Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 2003 1 (33)
LABOUR MARKET RE-REGULATION AND
ITS EFFECTS ON FREE-RIDING IN
NEW ZEALAND
DAVID WILKINSON,* RAYMOND HARBRIDGE* AND PAT WALSH**
F
ree-riding occurs where an employee gains a benefit without joining the union that
negotiated that benefit. New Zealand unions endured a decade of high levels of
free-riding under the Employment Contracts Act. This paper establishes that, in
New Zealand, collective bargaining coverage has a positive relationship with freeriding whereas union membership levels have a negative relationship. Free-riding in
New Zealand has fallen to pre-1991 levels with the re-regulation of employment
relations, indicating environment too may be an important factor. These findings have
implications for Australia where unions have sought to coerce membership through
applying a fee for service to non-members, while the Commonwealth Government
recently passed legislation preventing such coercion.
INTRODUCTION
It’s like signing a birthday card and not contributing for the present—they should
either pay the fee or not receive the negotiated benefit. (Health Services Union
National Assistant Secretary Jeff Jackson quoted in The Age, 16 February 2001, p. 6.)
Free-riding, in an employment relations context, is the situation where an
employee attains the benefits of a collectively negotiated agreement specifying
wages and other conditions of employment, without contributing to the cost of
the negotiations and the servicing of the agreement by joining the relevant union.
New Zealand’s decade of ‘employment contracting’ in the 1990s led to a spectacular collapse in union membership with unions losing over 50 per cent of
their members in just the first three years of labour market deregulation. Union
density collapsed from around 44 per cent to around 17 per cent over the decade
(May et al. 2001). That collapse has been attributed to the legislative failure to
externally legitimate New Zealand’s unions (Harbridge & Honeybone 1996).
Traditionally, in many occupations, unionists were ‘reluctant conscripts’ (Bramble
& Heal 1997, p. 133) and the abolition of external legitimisation led to serious
union decline.
* Graduate School of Management, La Trobe University. Email: rharbridge@latrobe.edu.au
** Industrial Relations Centre, Victoria University of Wellington. The research herein is part
of a larger study which receives funding from Public Good Science Fund administered by the
Foundation for Research Science and Technology (Contract no. VIC903). The research project
leaders are Raymond Harbridge and Pat Walsh. Robyn May is the Senior Research Fellow, Glen
Thickett is the Research Fellow and Catherine Otto provided research assistance.
THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 45, NO. 4, DECEMBER 2003, 529–538
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Elsewhere we have explored the impact of the lack of external legitimisation
specifically on free-riding rates. Free-riding grew from around 16 per cent
in 1989/90 under the system of industrial conciliation and arbitration, to
27 per cent in 1998/99 under the system of employment contracting (Harbridge
& Wilkinson 2001). We concluded that, in the absence of a legislative system
that allowed for coercion or ‘cheap-riding’, unions in industries with high labour
turnover rates had limited effective responses to free-riding. Restricting the
collective agreement to unionists only allowed the undermining of the agreement
with the formation of a (lower) tier agreement. Coupled with the traditional international explanations of unions decline,1 New Zealand unions have suffered
as changes to international trade and increased import competition led to an
inability to recruit and retain members where imported goods accounted for a
large and/or increasing share of domestic consumption (see Blumenfeld et al.
1999a, 1999b; Crawford & Walsh 1999). In addition to this ‘regular’ union
decline, New Zealand’s unions have experienced an important level of growth
in free-riding, with crippling levels of free-riding in the high labour turnover,
smaller employer, service based industries, since the introduction of the
Employment Contracts Act. Price and Bain (1989) note that periods of
institutional development, such as that which occurred during the 1990s in
New Zealand, are marked by:
Acute socio-political changes, which emerge from, and reflect the pre-existing
power resources available to the three main parties involved—State, employers and
workers, and the outcome of which is the interplay of these power resources . . . The
institutional and attitudinal arrangements which emerge out of these periods of
accelerated change impose key constraints on the subsequent development of union
organisation and collective bargaining; a paradigm shift (1989, p. 105).
A paradigm shift creates new patterns in the context of industrial relations,
primarily changes in labour laws and the powers and roles of regulatory
agencies, employer policies towards unionisation and collective bargaining,
collective bargaining structures, and union structures, political activities and
ideology. Once the new context is in place, the parties enter a period of institutional consolidation; they undergo changes of degrees rather than changes of
type until the next paradigm shift occurs (Chaison & Rose 1991). The election
of a Labour Coalition Government in late 1999 heralded just such a paradigm
shift. The new Government repealed the Employment Contracts Act 1991 and
replacement it with the Employment Relations Act 2000—a law designed to bring
about a ‘fairer’ system of bargaining in New Zealand. Whether this new
paradigm has effectively dealt with free-riding is the focus of this paper.
METHOD
The data reported herein on collective bargaining coverage and trade union
membership has been collected through the Employment Institutions Project
at the Industrial Relations Centre, Victoria University of Wellington, New
Zealand. The method for collecting that data is reported in May et al. (2001) and
Harbridge et al. (2001). The data reported on employment has been obtained
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from the Statistics New Zealand series, Household Labour Force Survey. The
data is disaggregated at two-digit industry level. It is not possible to sensibly
calculate collective bargaining coverage at two digit industry level for 1991 as
some 180 000 employees were then covered by multi-employer awards
negotiated on an occupational (rather than industry) basis. Data for two
major industry categories have been omitted in the results presented. Data for
the largely un-unionised agricultural sector is generally omitted in employment
relations research as it distorts the results; the data for the mining sector has been
excluded as the numbers involved are small and probably unreliable. In some
categories we present the data at (major industry) one digit level. We present
the raw data and then regress the data to explore explanations as to the trends.
RE-REGULATION
AND FREE-RIDING
The post-entry closed shop system of essentially compulsory union membership
existed in New Zealand in one form or another, and with brief periods of
voluntary unionism, from 1936 until 1991. Workers covered by an award or
collective agreement were required by the terms of that agreement to join
the union that had negotiated it. Free-riding did exist, but only through
non-enforcement of the terms of the agreement. By 1991 we estimated that
free-riding ran at around 16 per cent of collective bargaining coverage. The
Employment Contracts Act outlawed any form of compulsion over union
membership, and enabled a variety of explicit and implicit forms of free-riding
to take place. Employers generally applied the union negotiated collective
agreement to all employees. The transactional costs of negotiating multiple
individual employment contracts encouraged employers simply to apply the
collective. Employees frequently found little incentive to join the union in
these circumstances. They got the benefit of the collective agreement without
needing to join the union and accordingly free-riding rose to some 27 per cent
by the end of the 1990s (Harbridge & Wilkinson 2001). Oxenbridge (1998)
examined free-riding in two unions positioned in the low wage, service orientated industries. She found that officials of the union, along with members
and delegates, used ‘peer pressure’, ‘guilt’ and ‘humiliation’ appeals to persuade
employees to join, while other officials ‘sold’ membership on the basis of
contract enforcement and benefits. Neither method was reported as particularly
successful. One of the unions studied reported that some anti-union employers
were ‘ . . . using HRM techniques . . . to persuade workers that since nonmembers received the same wages as members there was little to gain from union
membership’ (Oxenbridge 1998, p. 307).
The Employment Relations Act 2000 offers a different philosophy to the
regulation of industrial relations, clearly promoting collective bargaining, and
promoting the observance of ILO Conventions 87 on Freedom of Association
and 98 on the Right to Organise and Bargaining Collectively. Unions are
re-legitimised through a process of registration. The objects of the new Act
are, with respect to the recognition and operation of unions:
• to recognise the role of unions in promoting their members’ collective
interests;
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•
to provide for the registration of unions that are accountable to their
members;
• to confer on registered unions the right to represent their members in
collective bargaining; and
• to provide representatives of registered unions with reasonable access to
workplaces for purposes related to employment and union business.
Towards the end of the Employment Contracts Act regime there had been
approximately 80–85 active unions. A further 80 unions have registered under
the new legislation. Registration is a precursor to bargaining and accordingly
is of interest. Registered unions have the sole right to undertake collective
bargaining. Collective bargaining is to be undertaken in a duty of good faith.
The obligations of the duty of good faith in the New Zealand context are somewhat onerous and are discussed in detail, along with the general bargaining
provisions, in Walsh and Harbridge (2001).
The Employment Relations Act deals with the issue of free-riding ineffectively.
The Employment Contracts Act allowed new employees to join the collective
employment contract, but it was not mandatory and many unions were unable
to write provisions into their contracts that gave new employees the right to the
existing contract. By 1999/2000, around 37 per cent of employees covered by
collective employment contracts were on contracts that did not provide for
automatic extension of the contract to new employees (Harbridge & Crawford
2000). The Employment Relations Act gives force to the principle of ‘join the
union, join the contract’. This means that a new employee will automatically be
bound by the terms of any applicable collective agreement where he or she is a
member of the negotiating union. In other cases, the Act provides that where
there is an applicable collective agreement in place, new employees will be
employed on an individual employment agreement containing the relevant
terms and conditions of the collective. For the first 30 days of employment any
variations to these terms cannot be inconsistent with, that is no less favourable
to the employee than, those contained in the collective. Only at the expiry of
this 30 day period, and providing the employee does not subsequently become
a union member, can the new employee’s terms and conditions be varied without
Table 1
Employment relations data for selected industries, 1991–2001
Variable
1991
1999
2000
2001
1311.70
N/A
495.4
37.8%
1521.90
416.8
299.0
19.6%
1644.20
388.7
315.5
19.2%
1678.40
388.6
326.9
19.5%
28.3%
18.8%
15.9%
Employment
Collective bargaining coverage
Trade Union membership
Union membership as
a ratio of employment
Free-riding
N/A
Note: Collective bargaining coverage for all industries in 1989/90 was some 721 000 employees. This fell
to some 610 000 employees by the end of 1991. Free-riding across all industries in 1991 was 16 per cent.
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regard to the terms of the collective agreement. In effect, the Act provides for
the automatic extension of the terms and conditions of a collective agreement to
all new employees. Accordingly, it seems likely that while the intention of the
legislation was to encourage employees to join the union to receive the benefits
of the collective agreement, there is no real incentive to do so as the employer
cannot unilaterally apply an inconsistent agreement. The ‘new employee’ and
‘coverage’ clause issue has proved difficult to manage in reality. A good number
of new agreements entered into appear to have extended the coverage of the
agreement to all employees, regardless of the legal position which requires
employees to be union members before coverage can be assumed. Free-riding
had the potential to remain a significant problem.
The data in Table 1 summarise general trends across the selected industries.
The Employment Relations Act took effect from October 2000. The data show
that:
• employment grew during the period of the Employment Contracts Act and
under the Employment Relations Act;
• collective bargaining coverage collapsed during the period of the Employment
Contracts Act and is largely unchanged under the Employment Relations Act;
• trade union membership collapsed during the period of the Employment
Contracts Act but has increased slightly under the Employment Relations
Act;
• trade union membership as a ratio of employment decreased during the period
of the Employment Contracts Act and has increased slightly under the
Employment Relations Act; and
• free-riding increased under the Employment Contracts Act but has decreased
back to 1990 levels under the Employment Relations Act. Notably, freeriding has decreased by more than 40 per cent since 1999.
We have explored free-riding in detail over a three year period from 1999 to 2001.
During this period three distinct bargaining environments existed. Bargaining
in 1999 was conducted under the Employment Contracts legislation. Bargaining
in 2000 was conducted in a transitional climate—with a newly elected
Labour/Alliance Coalition committed to the repeal of the Employment Contracts
Act and its replacement by ‘fairer’ legislation; this new legislation took effect from
Table 2
Determinants of free-riding, 1999
Standardised
coefficients
Constant
Union membership 1991
Union membership 1999
Employment 1999
Collective bargaining coverage 1999
–0.189
–3.375
0.029
3.288
Dependant variable: Free-riding in 1999. Adjusted R2: 0.639
t
Significance
3.322
–0.422
–3.864
0.076
2.995
0.004
0.678
0.001
0.941
0.009
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October 2000. Bargaining in 2001 was conducted under the Employment
Relations Act, a re-regulation of the bargaining rules.
In an attempt to explain some of the factors determining free-riding, several
regression models were run. The dependant variable was free-riding by industry
in three years: 1999, 2000 and 2001. The independent variables were union
membership by industry in 1991, 1999, 2000 and 2001; employment by industry
in 1999, 2000 and 2001; and collective bargaining coverage by industry for 1999,
2000 and 2001.
The hypothesis underlying each model was similar: that free-riding was
inversely related to the level of union membership by industry, positively related
to the level of employment in each industry and, positively related to the
level of collective bargaining in each industry. The first part of the regression
(a negative relationship between free-riding and union membership) would appear
self-evident. However, by itself, it may be misleading in that union membership
may be low as a consequence of low employment in an industry sector. This leads
to the second component of the regression analysis: a positive relationship
between free-riding and employment in each industry sector. If industry
employment is high, but union membership is low, it implies, ceteris paribus, that
free riding must be higher. Finally, given that a primary function of unions is
to be successful in wage bargaining, the existence of higher levels of collective
bargaining leads to an incentive for employees to free-ride.
Table 3
Determinants of free-riding, 2000
Standardised
coefficients
Constant
Union membership 1999
Union membership 2000
Employment 2000
Collective bargaining coverage 2000
–0.741
–3.178
–0.030
3.882
t
Significance
0.237
–0.227
–1.091
–0.086
3.870
0.816
0.823
0.292
0.932
0.001
t
Significance
–0.075
0.433
–1.636
–0.169
2.911
0.941
0.664
0.121
0.868
0.010
Dependant variable: Free-riding in 2000. Adjusted R2: 0.708
Table 4
Determinants of free-riding, 2001
Standardised
coefficients
Constant
Union membership 1999
Union membership 2001
Employment 2001
Collective bargaining coverage 2001
1.255
–4.731
–0.070
3.506
Dependant variable: Free-riding in 2001. Adjusted R2: 0.427
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The results of the regression analyses are shown in Tables 2 to 5. The tables
indicate that only one independent variable is consistently significant in each case,
this being collective bargaining. In each case, collective bargaining has a
positive relationship with free-riding—that is, the higher the level of collective
bargaining, the higher the level of free-riding. As noted earlier, given that
collective bargaining is a central aim of unions, these results indicate that the
more successful a union is in undertaking such activities, the more it encourages
free-riding.
The second hypothesis—that there is a positive relationship between freeriding and industry employment—is not supported. Table 2, for the year 1999,
does show a small, positive relationship. This is not significant however. The
remaining Tables show small but negative relationships, again not significant.
The union membership variables show mixed results. Each model contains
two measures for union membership. One for the year in which free-riding is
measured and one for an earlier period (for example union membership in 2000,
union membership in 2001 and free-riding in 2001—Table 5). This variable was
incorporated into the models in order to see whether the size of a union in an
earlier period impacted on the free-riding issue. The results were mixed.
Union membership for the year in which free riding is measured shows a
negative relationship with free-riding in all models—that is, the higher the level
of union membership, the lower the level of free-riding. However, this variable
is only significant in 1999 (Table 2) and in one of the models for 2001 (Table 5).
However, the variable showing union membership for an earlier period showed
a negative relationship in the two earlier models (Tables 2 and 3) and a positive
relationship in the later two models (Tables 4 and 5). This variable was not significant in any model.
The models for 1999 and 2000 (Tables 2 and 3) indicate that they are
good overall estimators of free-riding, with adjusted R2 of 0.639 and 0.708,
respectively. The same models for 2001 (Tables 4 and 5) do not perform as
well, the adjusted R2 declining to 0.427 and 0.468, respectively, even though
collective bargaining remains highly significant. Since the models are identical
in terms of independent variables used (other than the years involved), this is
suggestive that other factors have changed.
Table 5
Determinants of free-riding, 2001
Standardised
coefficients
Constant
Union membership 2000
Union membership 2001
Employment 2001
Collective bargaining coverage 2001
4.404
–8.338
–0.158
4.050
Dependant variable: Free-riding in 2001. Adjusted R2: 0.468
t
Significance
–0.145
1.192
–2.012
–0.399
3.333
0.886
0.251
0.061
0.695
0.004
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DISCUSSION
Free-riding is an issue for Australian and New Zealand unions. Users are not
paying, well not all users are paying. Coercion is no longer an option for New
Zealand unions. Apart from being illegal, the general climate (both political and
public opinion) would not permit it. Australian unions have recently attempted
the coercion path, applying the agency shop variation which is widely used
throughout the USA.2 In February 2001, the Australian Industrial Relations
Commission ruled that a $500 service fee for non-union workers introduced by
the Electrical Trades Union was legally valid. This was adoption in practice of
policy enacted at the June 2000 Australian Council of Trade Unions Congress.
The response from the ‘furious’ Workplace Relations Minister, Tony Abbott, was
swift and on two fronts. First, and as an employer, the Government, through
the Department of Workplace Relations, wrote to public service agency and
department heads advising them not to include service fees in workplace agreements for Australia’s 100 000 public servants. The spokeswoman for the Minister
was quoted as saying: ‘It’s just an advice, but we think it will be fairly persuasive’
(reported in The Age, 21 February 2001, p. 4). Second, the Government introduced, on 23 May, the Workplace Relations Amendment (Prohibition of
Compulsory Union Fees) Bill 2001. The purpose of the Bill was simple: to
prohibit the inclusion in enterprise agreements of a clause allowing industrial
organisations to charge a fee for service in respect of enterprise bargaining
negotiations.
After several rejections by the Senate, followed by a compromise by the
Government, the Bill was finally passed by Senate on 26 March 2003, coming
into effect on 9 May 2003. The compromise agreed to by the Government means
that new legislation opens the door for bargaining fees if the employees agree
to pay them. This was a backdown by the Government which had rejected the
concept of permissible bargaining fees the previous August.
Just prior to this (January 2003) a Full Bench of the Australian Industrial
Relations Commission, hearing an appeal on earlier decisions, ruled that union
bargaining fees were not matters that pertain to the employment relationship
between employers and employees, and therefore were not industrial matters that
could be included in a certified agreement. The situation is somewhat confused
however as the Industrial Relations Commissions of both New South Wales
(December 2002) and South Australia (June 2003) have ruled that bargaining fees
can be charged.
New Zealand unions have not resorted to the agency shop course of action.
Rather they have continued, in difficult circumstances, to keep bargaining and
to keep recruiting members. In addition, of course, they have worked for legislative change to give themselves a ‘fairer’ system than that operating under
the Employment Contracts Act. Free-riding rose dramatically under the
Employment Contracts Act from around 16 per cent to 27 per cent. With the
implementation of the Employment Relations Act, free-riding has fallen back
to around 16 per cent. The data presented above indicate that unions face a
paradox—where they are ultra-successful with getting a collective bargain, they
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suffer the fate of facing higher levels of free-riding. Where they are successful
in getting high levels of union membership within an industry, they experience
lower levels of free-riding. Quite a conundrum really.
While New Zealand unions may well be pleased with the recent fall in
free-riding levels, they would be less pleased with the overall results delivered
by the Employment Relations Act. Collective bargaining coverage levels remain
at approximately the same levels they have been at since about 1993—around
400 000 employees. While union decline has ended and union growth has
emerged, that growth has been low. However, union density has remained at 1999
levels. Growth in the workforce is not being matched by a growth in either union
density or collective bargaining coverage.
A fall in free-riding has occurred despite the apparent ineffectiveness of
the Act in dealing legislatively with the issue. In our analysis of the data, we
proposed that comparatively low adjusted R2 scores were suggestive of other
factors being responsible in the fall in free-riding since the implementation
of the Employment Relations Act. Such factors are not captured by the data
gathered. One such factor could well be climate or environment. The
Government in implementing the Employment Relations Act made much of
‘fairness’ in bargaining. We have previously reported (Harbridge et al. 2002)
that interviews with the Secretaries of four large New Zealand unions had indicated that non-members were now reporting that ‘seeing as it is now legal to
join . . .’ Union membership had not been illegal under the Employment
Contracts Act. However, the harsh environment of that Act, coupled with
employer ascendancy during the early years of the Act, may well have led
employees to believe it either was illegal, or was certainly not the correct thing
to do. The ‘fair’ environment of the new legislation could well be the important
other factor influencing the fall in free-riding. Climate or environment in such
circumstances is difficult, if not impossible, to quantify in the way we have
quantified other factors. What we do know for certain is that, at industry level,
unions that attain high levels of collective bargaining penetration experience
high levels of free-riding. This result, however, leads to a basic contradiction
for unions.
Earlier work by on the determinants of union growth (Harbridge et al. 2002)
showed that union growth is a function of collective bargaining, but so is free
riding. The more successful is the level of collective bargaining, the greater
is the ability to retain or attract new members, but the greater is the incentive,
ceteris paribus, for free riding to occur. The results reported here would further
support that initial finding.
In the absence of legislative support, free riding is likely to remain a problem
for unions in both Australia and New Zealand.
ENDNOTES
1.
2.
Union decline is primarily attributed to macro-economic or business cycle conditions and sharp
rises in unemployment (Bain & Price 1983; Tyler 1986); and the shift from manufacturing to
services, contingent employment and changes in firm size (Troy 1990; Peetz 1998).
See Orr (2001) for a comprehensive review of the agency shop in the USA, and for discussion
of the current situation in Australia.
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ITS EFFECTS ON FREE-RIDING IN
NEW ZEALAND
DAVID WILKINSON,* RAYMOND HARBRIDGE* AND PAT WALSH**
F
ree-riding occurs where an employee gains a benefit without joining the union that
negotiated that benefit. New Zealand unions endured a decade of high levels of
free-riding under the Employment Contracts Act. This paper establishes that, in
New Zealand, collective bargaining coverage has a positive relationship with freeriding whereas union membership levels have a negative relationship. Free-riding in
New Zealand has fallen to pre-1991 levels with the re-regulation of employment
relations, indicating environment too may be an important factor. These findings have
implications for Australia where unions have sought to coerce membership through
applying a fee for service to non-members, while the Commonwealth Government
recently passed legislation preventing such coercion.
INTRODUCTION
It’s like signing a birthday card and not contributing for the present—they should
either pay the fee or not receive the negotiated benefit. (Health Services Union
National Assistant Secretary Jeff Jackson quoted in The Age, 16 February 2001, p. 6.)
Free-riding, in an employment relations context, is the situation where an
employee attains the benefits of a collectively negotiated agreement specifying
wages and other conditions of employment, without contributing to the cost of
the negotiations and the servicing of the agreement by joining the relevant union.
New Zealand’s decade of ‘employment contracting’ in the 1990s led to a spectacular collapse in union membership with unions losing over 50 per cent of
their members in just the first three years of labour market deregulation. Union
density collapsed from around 44 per cent to around 17 per cent over the decade
(May et al. 2001). That collapse has been attributed to the legislative failure to
externally legitimate New Zealand’s unions (Harbridge & Honeybone 1996).
Traditionally, in many occupations, unionists were ‘reluctant conscripts’ (Bramble
& Heal 1997, p. 133) and the abolition of external legitimisation led to serious
union decline.
* Graduate School of Management, La Trobe University. Email: rharbridge@latrobe.edu.au
** Industrial Relations Centre, Victoria University of Wellington. The research herein is part
of a larger study which receives funding from Public Good Science Fund administered by the
Foundation for Research Science and Technology (Contract no. VIC903). The research project
leaders are Raymond Harbridge and Pat Walsh. Robyn May is the Senior Research Fellow, Glen
Thickett is the Research Fellow and Catherine Otto provided research assistance.
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Elsewhere we have explored the impact of the lack of external legitimisation
specifically on free-riding rates. Free-riding grew from around 16 per cent
in 1989/90 under the system of industrial conciliation and arbitration, to
27 per cent in 1998/99 under the system of employment contracting (Harbridge
& Wilkinson 2001). We concluded that, in the absence of a legislative system
that allowed for coercion or ‘cheap-riding’, unions in industries with high labour
turnover rates had limited effective responses to free-riding. Restricting the
collective agreement to unionists only allowed the undermining of the agreement
with the formation of a (lower) tier agreement. Coupled with the traditional international explanations of unions decline,1 New Zealand unions have suffered
as changes to international trade and increased import competition led to an
inability to recruit and retain members where imported goods accounted for a
large and/or increasing share of domestic consumption (see Blumenfeld et al.
1999a, 1999b; Crawford & Walsh 1999). In addition to this ‘regular’ union
decline, New Zealand’s unions have experienced an important level of growth
in free-riding, with crippling levels of free-riding in the high labour turnover,
smaller employer, service based industries, since the introduction of the
Employment Contracts Act. Price and Bain (1989) note that periods of
institutional development, such as that which occurred during the 1990s in
New Zealand, are marked by:
Acute socio-political changes, which emerge from, and reflect the pre-existing
power resources available to the three main parties involved—State, employers and
workers, and the outcome of which is the interplay of these power resources . . . The
institutional and attitudinal arrangements which emerge out of these periods of
accelerated change impose key constraints on the subsequent development of union
organisation and collective bargaining; a paradigm shift (1989, p. 105).
A paradigm shift creates new patterns in the context of industrial relations,
primarily changes in labour laws and the powers and roles of regulatory
agencies, employer policies towards unionisation and collective bargaining,
collective bargaining structures, and union structures, political activities and
ideology. Once the new context is in place, the parties enter a period of institutional consolidation; they undergo changes of degrees rather than changes of
type until the next paradigm shift occurs (Chaison & Rose 1991). The election
of a Labour Coalition Government in late 1999 heralded just such a paradigm
shift. The new Government repealed the Employment Contracts Act 1991 and
replacement it with the Employment Relations Act 2000—a law designed to bring
about a ‘fairer’ system of bargaining in New Zealand. Whether this new
paradigm has effectively dealt with free-riding is the focus of this paper.
METHOD
The data reported herein on collective bargaining coverage and trade union
membership has been collected through the Employment Institutions Project
at the Industrial Relations Centre, Victoria University of Wellington, New
Zealand. The method for collecting that data is reported in May et al. (2001) and
Harbridge et al. (2001). The data reported on employment has been obtained
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from the Statistics New Zealand series, Household Labour Force Survey. The
data is disaggregated at two-digit industry level. It is not possible to sensibly
calculate collective bargaining coverage at two digit industry level for 1991 as
some 180 000 employees were then covered by multi-employer awards
negotiated on an occupational (rather than industry) basis. Data for two
major industry categories have been omitted in the results presented. Data for
the largely un-unionised agricultural sector is generally omitted in employment
relations research as it distorts the results; the data for the mining sector has been
excluded as the numbers involved are small and probably unreliable. In some
categories we present the data at (major industry) one digit level. We present
the raw data and then regress the data to explore explanations as to the trends.
RE-REGULATION
AND FREE-RIDING
The post-entry closed shop system of essentially compulsory union membership
existed in New Zealand in one form or another, and with brief periods of
voluntary unionism, from 1936 until 1991. Workers covered by an award or
collective agreement were required by the terms of that agreement to join
the union that had negotiated it. Free-riding did exist, but only through
non-enforcement of the terms of the agreement. By 1991 we estimated that
free-riding ran at around 16 per cent of collective bargaining coverage. The
Employment Contracts Act outlawed any form of compulsion over union
membership, and enabled a variety of explicit and implicit forms of free-riding
to take place. Employers generally applied the union negotiated collective
agreement to all employees. The transactional costs of negotiating multiple
individual employment contracts encouraged employers simply to apply the
collective. Employees frequently found little incentive to join the union in
these circumstances. They got the benefit of the collective agreement without
needing to join the union and accordingly free-riding rose to some 27 per cent
by the end of the 1990s (Harbridge & Wilkinson 2001). Oxenbridge (1998)
examined free-riding in two unions positioned in the low wage, service orientated industries. She found that officials of the union, along with members
and delegates, used ‘peer pressure’, ‘guilt’ and ‘humiliation’ appeals to persuade
employees to join, while other officials ‘sold’ membership on the basis of
contract enforcement and benefits. Neither method was reported as particularly
successful. One of the unions studied reported that some anti-union employers
were ‘ . . . using HRM techniques . . . to persuade workers that since nonmembers received the same wages as members there was little to gain from union
membership’ (Oxenbridge 1998, p. 307).
The Employment Relations Act 2000 offers a different philosophy to the
regulation of industrial relations, clearly promoting collective bargaining, and
promoting the observance of ILO Conventions 87 on Freedom of Association
and 98 on the Right to Organise and Bargaining Collectively. Unions are
re-legitimised through a process of registration. The objects of the new Act
are, with respect to the recognition and operation of unions:
• to recognise the role of unions in promoting their members’ collective
interests;
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•
to provide for the registration of unions that are accountable to their
members;
• to confer on registered unions the right to represent their members in
collective bargaining; and
• to provide representatives of registered unions with reasonable access to
workplaces for purposes related to employment and union business.
Towards the end of the Employment Contracts Act regime there had been
approximately 80–85 active unions. A further 80 unions have registered under
the new legislation. Registration is a precursor to bargaining and accordingly
is of interest. Registered unions have the sole right to undertake collective
bargaining. Collective bargaining is to be undertaken in a duty of good faith.
The obligations of the duty of good faith in the New Zealand context are somewhat onerous and are discussed in detail, along with the general bargaining
provisions, in Walsh and Harbridge (2001).
The Employment Relations Act deals with the issue of free-riding ineffectively.
The Employment Contracts Act allowed new employees to join the collective
employment contract, but it was not mandatory and many unions were unable
to write provisions into their contracts that gave new employees the right to the
existing contract. By 1999/2000, around 37 per cent of employees covered by
collective employment contracts were on contracts that did not provide for
automatic extension of the contract to new employees (Harbridge & Crawford
2000). The Employment Relations Act gives force to the principle of ‘join the
union, join the contract’. This means that a new employee will automatically be
bound by the terms of any applicable collective agreement where he or she is a
member of the negotiating union. In other cases, the Act provides that where
there is an applicable collective agreement in place, new employees will be
employed on an individual employment agreement containing the relevant
terms and conditions of the collective. For the first 30 days of employment any
variations to these terms cannot be inconsistent with, that is no less favourable
to the employee than, those contained in the collective. Only at the expiry of
this 30 day period, and providing the employee does not subsequently become
a union member, can the new employee’s terms and conditions be varied without
Table 1
Employment relations data for selected industries, 1991–2001
Variable
1991
1999
2000
2001
1311.70
N/A
495.4
37.8%
1521.90
416.8
299.0
19.6%
1644.20
388.7
315.5
19.2%
1678.40
388.6
326.9
19.5%
28.3%
18.8%
15.9%
Employment
Collective bargaining coverage
Trade Union membership
Union membership as
a ratio of employment
Free-riding
N/A
Note: Collective bargaining coverage for all industries in 1989/90 was some 721 000 employees. This fell
to some 610 000 employees by the end of 1991. Free-riding across all industries in 1991 was 16 per cent.
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regard to the terms of the collective agreement. In effect, the Act provides for
the automatic extension of the terms and conditions of a collective agreement to
all new employees. Accordingly, it seems likely that while the intention of the
legislation was to encourage employees to join the union to receive the benefits
of the collective agreement, there is no real incentive to do so as the employer
cannot unilaterally apply an inconsistent agreement. The ‘new employee’ and
‘coverage’ clause issue has proved difficult to manage in reality. A good number
of new agreements entered into appear to have extended the coverage of the
agreement to all employees, regardless of the legal position which requires
employees to be union members before coverage can be assumed. Free-riding
had the potential to remain a significant problem.
The data in Table 1 summarise general trends across the selected industries.
The Employment Relations Act took effect from October 2000. The data show
that:
• employment grew during the period of the Employment Contracts Act and
under the Employment Relations Act;
• collective bargaining coverage collapsed during the period of the Employment
Contracts Act and is largely unchanged under the Employment Relations Act;
• trade union membership collapsed during the period of the Employment
Contracts Act but has increased slightly under the Employment Relations
Act;
• trade union membership as a ratio of employment decreased during the period
of the Employment Contracts Act and has increased slightly under the
Employment Relations Act; and
• free-riding increased under the Employment Contracts Act but has decreased
back to 1990 levels under the Employment Relations Act. Notably, freeriding has decreased by more than 40 per cent since 1999.
We have explored free-riding in detail over a three year period from 1999 to 2001.
During this period three distinct bargaining environments existed. Bargaining
in 1999 was conducted under the Employment Contracts legislation. Bargaining
in 2000 was conducted in a transitional climate—with a newly elected
Labour/Alliance Coalition committed to the repeal of the Employment Contracts
Act and its replacement by ‘fairer’ legislation; this new legislation took effect from
Table 2
Determinants of free-riding, 1999
Standardised
coefficients
Constant
Union membership 1991
Union membership 1999
Employment 1999
Collective bargaining coverage 1999
–0.189
–3.375
0.029
3.288
Dependant variable: Free-riding in 1999. Adjusted R2: 0.639
t
Significance
3.322
–0.422
–3.864
0.076
2.995
0.004
0.678
0.001
0.941
0.009
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October 2000. Bargaining in 2001 was conducted under the Employment
Relations Act, a re-regulation of the bargaining rules.
In an attempt to explain some of the factors determining free-riding, several
regression models were run. The dependant variable was free-riding by industry
in three years: 1999, 2000 and 2001. The independent variables were union
membership by industry in 1991, 1999, 2000 and 2001; employment by industry
in 1999, 2000 and 2001; and collective bargaining coverage by industry for 1999,
2000 and 2001.
The hypothesis underlying each model was similar: that free-riding was
inversely related to the level of union membership by industry, positively related
to the level of employment in each industry and, positively related to the
level of collective bargaining in each industry. The first part of the regression
(a negative relationship between free-riding and union membership) would appear
self-evident. However, by itself, it may be misleading in that union membership
may be low as a consequence of low employment in an industry sector. This leads
to the second component of the regression analysis: a positive relationship
between free-riding and employment in each industry sector. If industry
employment is high, but union membership is low, it implies, ceteris paribus, that
free riding must be higher. Finally, given that a primary function of unions is
to be successful in wage bargaining, the existence of higher levels of collective
bargaining leads to an incentive for employees to free-ride.
Table 3
Determinants of free-riding, 2000
Standardised
coefficients
Constant
Union membership 1999
Union membership 2000
Employment 2000
Collective bargaining coverage 2000
–0.741
–3.178
–0.030
3.882
t
Significance
0.237
–0.227
–1.091
–0.086
3.870
0.816
0.823
0.292
0.932
0.001
t
Significance
–0.075
0.433
–1.636
–0.169
2.911
0.941
0.664
0.121
0.868
0.010
Dependant variable: Free-riding in 2000. Adjusted R2: 0.708
Table 4
Determinants of free-riding, 2001
Standardised
coefficients
Constant
Union membership 1999
Union membership 2001
Employment 2001
Collective bargaining coverage 2001
1.255
–4.731
–0.070
3.506
Dependant variable: Free-riding in 2001. Adjusted R2: 0.427
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The results of the regression analyses are shown in Tables 2 to 5. The tables
indicate that only one independent variable is consistently significant in each case,
this being collective bargaining. In each case, collective bargaining has a
positive relationship with free-riding—that is, the higher the level of collective
bargaining, the higher the level of free-riding. As noted earlier, given that
collective bargaining is a central aim of unions, these results indicate that the
more successful a union is in undertaking such activities, the more it encourages
free-riding.
The second hypothesis—that there is a positive relationship between freeriding and industry employment—is not supported. Table 2, for the year 1999,
does show a small, positive relationship. This is not significant however. The
remaining Tables show small but negative relationships, again not significant.
The union membership variables show mixed results. Each model contains
two measures for union membership. One for the year in which free-riding is
measured and one for an earlier period (for example union membership in 2000,
union membership in 2001 and free-riding in 2001—Table 5). This variable was
incorporated into the models in order to see whether the size of a union in an
earlier period impacted on the free-riding issue. The results were mixed.
Union membership for the year in which free riding is measured shows a
negative relationship with free-riding in all models—that is, the higher the level
of union membership, the lower the level of free-riding. However, this variable
is only significant in 1999 (Table 2) and in one of the models for 2001 (Table 5).
However, the variable showing union membership for an earlier period showed
a negative relationship in the two earlier models (Tables 2 and 3) and a positive
relationship in the later two models (Tables 4 and 5). This variable was not significant in any model.
The models for 1999 and 2000 (Tables 2 and 3) indicate that they are
good overall estimators of free-riding, with adjusted R2 of 0.639 and 0.708,
respectively. The same models for 2001 (Tables 4 and 5) do not perform as
well, the adjusted R2 declining to 0.427 and 0.468, respectively, even though
collective bargaining remains highly significant. Since the models are identical
in terms of independent variables used (other than the years involved), this is
suggestive that other factors have changed.
Table 5
Determinants of free-riding, 2001
Standardised
coefficients
Constant
Union membership 2000
Union membership 2001
Employment 2001
Collective bargaining coverage 2001
4.404
–8.338
–0.158
4.050
Dependant variable: Free-riding in 2001. Adjusted R2: 0.468
t
Significance
–0.145
1.192
–2.012
–0.399
3.333
0.886
0.251
0.061
0.695
0.004
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DISCUSSION
Free-riding is an issue for Australian and New Zealand unions. Users are not
paying, well not all users are paying. Coercion is no longer an option for New
Zealand unions. Apart from being illegal, the general climate (both political and
public opinion) would not permit it. Australian unions have recently attempted
the coercion path, applying the agency shop variation which is widely used
throughout the USA.2 In February 2001, the Australian Industrial Relations
Commission ruled that a $500 service fee for non-union workers introduced by
the Electrical Trades Union was legally valid. This was adoption in practice of
policy enacted at the June 2000 Australian Council of Trade Unions Congress.
The response from the ‘furious’ Workplace Relations Minister, Tony Abbott, was
swift and on two fronts. First, and as an employer, the Government, through
the Department of Workplace Relations, wrote to public service agency and
department heads advising them not to include service fees in workplace agreements for Australia’s 100 000 public servants. The spokeswoman for the Minister
was quoted as saying: ‘It’s just an advice, but we think it will be fairly persuasive’
(reported in The Age, 21 February 2001, p. 4). Second, the Government introduced, on 23 May, the Workplace Relations Amendment (Prohibition of
Compulsory Union Fees) Bill 2001. The purpose of the Bill was simple: to
prohibit the inclusion in enterprise agreements of a clause allowing industrial
organisations to charge a fee for service in respect of enterprise bargaining
negotiations.
After several rejections by the Senate, followed by a compromise by the
Government, the Bill was finally passed by Senate on 26 March 2003, coming
into effect on 9 May 2003. The compromise agreed to by the Government means
that new legislation opens the door for bargaining fees if the employees agree
to pay them. This was a backdown by the Government which had rejected the
concept of permissible bargaining fees the previous August.
Just prior to this (January 2003) a Full Bench of the Australian Industrial
Relations Commission, hearing an appeal on earlier decisions, ruled that union
bargaining fees were not matters that pertain to the employment relationship
between employers and employees, and therefore were not industrial matters that
could be included in a certified agreement. The situation is somewhat confused
however as the Industrial Relations Commissions of both New South Wales
(December 2002) and South Australia (June 2003) have ruled that bargaining fees
can be charged.
New Zealand unions have not resorted to the agency shop course of action.
Rather they have continued, in difficult circumstances, to keep bargaining and
to keep recruiting members. In addition, of course, they have worked for legislative change to give themselves a ‘fairer’ system than that operating under
the Employment Contracts Act. Free-riding rose dramatically under the
Employment Contracts Act from around 16 per cent to 27 per cent. With the
implementation of the Employment Relations Act, free-riding has fallen back
to around 16 per cent. The data presented above indicate that unions face a
paradox—where they are ultra-successful with getting a collective bargain, they
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suffer the fate of facing higher levels of free-riding. Where they are successful
in getting high levels of union membership within an industry, they experience
lower levels of free-riding. Quite a conundrum really.
While New Zealand unions may well be pleased with the recent fall in
free-riding levels, they would be less pleased with the overall results delivered
by the Employment Relations Act. Collective bargaining coverage levels remain
at approximately the same levels they have been at since about 1993—around
400 000 employees. While union decline has ended and union growth has
emerged, that growth has been low. However, union density has remained at 1999
levels. Growth in the workforce is not being matched by a growth in either union
density or collective bargaining coverage.
A fall in free-riding has occurred despite the apparent ineffectiveness of
the Act in dealing legislatively with the issue. In our analysis of the data, we
proposed that comparatively low adjusted R2 scores were suggestive of other
factors being responsible in the fall in free-riding since the implementation
of the Employment Relations Act. Such factors are not captured by the data
gathered. One such factor could well be climate or environment. The
Government in implementing the Employment Relations Act made much of
‘fairness’ in bargaining. We have previously reported (Harbridge et al. 2002)
that interviews with the Secretaries of four large New Zealand unions had indicated that non-members were now reporting that ‘seeing as it is now legal to
join . . .’ Union membership had not been illegal under the Employment
Contracts Act. However, the harsh environment of that Act, coupled with
employer ascendancy during the early years of the Act, may well have led
employees to believe it either was illegal, or was certainly not the correct thing
to do. The ‘fair’ environment of the new legislation could well be the important
other factor influencing the fall in free-riding. Climate or environment in such
circumstances is difficult, if not impossible, to quantify in the way we have
quantified other factors. What we do know for certain is that, at industry level,
unions that attain high levels of collective bargaining penetration experience
high levels of free-riding. This result, however, leads to a basic contradiction
for unions.
Earlier work by on the determinants of union growth (Harbridge et al. 2002)
showed that union growth is a function of collective bargaining, but so is free
riding. The more successful is the level of collective bargaining, the greater
is the ability to retain or attract new members, but the greater is the incentive,
ceteris paribus, for free riding to occur. The results reported here would further
support that initial finding.
In the absence of legislative support, free riding is likely to remain a problem
for unions in both Australia and New Zealand.
ENDNOTES
1.
2.
Union decline is primarily attributed to macro-economic or business cycle conditions and sharp
rises in unemployment (Bain & Price 1983; Tyler 1986); and the shift from manufacturing to
services, contingent employment and changes in firm size (Troy 1990; Peetz 1998).
See Orr (2001) for a comprehensive review of the agency shop in the USA, and for discussion
of the current situation in Australia.
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