Introduction

Labour contracts can be of two types: contracts whose main terms are decided by collective bargaining, and contracts determined via individual bargaining. Collective bargaining essentially is a procedure for joint determination of labour contracts, that is, the union side has joint power with management in determining wages and working conditions, and – possibly – employment. Collective bargaining is thus an important component of industrial democracy. Individual bargaining on the other hand corresponds to the competitive model. Here the worker's power lies not in the trade union – the power of ‘voice’ – but in his or her ability to move among firms – the power of ‘exit’. The debate has always been whether the power of exit is sufficient. State legislatures have generally concluded it is not, and have encouraged unions.

In America today the proportion of workers who are trade union members is about 15%. In Britain it is much higher, about 45%. In both countries, however, the importance of unions is greater than the membership figure indicates, partly because collective agreements also cover non-union workers. In America the proportion of workers represented by a union, including non-members, is approximately 20%. Unions also form organised political lobby groups which give them a power disproportionate to their numbers.