Abstract

We investigate the evolution of unionisation, considering both economic and institutional factors. While economists typically study the effects of labour market institutions treating unionisation as given, and focusing on rent-seeking motivations, in this paper we study how union membership is itself related to the economic environment and, in particular, to labour market institutions. If unions also provide insurance against income and/or unemployment risks, government policies aimed at increasing worker security can reduce workers ’ incentives to join unions. The empirical analysis, focussing on the evolution of union density in 14 European countries over the post-War period, suggests that labour market institutions are important in explaining the differences in unionisation patterns. Such policies as employment protection legislation, wage indexation, statutory minimum wages appear to crowd out unions, while institutional features that make it easier for unions to function (such as workplace representation and centralised wage bargaining) are empirically associated with higher unionisation. The traditional view of unions as rent-seeking organisations receives more limited support from the data. On the one hand, it appears that unions do effectively extract rents and attract membership in public sector jobs. On the other hand, product market deregulation does not appear to reduce membership (along with rents) in our dataset. In the context of the ongoing debate on flexibility-oriented reforms and evolving European institutions – such as the European Monetary Union (EMU), the European Social Charter (ESC) and more generally the system of welfare provisions – the results in this paper offer implications both for the design of European institutions as well as for future of trade unions in Europe.