The Sectoral Composition of Trade Unions, Corporatism, and Economic Performance

Abstract

There has been considerable debate as to whether powerful trade unions in European Union (EU) member states are compatible either with the internal market or with monetary union. As macroeconomic performance has deteriorated in many corporatist countries since the 1980s — Sweden providing the paradigmatic case — doubts about the compatibility of strong labor movements and EU membership have grown. Is corporatism a relic of a different age, a luxury of the long postwar boom? Are strong unions detrimental to and destabilizing for the internal market and monetary union in the EU? This article answers these questions in the negative. We contend, however, that existing arguments about the macroeconomic consequences of corporatism should be significantly modified to take into account the impact of the growth of public sector unions on the relationship between institutional structure of labor movements and economic outcomes. The deteriorating performance commonly attributed to corporatism in the 1980s was limited to countries where public sector unions increasingly dominated national labor movements. Encompassing trade union movements can still generate wage restraint, but only where the union movement is dominated by unions in the exposed sector that are subject to the constraints posed by international market competition. Hence, countries, such as Austria and Finland, with strong labor movements led by exposed sector unions are likely to enjoy the benefits of EU membership without suffering great costs, whereas the costs will be greater for countries with strong public sector unions such as Sweden and Norway.