IMF: Weaker unions = Higher CEO pay

IMF research showing how the decline of trade unions contributes to inequality is not reflected in the Fund’s policies on the ground.

by Sarah Anderson

As labour unions have declined in most countries around the world, CEO paycheques have ballooned. And that’s not just a coincidence, according to new research from the International Monetary Fund.

In the latest issue of the IMF’s Finance & Development journal, researchers Florence Jaumotte and Carolina Osorio Buitron give a preview of their forthcoming study on the links between unionization rates and inequality. Their article – entitled, I kid you not, “Power from the People” – notes that “weaker unions can reduce workers’ influence on corporate decisions that benefit top earners, such as the size and structure of top executive compensation.”

Jaumotte and Osorio Buitron also dare to point out that “top earners’ compensation may be larger than what is justified by their contribution to the economy’s output.”

You may, of course, have reached that conclusion without the benefit of IMF research. But for the IMF, this rates as pretty populist stuff – and a welcome contribution to the inequality debate.

A few other welcome nuggets from the new IMF research:

l     Higher inequality goes hand in glove with lower and less sustainable medium-term growth.

l     Income concentration at the top “can reduce a population’s welfare if it allows top earners to manipulate the economic and political system in their favour.”

l     Unionization and minimum wages help equalize the distribution of wages.

Unfortunately, the policies the IMF is pushing all around the world reflect hardly any of these IMF research findings, and the gap between what the IMF research says and what IMF officials are demanding from nations like Greece doesn’t seem to be shrinking.

“Recent IMF loan conditions in countries such as Greece, Portugal and Romania,” as Peter Bakvis, the Washington director of the International Trade Union Confederation, points out, “have led to sharp declines in collective bargaining coverage and trade union power in those countries.”

The ITUC, the main global umbrella body for labour unions, has documented these anti-union policies in several reports.

We can only hope that the Jaumotte-Osorio Buitron research will help open more eyes – from Wisconsin to Greece – to the positive role labour unions can play in creating healthy economies.    

Sarah Anderson directs the Global Economy Project at the Washington-based Institute for Policy Studies. This article is reproduced from Inequality.org under a Creative Commons licence.

Third World Economics, Issue No. 588, 1-15 Mar 2015, p16