Labor Law and Union Strength in 21 OECD Countries

Matthew Dimick July 12, 2011

Abstract
This paper presents the rst cross-national analysis of the relationship between labor law and union membership rates. Leftist political parties are believed to have a positive impact on union density and the mechanism linking them, prounion labor law, is widely thought to bolster union membership fortunes. Contrary to these beliefs, this paper generates theory and presents evidence that union-favoring collective-bargaining legislation has a negative eect on union density. Nevertheless, unions are not irrational: the same legislation has strong positive and signicant eects on union coverage. Further theory and evidence test the notion that labor legislation has a positive eect on the rate of membership in employer associations: labor law may be more eective at organizing employers than employees. The paper also shows that patterns of both union power (density and coverage) and labor law cluster around the usual suspects: AngloAmerican, Continental, and Nordic countries. These patterns also roughly correspond to legal origin typologies, but in ways that undermine those authors' key claims. The conclusion considers questions of policy and the trade-os between the two measures of union strength.

Direct correspondence to Matthew Dimick, University at Bualo School of Law, State University of New

York, John Lord O'Brian Hall, Bualo NY 14260-1100. E-mail: mdimick@bualo.edu

Electronic copy available at: http://ssrn.com/abstract=1884285

Introduction

Rates of union membership vary dramatically across rich, democratic countries. In 2008 for instance, union members constituted no less than 68.3 percent of wage and salary earners in Sweden, while only 7.7 percent of the workforce was unionized in France, lower than even in the United States (11.9). Union density is the most widely used indicator of labor union strength, and is also closely associated with large dierences in economic inequality, politics, and civil society. While the last few decades have witnessed an outpouring of empirical labor law. Thus, while a variety research addressing cross-national unionization rates and trends, very little is known about the inuence of one particularly important institution: of institutionsthe prevalence of prolabor political parties, the degree of centralization or coordination in collective bargaining, the scope of unions' access to the workplace, and particularly the role of unions in the administration of unemployment benetshave all been shown to have signicant impacts on union density, the relationship between labor law and union membership has yet to be explored in a comprehensive and cross-national way.

The question of this relationship remains a conspicuously open one for several reasons. First, since law is a preeminent institutional exemplar, labor law holds clear importance within the reigning institutionalist approach to explaining union density. Second, although the incumbency of prolabor political parties is believed to benet union membership, the question remains of the exact mechanisms through which government actions inuence union fortunes (Flanagan, p. 139, emphasis in original) and indeed of the direction of causality itself. Labor law is perhaps the most important of these mechanisms, and therefore an Third, for obvious reasons, it is widely believed by scholars analysis of labor law's impact on union density can shed some light on the relationship between unions and politics. and union activists that prounion labor law favors union density. In the United States, the main labor federations recently spent considerable time and resources in a failed attempt to reform the country's labor law regime. Further, to the extent that labor law has been considered in particular countries or comparisons, a positive relationship has been found. Contrary to prevailing presumptions, this paper presents theory and evidence that labor legislation that is perceived to benet labor unions actually has a negative impact on union density. Nevertheless, labor union support for such legislation is not necessarily irrational. Theory and evidence also support the argument that the same legislation has a large and positive impact on union coverage the proportion of wage and salary earners in employment that are covered by a collective agreementanother, but less widely cited, measure of union strength. Thus, while labor law can be said to benet labor unions, this is not without considerable ambiguity. The paper proceeds in the following fashion. In the rst section, it reiterates the importance of union density and considers the small literature on labor law and union density. This section also introduces the concept of union coverage and shows how the rich, democratic countries cluster around three patters of union strength: countries roughly score either

1 Throughout this paper, I use labor law in the same sense as American legal scholars use it, that is, as
the primarily legislative law addressing the regulation and governance of the collective bargaining relationship between unions and rms, as distinguished from employment law, which concerns the regulation of the individual employment relationship and which often supplies mandatory, minimum terms over issues such as wages, hours, health and safety, leave time, and so forth.

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high on both density and coverage, high on coverage but low on density, or low on both. Interestingly, these clusters correspond with the three well known country groupings: the Nordic countries, Continental Europe, and the Anglophone countries, respectively. The second section turns to theory, where three mechanisms linking prounion labor law with lower union density are described. Labor law may act as a substitute for unions themselves or for the organized activities of union members, either of which may reduce union membership. Labor law may also exacerbate a hold-up problem between unions and rms and, particularly where collective-bargaining is localized, generate greater employer resistance to unionization. Alongside these negative eects on density, the theory section states two mechanisms linking prounion labor law with higher union coverage. First, simply by bolstering union bargaining power, labor law may encourage the spread of contract coverage. More subtly, stronger labor law may encourage employers to join employer associations in order to bargain with unions on multi-employer basis and thereby contain the hold-up induced extraction of rm-specic rents. employers than employees. The third section conducts an empirical analysis. Drawing data from Botero et al. (2004) and Traxler et al. (2001), this section presents four dierent measures of labor law that are keyed to the hypotheses. Even at the descriptive level, the data suggest some interesting results. First, while labor law is most favorable to unions in Continental Europe, for most Nordic countries it is surprisingly no better than for the low-density, low-coverage (mostly Anglophone) countries, and on at least one measure it is distinctly more restrictive toward unions. Second, the scoring of the Anglophone countries on this same measure reveals a signicant tension in the way the legal-origin thinkers conceive of legal traditions and their coding of labor regulation found in Botero et al. (2004). From the empirical analysis itself, the results generally support the stated hypotheses: three of the four measures have negative eects on union density, while all four are strongly and positively related to union coverage. Two of the four are positively related to employer density, with a third more tentatively so. The fourth section concludes. The discussion returns to the distinctive patterns of labor law and union strength, their historical and political origins, and the relationship between labor law and alternative institutions (such as union and bargaining organization). It also reects on the choices unions face in countries with declining union membership and the trade os between maximizing coverage versus maximizing density. Along with the expectation of lower density, these arguments suggest another surprising conclusion: labor law may be more eective at organizing

Dimensions of Union Strength

Union density remains the most widely used measure of union strength and the principal explanandum for a large number of studies. This is for good reason, even if those reasons are not always thoroughly elaborated. For one, union density is highly correlated with leftist party incumbency: at 0.80, the correlation is very high in the analysis of Bradley et al. (2003). Left party incumbency in turn is a very powerful predictor of post-tax, post-transfer household inequality. Union density is also itself positively related to reductions in pre-tax, pre-transfer wage inequality (Wallerstein, 1999). Finally, union membership has important consequences of the organization of civil society and good governance (Lee, 2007). In short,

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union density has important economic, political, and distributive consequences, and therefore should be of key interest to those who are concerned about those outcomes. Yet union density is not the only measure of union strength. An alternative measure of union power is union coverage, the proportion of wage and salary earners working under a collective agreement. Union coverage has also been shown to be an important factor in the reduction of wage inequality (Wallerstein, 1999). Esping-Andersen (1999) goes so far as to say, We should focus on union coverage rather than actual membership since it is the former that really matters from the point of view of bargaining results (p. 19 n. 4). On the other hand, bargaining results may not be the most important criterion when selecting a measure of union strength. For example, union coverage does not reect unions'
capacity to actsuch as in mobilization for collective bargaining or electoral politicsas

distinguished from the outcomes themselves. Union density probably continues to attract attention precisely because it is an input to a variety of dierent economic, political, and distributional outcomes. Nevertheless, the goal of this article is not to make a case for selecting one measure of union strength over the other, but to explain them both as well as their relationship to one another. To provide a visual sense of these two dimensions of union strength, Figure 1 depicts a scatterplot of union density and union coverage. As can be observed, countries fall into one of three fairly denite patterns. In the lower left corner are countries that are low both in density and coverage, in the upper left countries that are low in density but high in coverage, and the upper right countries that are high on both measures. Students of comparative politics will not fail to notice the similarity between these three clusters and similar typologies of welfare states, with liberal welfare states corresponding to low-density, low-coverage countries, conservative welfare states with low density, high-coverage countries, and social-democratic regimes with high-density, high-coverage countries. There are some anomalies, Australia being the most prominent, where the disjuncture between the labor movement and welfare-state development has been frequently noted. But in general the correspondence is striking. In fact, the rank correlation between countries based on the sum of density and coverage scores and a revised and updated index of Esping-Andersen's welfarestate measure (his decommodication index) is quite high, at 0.74. on the product of density and coverage.) The question is what can explain these three congurations of labor union strength? Turning to Figure 2, another graph shows the rankings of countries based on a slightly revised index of collective labor laws provided in Botero et al. (2004) plotted against labor union power, again measured as the sum of density and coverage. The three familiar groups again appear, but perhaps with less striking clarity than in the previous graph. Countries that rank lowest on the labor law index tend to be low-density, low-coverage countries, while countries that rank highest on the labor law index tend to be low-density, high-coverage countries. High-density, high-coverage countries tend to place in the middle of the labor law index. The clustering of low-density, high-coverage countries toward the far right of Figure 2 supplies the rst clue that labor law has contrasting eects on the two measures of union strength. Another way to see this relationship more clearly, but without the visibility of country clustering, is by plotting the collective labor law index against the dierence between (This correlation is higher than the ranking of countries by density or coverage alone, or by the ranking based

union coverage and union density, dened elsewhere as excess coverage.

As is readily

observed in Figure 3, the relationship is quite strongly positive. While perhaps suggestive, the excess coverage measure does pose some problems. If labor law increases excess coverage, does this eect come about by lowering density or raising coverage? The next sections seek to address this question, by rst proposing some theories about the impact of labor law on union membership and union coverage, and then by testing these propositions against existing data.

Theory
A

The accumulation of comparable, cross-national data on union membership rates has encouraged the growth of quantitative studies of union density in the past few decades. central message of this research is the strong, if not overwhelming, inuence of institutions on union membership rates, in contrast to an earlier focus on structural and economic (especially cyclical) factors. A variety of institutions have been shown to be salient. For instance, involving unions in the administration of unemployment benets provides a selective incentive for workers to join labor unions (Scruggs, 2002; Western, 1993). Whether, or in what form, unions have access to the workplace shapes the connections unions have to workers in their collective setting, which is a critical organizing resource (Ebbinghaus and Visser, 1999; Oskarsson, 2003). The level at which wage bargaining takes placenational, industry, rm or plantalso inuences union membership rates mainly through its eect on employer opposition to the union (Checchi and Visser, 2005; Oskarsson, 2003; Western, 1993). More centralized bargaining takes wages out as an element in product-market competition between employers: since all employers pay the same wage, none is particularly disfavored by being unionized. Another frequently cited institutional feature of union density is Left party incumbency. Thus, Western (1999) argues that greater frequency and duration of prolabor governments is benecial for union membership. The proposed mechanism is the interest and ability of Left parties to pass union-supportive legislation. Yet while the correlation between union density and Left government is positive and signicant, Western does not furnish evidence of the actual linkages between them. Indeed, as we saw above, it may be union density that is supportive of Left party power, more than the reverse (Rothstein). And on the question of how labor legislation aects union density, the research is even more limited. (Freeman and Pelletier, 1990) provide perhaps the only study of this question, and it is limited to a single country and only a subset of possible legislative rules. This section presents three mechanisms by which labor law may negatively aect union membership rates, and two by which it positively aects the rate of union coverage. Once again, the stress is on legislation that it is perceived to favor labor unions in collective bargaining and the resolution of disputes between rms and unions. It is one thing to hypothesize that certain labor market policies or employment laws, as distinct from laborrelations law, would have a negative eect on union density. And indeed, such substitution eects have been identied in Checchi and Lucifora (2002), where the authors found that employment protection legislation and unemployment benets (both the replacement rate and duration) had negative eects on union density. It is somewhat more provocative to

suggest that legislation intended to bolster unions directlysuch as the imposition of a duty on employers to bargain with unions or prohibitions on employers' ability to re or replace striking workerswould also have an adverse eect on union density. Nevertheless, as Oe and Wiesenthal (1980) pointed out some time ago, Advantageous as many of these legal statues and procedural rules have been for the defense of workers' interests, the reverse side of the coin of `juridication' is clearly the uncoupling of representation of interests and
activation of interests. The more interest representation is assigned to either state agencies

and/or works councils, ... the less room there remains for struggles that involve the activity of those whose interests are represented (p. 102).

3.1 The Union Substitution Eect

Unions often support the passage of legislation to assist them in certain functions or that compensates them for certain organizational deciencies. Two examples of this sort of legislation are especially noteworthy. One of these is works councils, and the second is collective bargaining extension, or erga omnes, laws. As for the former, works councils are committees of elected worker representatives with rights to negotiate over employment matters with employers. Usually, their establishment is mandatory for rms above a certain number of employees and all workers, rather than just union members, may vote on representatives; elected representatives also need not be union members. Yet unions often favor them because they give them access to the workplace and can eld union members as candidates for council positions. Extension laws establish procedures that extend the provisions of collective bargaining agreements beyond the members of the signatory unions and employers (or employer associations). Because of that possibility, they help unions to reach employers without the cost of establishing a well-organized union member presence at that establishment. Despite these benets to unions, such institutions may have a negative eect on union density. If institutions exist that serve the same functions as unions, workers may see little benet to joining them. Where works councils provide eective representation and voice for workers within the workplace, there may be little additional benet to becoming a union member. And if workers can be covered by a collective agreement, simply by operation of law or legal procedure, the rationale for organizing in the workplace to achieve such an agreement diminishes. It seems likely that the combination of both works councils and extension procedures will have a particularly strong substitution eect on union density. Extension laws allow unions to have an industry- or even national-level presence without the necessity of substantially organizing workers at these large scales. And the establishment of works councils give unions an ideal means of making those extension procedures eective by providing an institution for enforcing them at the rm level. Indeed, as will be seen below, every country that has a works council also features signicant use of extension procedures. The down side of this is that the high correlation between them makes it dicult to tease out their independent eects.

3.2 The Union-Member Substitution Eect

Unions achieve economic gains primarily from employers through their exertion of economic power, realized or threatened, mainly through the coordinated withdrawal or reduction of consumer power or labor eort in strikes, boycotts, work slow downs, and other economic actions. These actions require the coordinated and committed collective actions of workers and union supporters. Increasing membership in the union is a key method of achieving such coordination and solving the collective action problem that confronts every economic action. Union membership entails the dispersal of information, acculturation into the social norms of unionism, and the accumulation of nancial resources through membership contributions. The more members a union has, the more successful it is likely to be in an economic action against employers. However, recruitment of workers into the union as members is itself a costly activity for the union and indeed can itself be seen as a kind of second-order collective action problem. Economic actions are also fraught with uncertainty, which may constitute a cost for unions or their leaders that are risk averse. As a reaction to recruitment costs or uncertainty, unions may seek legislation that either obviates or bolsters their economic-action strategies. For example, legislation that obligates an employer to bargain with the union or can compel an employer to arbitrate a bargaining (or interest) dispute may dispense with the need for costly and uncertain strike action or even for the recruitment and commitment of union members in anticipation of such. The same logic may apply to laws which bolster unions' use or threats of economic actions. Legislation which prohibits an employer from hiring replacement workers during a strike or that prohibits employers from ring striking workers (which makes it more dicult for employers to hire replacement workers, since they will lose their jobs at the end of the strike) raises the prospect of a successful strike. With economic actions shifted in their favor, unions might curtail their expenditure on costly recruitment activities. Prevailing in a strike may not require that most or even many workers be committed, dues-paying members; nor may the union nd it necessary to maintain a massive strike fund. It may be sucient that a only small group of core, committed workers remain union members. A ban on employer lockouts, whether oensive or defensive, would have a similar eect of shifting the baseline of economic power toward unions.

3.3 The Hold-Up Problem

Labor unions jealously guard their freedom to strike. Correlatively, they tend to chafe at restrictions on those abilities. Thus, mandatory waiting periods or mandatory conciliation procedures (which do not result in arbitral awards) before a strike can occur tend to be viewed as cumbersome restrictions on the right to strike. The same can be said for legislation which places an obligation not to strike in every collective agreement, regardless of whether or not the union actually made such a promise or agreed to a grievance procedure (which in American labor-law jurisprudence constitutes such a promise). Indeed, it would seem that labor would benet from fewer restrictions on the right to strike. Greater strike power shifts bargaining strength to unions, allowing them to achieve more in collective bargaining. Since many of these rules constitute the existence or absence

of restrictions on strike activity, they are not a substitute for worker activity, as in the legal rules analyzed in the previous section. and therefore higher union density. Yet the particular strike restrictions just mentioned may exacerbate what economists call a hold-up problem that arises in any bargaining scenario. Grout (1984) was the rst to analyze the hold-up problem as applied to bargaining between unions and rms. Grout analyzes two situations: one where the rm and union bargain with a binding contract, and the other without a binding contract. The rst scenario is equivalent to a situation where a rm and union agree to wages, and then the rm chooses its capital investment; the second to one where the rm rst chooses its capital investment and then wage bargaining occurs. Grout shows that, compared to the rst scenario, prots are lower in the second, without binding contracts. Whether wages are lower or higher in the second scenario depends on the unions' bargaining power. The reason for the decreased prots and possibly lower wages is the hold-up problem: rms have less incentive to make capital investments if, contingent on those investments, their prots are taxed away in higher wages. Bargaining after capital investments, or without binding contracts, raises what is called the implicit cost of capital, as distinct from its purchase cost alone. The problem can be severe enough that lower This happens once the union's This is most investment in capital can even decrease workers' wages. power increases above a certain critical level. Each of the legal rules discussed above inuences the hold-up problem. the European context) in collective contracts. evident in whether the law imposes a mandatory no strike clause (or peace obligations in Yet the same holds for mandatory waiting periods or mandatory conciliation as well. The timing of strikes matters greatly for the ability of unions to hold-up employers. Without a waiting period or mandatory conciliation, the union has on its side the element of surprise, which it can use to exploit just those moments when employers are at their most vulnerable, such as after a critical investment or shipment. In addition, wildcat strikesstrikes that are unauthorized by the union leadershippresent a similar problem, since their legality makes it impossible for the union to make credible commitments. Hold-up problems are likely to have negative eects on workers' decisions to join rms for two reasons. The rst is that if the hold-up problem reduces wages, it makes joining the union less attractive. But even if wages increase, the second and more crucial reason is that since it not only lowers prots but also capital investments, it is particularly likely to provoke even greater employer resistance and hostility toward the union than would otherwise be the case. One can also hypothesize that the unmitigated resort to industrial action would reduce trust between unions and employers and increase the level of animosity between bargaining parties. One might therefore conclude that greater strike freedom would encourage the use of worker activity, more recruiting of workers into unions,

3.4 Labor Law and Union Coverage

To propose that prounion legislation reduces union density does not mean that unions are irrational. In fact, such legislation probably encourages the extension of collective-bargaining
coverage by labor unions. That is, even if the rate of union membership declines, the rate

of workers covered by collective agreements may still increase. This is undoubtedly the case

with extension laws, given available evidence as well as the fact that extending coverage is precisely their intended aim. The same holds for works councils if, as hypothesized, they facilitate the extension of collective agreements. The duties and restrictions on employers' behavior described above also serve to encourage coverage by increasing union bargaining power, even as these substitute for the unions' power that comes from a high rate of union membership. More subtle is the eect of the hold-up problem on union coverage. Given that hold-up problems may encourage employer resistance to unionization, one might think that they would also cause lower contract coverage. Yet one response to the hold-up problem may By bargaining a multi-employer agreement be for employers themselves to organization. up induced, rm-specic rent extraction.

as an employer's association, employers may be able to undo the negative eects of holdThis employer response to the hold-up problem will particularly be case under two conditions: rst, where union organization is relatively decentralized and, second, when mandatory forms of employee representation exist (such as works councils) or unions otherwise enjoy other strong legal protection. Union decentralization magnies the (rm specic) hold-up problem while mandatory protection and representation prevents employers from opposing or being able to avoid or remove unions on an employer-by-employer basis.

Empirical Analysis

4.1 Data and Methods

The empirical analysis tests the previous propositions on data for 21 OECD countries. Data on labor law were obtained primarily from the Regulation of Labor paper written by economists working in the legal origin project (Botero et al., 2004). Data exist only for a single year, 1997, but the information gathered gives a fairly comprehensive, cross-national picture of labor-relations law. Because the legal origin contributors, as well as the Regulation of Labor paper itself, have received a great deal of attention and criticism, I will address these potential concerns now. For instance, Ahlering and Deakin (2007, 88284) criticize Botero et al. for ignoring the gap between the law on the books and the law in action, as well as for not taking into account functional equivalents to legal rules. The lack of correspondence between formal law and its practice is a valid one, and I have attempted to address it by revising some of the Botero et al. scores, particularly those on works councils and extension procedures, where Traxler et al. (2001) provide corresponding measures that are closely attuned to concerns about the law in action. procedures. For instance, Botero et al. score Denmark as having extension This is true, but as Traxler and Behrens (2002) note, these procedures are III.13). Overall, these revisions

used only to transpose the contents of EU Directives, and Denmark otherwise observes no notable extension practice (Traxler et al., 2001, 184 tbl. yielded a relatively small handful of changes. (Ahlering and Deakin themselves nd that

Botero et al.'s employment laws index is highly correlated with managers' and experts' perceptions of the legal environment in countries for which data are available ...  (p. 886), although it is their collective labor laws index that is used in this paper).

On the other hand, it may be well not to take the criticisms of Ahlering and Deakin (2007) too far. For instance, whether one should be concerned about the existence of functional equivalents depends heavily on exactly which kinds of questions are being posed and hypotheses tested. Given that one of this paper's central concerns is to gauge the eect of political parties on union strength via legislation, a measure that stays close to statutory law and its practice, while ignoring functional equivalents, is preferred. Of course, other measures must be included in order to have appropriate controls in the empirical analysis. But to include informal norms or law-like practices into the legal measures themselves would in eect be testing an entirely dierent set of hypotheses. This is particularly important for the works council measures. For instance, previous research has lumped in works councils with other collectively-bargained institutions of union access to the workplace, which has yielded the nding that workplace access has a strong, positive eect on union density (Brady, 2007; Ebbinghaus and Visser, 1999; Oskarsson, 2003). density is reached. Ahlering and Deakin also criticize Botero et al. for using unweighted measures in their indices. In their indices, the presence or absence of a legal rule is often coded simply as 88485). There is no attempt to gauge the importance of dummy variables (ibid., pp. However, as will shortly be seen, when works councils are separated out of the analysis, a dierent conclusion about their eect on

particular rules, either as compared to other rules or across dierent national contexts. This again is a valid criticism, and I do make some attempt to address it. For instance, because theory suggests their importance I keep work councils and extension procedures separate from the other indices I create. In addition, interactions between the legal measures do play an important role, and these interactions are one way of weighting dierent legal rules. Beyond this, however, it would be dangerous to adjust weights in any particular direction without stronger theoretical justication. Finally, Ahlering and Deakin miss what is perhaps the most serious criticism one could make of the Botero et al. labor and employment law indices. This is that the indices do
not measure how intensively dierent countries regulate the employment relationship, if

by regulate is meant the incidence of mandatory terms in legal relationships. Rather, as Botero et al. (2004) themselves state, higher values on the index indicate higher worker protection (p. 1348). For instance, Botero et al. measure as 1 the law if it does not Hence the law is more mandate conciliation procedures before a strike, and 0 if it does.

favorable to unions if it does not inhibit their ability to strike; unions are always free to contract for conciliation procedures with employers it they were desired by both parties. Yet in no way could the absence of mandatory conciliation procedures be said to represent more intensive regulation. Rather, one would think that mandatory conciliation would correspond to more regulation, not less. Again, as will be seen shortly, this choice matters a great deal for legal-origin claims about legal traditions and the patterns of law across dierent groups of countries. However, more to the immediate goals of this paper, an index that measures the level of worker or union protection, rather than the extent of regulation, is fortunately what is required. The Botero et al. (2004) data are organized into one overall index, called the collective relations laws index, and two subindices, the labor union power and collective disputes indices. In accordance with this paper's theoretical predictions, I have isolated the bargaining extension and works councils variables, and have created two new indices from the data,

10

a union-member substitution index and a hold-up index, each using four variables.

The

substitution index ranges between 0 and 1 and averages over the following legal rules: (1) if employers have a duty to bargain with a union, (2) if employer lockouts (defensive or oensive) are banned, (3) if there is binding arbitration, and (4) if the law prohibits employers from ring striking workers or hiring replacement workers during a strike. The hold-up index also ranges between 0 and 1 and averages over the following legal rules: (1) if wildcat strikes are legal (2) if there is no mandatory waiting period before strikes occur (3) if strikes are not illegal even if a collective agreement is in force and (4) if laws do not mandate conciliation before a strike. Overall each of these four measures use 10 of the 18 variables from the collective labor laws index. clear theoretical salience. The other variables are excluded primarily because they lack

In addition to the legal independent variables, which are of primary interest, I include two other independent variables in the empirical analysis. The rst is whether the country has the Ghent system of unemployment insurance, wherein labor unions administer voluntary, state-subsidized unemployment benets. The second is a measure of coordination in wage bargaining. is essential. Both kinds of measures have received considerable attention in the literature Three countries have the Ghent system, while a fourth, Belgium, was coded has having large and signicant eects on union density; their inclusion as controls therefore 0.5, following Western (1999), because it has a hybrid unemployment insurance system (compulsory, but administered by labor unions). The wage coordination index comes from Visser (2009). For reasons that I will not discuss here, it is not my most preferred index. Instead, I believe Iversen (1998) provides a wage-setting centralization index that rests on stronger theoretical and methodological grounds, but is limited to a smaller set of countries and a shorter time period. Nevertheless, the dierences may be relatively minor and because of the greater coverage in time and place, I retain the Visser index. Also in accordance with previous research (see e.g., Oskarsson, 2003), I take the average of wage coordination scores over the years 1977-97 to highlight the importance of institutional path dependence and avoid exaggerating the eects of recent shifts in wage-bargaining practice. Data on union density come from the OECD and are for the year 1998 so that the legal variables have a lagged eect of one year. Data on union coverage come from a variety of sources, mainly from the dataset assembled by Golden, Lange, and Wallerstein and from Traxler et al. (2001) and Traxler and Behrens (2002), from which most of the Golden et al. data are drawn. (There are a few years and countries that are reported in Golden et al. but in neither of the Traxler sources.) More recent coverage data for Ireland, Italy, the Netherlands, and Switzerland were obtained from Ebbinghaus (2004), and for New Zealand from Wilkinson et al. (2003). Because of the limited availability of coverage data, my goal in this study has been to use a year most closely following the year for which the labor-law data are available. For most countries this year is 2000; however, for Canada, Finland, Japan,

2 For instance, three variables code whether countries enshrine various labor rights in their constitutions,
but the eect of such rights are too indirect and ambiguous to use. The variable on workers' rights to appoint directors of corporate boards was excluded because they do not implicate as directly collective bargaining and union membership decisions. The closed-shop variable was excluded also because it lacked theoretical precision. Many countries that ban the closed shop, but retain the union shop, such as the US, are coded as zero, while many countries where the closed shop is formally legal, such as Denmark and Sweden, are coded as 1 even though they almost never make use of any form of union security agreement whatsoever.

11

and the United States, coverage data for 2000 are unavailable and so density and coverage data from 1996 are used. Visser has more comprehensive data on coverage, but only for This paper uses unadjusted coverage what is called adjusted coverage, which removes those without the right to bargain from the number of wage and salary earners in employment. data because it is more comparable to union density gures, since neither measure removes workers without bargaining rights from the denominator. The single exception is Greece, for which density (from OECD gures) and adjusted coverage data (from Visser) for 1998 were used because unadjusted coverage data could not be found. In the analysis, this paper uses and reports standard OLS regressions methods. However, this is probably not the best model to use because of the nature of the dependent variables. Union density, coverage, and employer density are all bounded between 0 and 1. (unless that range is very small) (Papke and Wooldridge, 1996). Thus, the eect of any particular independent variable cannot be constant throughout its range Therefore, I also used a fractional logit, generalized linear model as a check on the OLS results. The results are not substantially dierent and if anything the fractional logit model actually supplies slightly more support for the hypotheses. Nevertheless, primarily because of the easy interpretation of the coecients and the goodness-of-t measures, I make the OLS models the primary models of consideration. Finally, because of concerns about possible multicollinearity (see Table 1) and the small sample size, the analysis proceeds by running successive models on the control variables, labor-law variables, all of the variables, and then reduced models of the most signicant variables from the previous models.

4.2 Results
What do the data say about the impact of prounion labor legislation on union density and union coverage? Table 2 reports some of the descriptive statistics on the labor law variables across countries grouped together by the dierent density-coverage categories. Even at this stage of the analysis the ndings are suggestive. First, across all columns, the average legal index scores for countries that are high in both density and coverageall of the Nordic countries plus Belgiumconsistently rank lower than for low-density, high-coverage countriesalmost exclusively Continental European countries. This is surprising given the Nordic countries' higher union densities as well as their unalloyed social-democratic, prounion, and proworker reputations. In contrast to the Nordic countries, Catholic inuence on the continent has tended to favor a more moderate reconciliation between the interests of capital and labor. It is also another indication that labor law may have a weak or negative impact on union density. Furthermore, with the exception of the nal (hold-up) column, the average legal index scores for low-density, high-coverage countries are higher than for low-density, lowcoverage countries. This is less surprising, but in contrast to the prior comparison, it is an indication that labor law has a positive impact on union coverage. The fact that the low-density, low-coverage countries rank highest, and high-density, highcoverage countries lowest, on the hold-up score also deserves some comment. Recall that this index, while capturing the threat of hold up, also measures the extent to which unions are free to undertake strike action. It is interestingas well as counterintuitive to most labor-union advocatesthat countries where the ability to strike is most restricted would have the highest union density levels while those that are least restrictive would have some of the lowest levels

12

of density. More importantly, this outcome clearly reveals the consequences of Botero et al.'s choice to score their variables by their favorableness to workers as opposed to the intensity of regulation. While this choice is consistent with the goals of this paper, it is in considerable tension with their other claims. For instance, they write that, In broad terms, common law and civil law traditions utilize dierent strategies for dealing with market failure: the former relying on contract and private litigation, the latter on direct supervision of markets by the government (p. 1340). Yet, as can be seen in Table 2, it is the low-density, low-coverage countrieswhich include nearly all of the common-law countriesthat rank highest under the hold-up variable. Yet this is not because these countries rely on direct supervision of markets by the government. In fact, just the opposite. It is because these countries do not prohibit wildcat strikes, do not have mandatory conciliation or waiting periods, or do not make obligatory an duty not to strike in every collective agreement that they rank higher on this index. These countries rely on more contract, not less. So while countries associated with dierent legal traditions do vary in the governance of labor markets, it is dicult to conclude that this is because of the dierent approaches to regulation those traditions carry.

The results of the empirical analyses are generally supportive of the stated hypotheses. Table 2 reports the results of OLS regressions of the control and labor law variables on labor union density. The results give no support for the argument that prounion labor law increases union density. In fact, high scores on the labor law variables have, if anything, a negative impact on union membership. In the second model, with only the labor law variables and no controls, the coecients of both the union power and hold up indices are large, negative, and signicant. When controls are added, the signicance of all of the labor law variables disappears, but are all still negatively signed. Best performing among the reduced models is the one including both controls and the extension variable, whose coecient is negative and signicant. However, this model is only marginally better than the one including the controls and works councils variable, whose coecient is likewise negative and signicant. If union-favoring legislation has no, or a negative, impact on union membership rates, it has a large, positive, and signicant impact on union coverage. As seen in Table 2, OLS regressions indicate that each of the labor law variables is signicant in one or all of the models when the Ghent system and wage coordination are controlled for. Among the reduced models, the best performing is the one including the Ghent system and the works-council, union-power, and hold-up variables. The coecient of each variable is large, positive, and signicant. It is interesting that the Ghent system acts as a better predictor of coverage than does wage coordination. I will return to this puzzle in the discussion section. As discussed above, there may be several mechanisms through which prounion labor law increases union coverage. One of these is by providing an incentive for employers to organize, become a member of an employer association, and thereby participate in a multi-employer bargaining unit. It was hypothesized that the existence of hold-up problems as well as mandatory worker protections (such as works councils) would give employers particularly strong incentives to join employer associations as a way to counter the extraction of rm-

3 How the ranking of countries would change if the variables were coded more consistently with this
conceptualization of legal traditions, rather than their favorableness to unions, is dicult to say. It is true that several that the common law countries would drop in the overall index, but the Scandinavian countries would rise, and the Continental civil-law countries would fall, and this could still cast into doubt the belief that French civil-law countries are the most regulatory.

13

specic rents. As reported in Table 3, OLS regression results nd support for that conclusion. None of the variables are signicant in either the control, labor law, or combined models. In the reduced model including wage coordination, the extension variable, and the hold-up variable, only the extension variable is signicant (as is the works council variable when substituted). However, when the works-council and hold-up variables are interacted, the In this model, the interaction eect is quite large, positive, and strongly signicant. The best-performing model includes the wage-coordination variable and the interaction term. performs substantially better than model with wage coordination and only the works council variable (the adjusted R-squared is 0.35 compared to 0.27). Similarly, the causal eect of the interaction variable is substantially larger than the works council variable (the coecient is 49.07 compared to 27.18), and the interaction variable is also signicant at the 0.009 level, while the works council variable is signicant at the 0.026 level. In short, as hypothesized, the presence of both hold-up problems and mandatory support of workplace representation substantially increases incentives for employers to organize in multi-employer associations. To check the robustness of these results, all of the above models were also run using fractional logit models with robust standards errors. Results can be found in the Appendix. The results conrm the ndings of the OLS regressions and, if anything, provide some additional support. With respect to the legal impact on union density, in the reduced model with the Ghent system and wage coordination, the works-council variable and, unlike the OLS model, the union-power variable are negative and signicant. However, similar to the OLS results, this model was slightly outperformed by the reduced model with extension substituted for works council, where the union-power variable loses signicance. In terms of coverage, the best model is still the one with Ghent, works council, union power, and hold up, where each is positive and signicant. Finally, with respect to employer density, the interaction between the works-council and hold-up variable remains more signicant, a better t, and explanatorily stronger.

Conclusion
Labor legislation that For

This paper provides theory and evidence that perceived prounion labor law has a negative impact on union density, but a positive eect on union coverage. is intended to benets unions thus indeed favors unions, but in an ambiguous way.

labor-movements supporters and policymakers, dierent interpretations of these ndings are possible. On the one hand, for those concerned about the ability of unions to address imperfections in the labor market (ranging from income insurance to income inequality), the nding that prounion labor law reduces union density may provoke little concern. As long as workers are employed under union agreements, this argument would proceed, coverage rather than density should be the central union-strength measure of interest. On the other hand, union density captures other important features of union strength, not least of which is the strength of associational ties among workers and workers' inuence on the political process. One may therefore legitimately ask how long prounion legislation can be maintained with stagnant or declining shares of union members engaged in the political process. And insofar as the associational ties that come with union membership have separate, good governance consequences outside of collective bargaining objectives, increasing union coverage only de-

14

livers some of the possible welfare-enhancing improvements associated with labor unions. A continued interest and focus on union density rather than contract coverage may therefore be justied. In interpreting these results caution should also be taken when applying them to recent US experience. American labor unions recently led an unsuccessful attempt to pass the Employee Free Choice Act (EFCA), which would make it easier for unions to be certied as bargaining representatives. Since some of the proposed legal rules in that bill

are not

included as variables in this study, this study cannot oer any insight into how EFCA would have inuenced union density. On the other hand, such rules are unique to only a few Anglophone countries and consequently lack the comparability of the other rules examined in this paper. Furthermore, while some studies have compared EFCA-like rules in Canada and have found a positive impact on union density, this paper has shown that these countries tend to be among the lowest in both density and coverage. And as this paper has also conrmed, other institutional supports, such as union-administered unemployment insurance or more centralized wage coordination, have large, positive eects on density. Even American laborunion supporters may therefore want to shift attention away from legal reform to these other institutional features.

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17

100

Patterns of Union Power

France Portugal Italy Austria Norway Belgium Greece Australia Germany Sweden Denmark Finland

80

Netherlands Spain

Union coverage

60

Switzerland

40

Ireland United Kingdom Canada

20

New Zealand United States Japan

20

40 Union density

60

80

Figure 1: Patterns of Union Strength

Labor Law and Union Strength

2

Finland

Sweden Denmark Belgium Austria Norway Italy Portugal France Germany Spain

1.5

Australia

Greece Netherlands

Canada United Kingdom

Ireland Switzerland New Zealand United States

.5

Japan

0
.2

.3

.4 .5 Collective labor laws index

.6

.7

Figure 2: Labor Law and Union Strength

France

80

60

Portugal Netherlands Germany Spain Italy

40

Australia Belgium Austria

20

Switzerland Norway United Kingdom Canada Finland United States Denmark Sweden

Japan

.2

.3

.4 .5 index_industrial4a Fitted values excov

.6

.7

Figure 3: Labor Law and Excess Coverage

Bivariate Correlations Ghent Wage Coordination Extension Works Council Union Power Hold Up

Ghent 1.000 0.2630 -0.0892 -0.2293 -0.1848 -0.5438

Wage Coordination

Extension

Works Council

Union Power

Hold Up

1.0000 0.3269 0.2632 0.1226 -0.3053 1.0000 0.7480 0.2475 -0.1834

1.0000 0.1217 -0.0702

1.0000 -0.2776

1.0000

Table 1: Bivariate Correlation Matrix

Extension HDHC countries Belgium Denmark Finland Norway Sweden HDHC Mean LDHC countries Australia Austria France Germany Greece Italy Netherlands Portugal Spain LDHC Mean LDLC countries Canada Ireland Japan New Zealand Switzerland United Kingdom United States LDLC Mean Overall Mean (s.d.) 1 0 1 0 0 0.4 1 1 1 1 1 0 1 1 1 0.89 0 0 0 0 1 0 0 0.14 0.52 (0.51)

Works Council 1 0 0 0 0 0.2 0 1 1 1 1 0 1 1 1 0.78 0 0 0 0 0 0 0 0 0.38 (0.50)

Union Power 0.25 0.25 0.25 0.5 0.5 0.35 0.75 0 0.5 0.25 0.5 0.5 0.5 0.75 0.75 0.5 0.5 0.25 0.5 0.25 0.5 0 0.25 0.32 0.40 (0.22)

Hold Up 0.5 0.25 0 0.5 0.25 0.3 0.5 0.75 1 0.5 0.25 1 0.5 0.25 0.25 0.56 0.25 0.75 0.5 0.75 0.75 0.75 0.75 0.64 0.52 (0.27)

Table 2: Descriptive Labor Law Statistics

OLS Density Ghent system Wage coordination Extension Works council Union power Hold up Adj. R-squared N. obs.

Controls 48.7*** (7.8) 16.5 (1.6)

Labor Law

Combined 40.0*** (5.1) 26.5** (2.5) -6.0 (-1.0) -5.0 (-0.8) -13.9 (-1.3) -8.0 (-0.8) 0.82 21

Reduced (Extension) 46.1*** (8.1) 25.0** (2.5) -9.7** (-2.3)

Reduced (WC) 44.8*** (7.3) 23.5** (2.3)

0.79 21

0.0 (0.0) -13.5 (-1.2) -38.2* (-2.1) -48.1*** (-3.3) 0.38 21

-8.9* (-2.0)

0.82 21

0.83 21

Table 3: OLS Union Density, t-scores in parentheses

OLS Coverage Ghent system Wage coordination Extension Works council Union power Hold up Adj. R-squared N. obs. 0.18 21 Controls 21.42 (1.44) 41.29 (1.66) 15.89 (1.01) 13.01 (0.83) 16.12 (0.64) -13.75 (-0.69) 0.22 21 Labor Law Combined 55.80*** (3.93) 11.04 (0.59) 9.99 (0.88) 25.82** (2.21) 49.66** (2.50) 36.56* (1.98) 0.61 21 Reduced (Extension) 48.81*** (3.33) Reduced (WC) 59.20*** (4.41)

30.07*** (3.62) 35.02*** (4.63) 54.90*** (2.91) 35.22* (1.96) 0.52 21

42.29* (1.96) 30.75 (1.52) 0.63 21

Table 4: OLS Union Coverage, t-scores in parentheses

OLS E/R Density Ghent system Wage coordination Extension Works council Union power Hold up WC*Hold up Adj. R-squared N. obs. 0.05 20 0.26 20 0.26 20 0.30 20 Controls -12.23 (-0.72) 28.00 (1.69) 19.68 (1.24) 16.17 (0.99) -24.74 (-0.96) 18.96 (0.92) Labor Law Combined 9.37 (0.45) 31.58 (1.17) 15.92 (0.98) 16.99 (1.01) -18.69 (-0.66) 34.03 (1.23) Reduced (Extension) Reduced (WC*Hold Up)

36.35 (1.44) 24.82** (2.33)

32.64 (1.43)

33.81 (1.70) 49.07*** (2.93) 0.35 20

Table 5: OLS Employer Density, t-scores in parentheses

GLM Density Ghent system Wage coordination Extension Works council Union power Hold up AIC N. obs.

Controls 2.1416*** (11.62) 0.8433 (1.51)

Labor Law

Combined 1.6984*** (4.73) 1.3350* (1.83) -0.2891 (-1.07) -0.2812 (-1.31) -0.7841** (-2.13) -0.4770 (-1.09) 1.4453 21

Reduced (Extension) 1.9937*** (8.86) 1.2931* (1.80) -0.4544* (-1.73)

Reduced (WC) 1.8833*** (7.26) 1.2998* (1.84)

1.0787 21

-0.0046 (-0.01) -0.6364*** (-3.26) -1.8505*** (-2.87) -2.3616*** (-3.43) 1.3182 21

-0.4864 (-1.44)

-0.4542* (-1.82) -0.6706** (-2.44)

1.2573 21

1.2578 21

Table A1: GLM Union Density, t-scores in parentheses

GLM Coverage Ghent system Wage coordination Extension Works council Union power Hold up AIC N. obs. 1.1849 21 Controls 1.2402*** (2.78) 1.7365 (1.26) 0.6356 (1.17) 0.7394 (1.75) 0.8839 (0.98) -0.6733 (-0.69) 1.3438 21 Labor Law Combined 3.0588*** (5.28) 0.2767 (0.25) 0.3100 (0.65) 1.4982*** (3.74) 2.6419*** (3.70) 2.0704*** (2.65) 1.4281 21 Reduced (Extension) 2.4826*** (3.52) Reduced (WC) 3.2315*** (6.69)

1.4190*** (3.52) 1.7984*** (5.82) 2.9021*** (3.86) 2.1186*** (3.06) 1.2403 21

1.9419** (2.18) 1.4750 (1.43) 1.2732 21

Table A2: GLM Union Coverage, t-scores in parentheses

GLM E/R Density Ghent system Wage coordination Extension Works council Union power Hold up WC*Hold up AIC N. obs. 1.2934 20 1.4131 20 1.5869 20 1.3155 20 Controls -0.5031 (-1.28) 1.9820 (1.33) 0.8507 (1.37) 0.7273 (1.23) -1.1676 (-1.41) 0.8554 (1.29) Labor Law Combined 0.4478 (0.88) 1.5474 (1.45) 0.7160 (1.08) 0.7953 (1.11) -1.0136 (-1.08) 1.6180** (2.19) Reduced (Extension) Reduced (WC)

1.637062 (1.38) 1.0660*** (2.78)

1.3550 (1.08)

1.5155** (2.04) 2.2650*** (3.83) 1.2123 20

Table A3: GLM Employer Density, t-scores in parentheses