better than average." Once again, this could reflect the absence of links
between unions and workplace performance. In general, the results suggest
that union presence is not associated with perceptions of performance.
In each case, a union presence dummy variable yields a negative, but not
significant coefficient. This is in line with the Mathieu-Morvan (2001)
analysis of French industrial relations, and suggests that the absence
of union effects identified recently in the automotive equipment industry
holds true in other French industries.
Finally, an additional analysis was
undertaken of the impact of unionism when the establishment faced few or
no competitors in their main product market.
6
Again, we find that union presence in conjunction with market share has
no impact on workplace performance, a result that contrasts with that suggested
in previous studies (Karier 1985, 1988; Machin and Stewart 1990, 1996).
These results suggest that there is no relationship between unions and workplace
performance even if the product market is in a bad or unpredictable state.
Discussion and Conclusion Based on a sample of French establishments, this study investigated
the association between union presence and workplace financial performance.
Our results do not support arguments and previous results suggesting that
unions reduce firm profits (Freeman 1983; Voos and Mishel 1986a, 1986b).
However, these results should be interpreted cautiously, given the limitations
inherent in this study. First, the REPONSE data required us to rely on
perceptual measures of workplace performance. The use of perceptual measures
of firm performance is regularly used in research and results are generally
consistent with the findings of studies that used objective performance
measure. Second, another limitation is the use of cross-sectional data.
Whether unions predict the workplace performance is a question that could
be more conclusively answered with longitudinal designs. Within the limitations
outlined above, this study supports arguments that French unions had no
influence on workplace financial performance.
Beyond the study of the union impact on the French workplace performance,
these results invite a reflection on collective bargaining at the workplace
level in France. In the Anglo-Saxon countries and in Northern Europe,
collective agreements fix wage levels, seniority rules, promotions, layoffs,
and more. In France, collective bargaining is more focused on exchanging
points of view with no influence on managerial decisions rather than on
obtaining a contractual agreement between the parties. The weakness of
union presence in the workplace and the existence of multiple unions often
lead to a unilateral managerial decision. The absence of strong unions
that encourage worker involvement explains the lack of counterproposition.
Moreover, it appears that some managers are tempted to get around some
unions while giving the priority to discussions with more cooperative
unions (Andolfatto and Labbé 2000). Most industrial relations specialists
in France agree that the improvement of collective bargaining is linked
to better union recognition. If it seems necessary to reduce government
intervention and to encourage the creation of work rules between unions
and employers at the workplace, it is also important to guarantee all
the conditions of a balanced negotiation. Union autonomy in the workplace
is a crucial issue which the actors in French industrial relations must
address.
Notes
1. The unionization rate in
France is about 8 percent in the whole economy, with approximately 5 percent
unionization in the private sector and 12 percent unionization in the public
sector.
2. REPONSE is the equivalent of the Workplace
Industrial Relations Survey (WIRS) in Great Britain.
3. Diagnostic tests have indicated that the
subjective measure of financial performance used in the REPONSE Survey is
a satisfactory indicator of accounting and financial performance at the
workplace level (Laroche 2002).
4. Details on the method of construction
of variables included in the equations are presented in Table A1 in the
appendix.
5. Likelihood ratio statistics indicate that
all our models fit the data significantly better than models with the intercept
only.
6. Full specifications for these models are
available from the author.
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