In May 2022, the ILOSTAT Industrial Relations (IRdata) database was updated, along with the release of the Social Dialogue Report 2022: Collective bargaining for an inclusive, sustainable and resilient recovery. This includes the latest country data for two ILOSTAT indicators: the collective bargaining coverage rate and the trade union density rate.
In this blog, we use IRdata to explore the relationship between collective bargaining coverage and levels of unionization, the type of employment it is linked with, and earnings inequality, taking into account the level at which the negotiations take place.
The relationship between collective bargaining coverage and union density
The 99 countries that have data available for both collective bargaining coverage rates and trade union density rates exhibit, on average, a positive relationship between the two indicators. This is expected: more workers tend to be covered by collective agreements when more of them are unionized. However, this relationship does not hold perfectly for all countries.
In 14 out of 99 countries, union density rates are at least 5 percentage points higher than their coverage rates. Why is this the case? Possible explanations are that union members may be concentrated in the public sector where wages and working conditions tend to be determined through methods other than collective bargaining. Another explanation could be the limited support from employers on collective bargaining efforts which may result in lower coverage of collective bargaining agreements.
On the other hand, the chart shows that in 45 countries, the collective bargaining coverage rates exceed their trade union density rates by at least 5 percentage points. In these cases, non-union members are covered by collective agreements due to administrative extensions, erga omnes clauses, or because employers treat union and non-union members equally. Similarly, if collective agreements are negotiated for the entire economy or entire sectors, encompassing both unionized and non-unionized sectors, or including smaller firms where workers are less likely to be unionised, this can result in higher coverage rates compared to union density rates.
The chart also shows that in 40 countries, the coverage rates and density rates are very close (less than 5 percentage points difference). This could indicate that in these countries, the extent of collective bargaining is closely linked to the bargaining power of trade unions, as negotiations primarily take place at the enterprise level.
A critical factor influencing this variation is the level at which collective agreements are negotiated. Countries with single-employer bargaining at the firm level tend to have much lower collective bargaining rates than those with multi-employer bargaining at the sector or national level. Interestingly, most of the 14 countries with a collective bargaining coverage rate above 75 per cent employ multi-employer bargaining at the sector or national level.
Overall, the chart provides valuable insights into the complex relationship between collective bargaining and union density rates across countries. It highlights the various factors that may influence this relationship and underscores the importance of understanding these factors to improve collective bargaining and workers’ rights around the world.
How representative are collective bargaining coverage statistics?
The ILO estimates that about 58 per cent of the world’s employed population is in informal employment. This poses a challenge when analysing industrial relations data as collective bargaining is usually limited in law to workers considered to be “employees” or to those in formal employment. It is therefore crucial to consider national labour market characteristics when interpreting collective bargaining coverage rates, taking into account the share of employees and informal employment relative to the total employed population.
A country’s level of development and the strength of its labour institutions are important determinants of national coverage rate. The data also suggests an inverse relationship between the coverage rate and the share of informal employment, and, conversely, a positive relationship between the coverage rate and the share of employees. Regions such as Europe and Central Asia and high-income countries have high shares of paid employment and low shares of informal employment. Thus, conclusions drawn from coverage rates in these countries and regions are applicable to most of the total employed population.
On the other hand, in regions such as Africa, with a larger share of lower-income countries, employees usually represent less than half of total employed population as informal employment is high. In these countries and regions, coverage rates calculated as a percentage of employees would not be very representative of the total employed population. Thus, it is crucial to interpret the coverage rate according to its actual scope and coverage, taking into account the share of the employed population it refers to.
Collective bargaining coverage and earnings inequality
Economic literature suggests that collective bargaining plays a vital role in promoting equality of earnings and studies tend to indicate that a higher collective bargaining coverage rate is linked with reduced earnings inequality. Additionally, countries with more centralized bargaining tend to have a narrower wage gap between low- and high-wage earners. This relationship is supported by data on wage distribution ratios such as the 90th to the 10th percentile. On average, countries with higher coverage rates and multi-employer negotiations at the inter-professional and/or sectoral levels exhibit lower earnings inequality across this ratio.
Interestingly, there is also a positive association between the coverage of collective bargaining and the labour income share, which represents the share of GDP accruing to workers in the form of labour income. Economic literature suggests that countries with higher coverage rates of collective bargaining tend to have a larger share of national income going to workers. This association is also supported by various editions of the ILO Global Wage Report, which highlights how wage bargaining can support wage growth that is in line with growth in productivity. Wage growth and reduced income inequalities lead to higher domestic demand due to the higher propensity to consume among low-income earners most likely to benefit from collective agreements. In this respect, collective bargaining can support both economic growth and a fairer distribution of income.
Collective bargaining coverage plays a key role in the promotion of social justice and better working conditions, yet there is wide variation in coverage rates around the world. The extent of informal employment and the institutional setting in which collective agreements are negotiated (firm, sectoral or national level) are strongly related to coverage rates.
Through collective bargaining, workers can negotiate for better wages and improve their standard of living. In addition, collective bargaining helps to reduce inequality, support economic growth, and promote decent work by ensuring that workers have a voice in decisions that affect their lives. Promoting inclusive collective bargaining systems and other forms of social dialogue is key to helping ensure a just share of the fruits of progress to all.
Data on trade union membership and collective bargaining is compiled from different sources including administrative records, household surveys and establishment surveys. The ILO uses three primary channels for the collection of these data: the annual ILOSTAT questionnaire; microdata from labour force and other household surveys that the ILO collects from national statistical offices around the world; and special enquiries conducted by national experts in specific countries. Once collected, collective bargaining coverage and trade union density rates are calculated, where the scope of statistics in ILOSTAT is employees only (excluding persons not in paid employment), unless otherwise stated in the notes. Collective bargaining coverage rates are adjusted for the possibility that some workers do not have the right to bargain collectively over wages (e.g. workers in the public sector who have their wages determined by state regulation or other methods involving consultation), that is, workers who do not have the right to collective bargaining are excluded from the denominator, unless otherwise stated in the notes. Since the data stem from different sources and there are time series breaks in some countries, comparisons across countries and over long time periods should be made with caution, and small differences and variations should not be overinterpreted.
Country coverage in IRdata significantly increased during the last update: Trade union density rates are now available for 139 countries and collective bargaining coverage rates for 99 countries.
For more information, refer to the IRdata description and the “Guidebook on How and why to collect and use data on industrial relations”.