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I am fascinated when people lament about the UK’s opposition Labour Party under Sir Keir Starmer being uninteresting and dull. Surprisingly, regarding the labor market, the party’s proposals are more progressive than most realize, even after recent attempts to dilute them. A prime example is their commitment to introducing sectoral collective bargaining, a system commonly seen in continental Europe, which would significantly transform the functioning of the UK economy.
The inspiration for Labour’s plans can be traced, at least partially, to the Labour government in New Zealand. They implemented “fair pay agreements” at the end of last year, aiming to address the similar strengths and weaknesses of their labor market compared to that of the UK – high employment rates but weak productivity and wage growth. Fair pay agreements involve employers and unions negotiating minimum pay and conditions across sectors or occupations.
Craig Renney, policy director at the New Zealand Council of Trade Unions, hopes that employers will compete on factors like “product innovation” and “quality” rather than reducing labor costs to gain an advantage. He points to countries with sectoral agreements like Germany, Denmark, and Sweden, where higher productivity and industrial peace are the norm.
However, Renney may never see his hopes materialize. Employers’ associations in New Zealand did not embrace the idea, and the opposition parties have vowed to repeal the policy if they come to power in the next election. The likelihood of this happening, according to polls, is high.
The UK Labour Party appears to have learned a lesson from this experience. If they win the expected election next year, their focus will be on a single sector: social care. The goal is to ensure a smooth implementation of the system, allowing it to yield results before the next round of elections.
Scaling down the ambition to just one sector still poses significant challenges. David Hopper, a lawyer specializing in industrial relations, raises several important questions. How will sector employers coordinate themselves before engaging with unions? Different employers may have competing interests, especially the largest and smallest ones. What happens if the negotiating parties fail to reach an agreement? How will the agreement apply to companies that choose not to participate? Who will enforce it and how?
Most importantly, if the agreement successfully lifts wages and improves working conditions in the social care sector, who will bear the increased labor costs? The fundamental issue in the sector is inadequate government funding. A fair pay agreement may ensure that any additional funding goes into enhancing working conditions rather than increasing profit margins, but it cannot magically create more money.
Nevertheless, I believe it is a worthy experiment. Improvements in low pay, training, and employment contracts in the social care sector would benefit both workers and those they care for.
Employers could also benefit from negotiating in this manner. Mattias Dahl from the Confederation of Swedish Enterprise, which operates under a longstanding system of sectoral collective bargaining in Sweden, argues that negotiating with unions is preferable to relying solely on employment laws. The flexibility to renegotiate every third year provides advantages for businesses.
Moreover, this could mark the beginning of a more mature system of industrial relations in the UK, where employers and unions view each other as negotiating partners rather than adversaries. Constructive industrial relations are the norm in several European economies, such as Sweden, even though each country has different histories and traditions. Though the UK has a long way to go, there’s no reason not to take the first step.
Some may fear that empowering unions in this manner will lead to more conflict, but Dahl argues the opposite. He believes that small and weak unions are detrimental to employers and may resort to extreme tactics to attract members.
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