1794 marked the formation of the first union, the Federal Society of Journeymen Cordwainers, a union for leather workers and cobblers. The union was developed to stop the erosion of their industry by greedy factory owners at the start of the Industrial Revolution. Consequently, union power within Europe began to germinate and a symbiotic relationship between worker growth levels and union power began to take place. As a result, trade union membership across Europe grew from approximately 100,000 in the 1850s to 1m in 1874 as the labour force began to realise the impact of collective barging through unionisation on improved labour conditions, rights and pay. This revolutionised the way employees were viewed by their employers and subsequently tightened the boundaries of what was and wasn’t acceptable in terms of workers’ roles and duties and putting some of the power back into the hands of employees.
Union growth throughout history has been fairly procyclical, closely following the business cycle; in many countries a rise in unemployment tends to reduce union growth and density. However, union momentum is generally heightened during periods where workers view themselves to be at a disadvantage compared to the market, economy and/or company performance. We tend to see most movement when companies don’t react to macroeconomic signalling and conditional changes, for example, periods of high inflation and unchanged wage growth or periods of low economic growth with potential wage or job cuts as businesses experience recessionary squeeze, forcing them to make cost saving cuts.
Across Europe we can see key differences in trade union density by region: Scandinavian countries such as Denmark, Iceland, Sweden, and Finland on average have a trade union density of around 70.8% of the total work force; this is down 9% from 2000, but still considerably higher than countries such as the UK, Germany, Spain, Italy or France who collectively have an average of 19.2% of labour in a union compared to 23.5% in 2000. It is important to add, however, that youth union membership figures significantly declined over the last ten years while female memberships remain at an all-time high. The major decline in density across Europe is largely due to increased structural, cyclical and institutional factors with companies allowing colleagues to have their voices heard through in-house employee decision making.
Despite a decline in union density across Europe, it certainly doesn’t mean they’ve not been active and influential across multiple markets over the last year. Some of the most impactful union action taking place in Europe this summer has been within the airline industry, with companies such as Lufthansa, Ryanair and the airport operator ANA taking strike action. The disruptive nature of the strikes had been voted on by members of the union based on a collective view that wages aren’t keeping up with current inflation rates, as well as unfavourable working demands which may be over the normal workload.
An example of the impact of strike action was seen at the end of July 2022, when Lufthansa ground staff took strike action over a pay dispute. The union Verdi, which represents the ground staff, demanded a 9.5% pay hike, or at least €350 per month, for around 20,000 workers. This came after a series of complaints from workers about being underpaid and overworked as employees begin to feel the real inflationary squeeze induced by the rising oil prices across the western world. After numerous negotiations between Lufthansa and Verdi, the airline offered an increase of €150 per month for the rest of this year and another €100 from the start of 2023, plus a 2% increase from mid-2023 dependent on the company’s financial results. Verdi rejected the offer, saying it was insufficient to offset soaring inflation, which hit 8.2% in Germany in June. Consequently, the ground staff held a one-day strike, causing over 1,000 flight cancellations which saw Lufthansa prioritise first-class clients over its budget airline trips to reduce the overall cost of the strike and affecting thousands of customers awaiting holiday flights. As a result of the strike, both Lufthansa and Verdi agreed on an attractive 18-month wage agreement which sees an increase in gross base salaries of 8.3% for workers earning €6,500 a month and of 19.2% for those making €2,000; the rate at which workers will see an increase will also be dependent on the years of service at the company.
Lufthansa isn’t the only company that has been pressurised to take wage action for its workforce. ANA Aeroportos de Portugal, the airport authority of Portugal which manages around ten airports, is expecting a three-day strike action after both the Civil Aviation Workers’ Union (SINTAC) and the Commercial Aviation Staff Union (SQAC) accused ANA and French Group Vinci of not paying staff wages reflective of the current economy and workload while the organisations continue to make millions in profit.
Could the combination of rising wages and record high inflation cause a wage price spiral across the EU? Potentially - a wage price spiral occurs when rising wages cause an upward pressure on the price of goods and services in the economy, subsequently inducing further inflation. Industrial action across multiple markets and sectors could certainly be a factor in a wage price spiral environment. This is because, when firms raise wages, employees have greater disposable income. Rising wages mean more spending power and consumer choice, thus increasing the demand levels across the economy for goods and services. By using supply and demand analysis we know that when demand rises while supply remains constant, consumers have greater flows of money chasing fewer goods, therefore, the price of goods or service rises. When goods move up in price, demand for higher wages also moves up as firms begin to make higher short-term profits; rising wages cause firms to transfer these additional costs onto the goods or services being sold to maintain profit margins. This back-and-forth movement of both wage and price growth is what is known as the wage price spiral. The extent to which this spiral could take grip on the European economy will depend, at least somewhat, on how powerful unions are in bargaining higher wages, but also on how low the unemployment rate is across the economy and how impactful monetary policy is in dampening the speed of a potential wage price spiral.
This article was taken from the August
2022 issue of Market Insight. To subscribe to our investment publications, please visit
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