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Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.
Updated March 17, 2024 Reviewed by Reviewed by Charlene RhinehartCharlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.
The term “collective bargaining” refers to the negotiation of employment terms between an employer and a group of workers. Employees are normally represented by a labor union during collective bargaining.
The terms negotiated during collective bargaining can include working conditions, salaries and compensation, working hours, and benefits. The goal is to come up with a collective bargaining agreement through a written contract. According to the International Labour Organization, collective bargaining is a fundamental right for all employees.
As noted above, the International Labour Organization (ILO) states that collective bargaining is a fundamental right available to all workers. This means that all employees are entitled to present their grievances to their employers and to be able to negotiate them. According to the ILO, collective bargaining helps reduce inequalities in the workplace while providing workers with labor protection.
Collective bargaining normally takes place between members of corporate management and labor union leaders, who are elected by workers to represent them and their interests. Collective bargaining is initiated when employee contracts are up for renewal or when employers make changes to the workplace or contracts. These changes include, but aren’t limited to:
These issues fall into three different categories, which are referred to as mandatory subjects, voluntary subjects, and illegal subjects. Mandatory subjects include anything that the law requires of the employer, such as salary, overtime, and workplace safety. Voluntary subjects include negotiable things that the law doesn’t require, such as union issues and decisions about employer board members. Illegal subjects involve anything that violates laws, such as workplace discrimination.
The goal of collective bargaining is called a collective bargaining agreement. This agreement is meant to establish rules of employment for a set number of years. Union members pay for the cost of this representation in the form of union dues. The collective bargaining process may involve antagonistic labor strikes or employee lockouts if the two sides have trouble reaching an agreement.
Union membership in the United States totaled 10.0% in 2023, the most recent available data. That is virtually unchanged from the year before. Public sector employees made up 32.5% of labor members, compared to 6.0% of those from the private sector.
Collective bargaining can be an intense process that can be stressful and difficult for all parties involved. It often involves a lot of back-and-forth, with offers and counteroffers. But the end goal is to reach an agreement.
The process goes through a number of stages. These steps can be summed up as follows:
There are instances, though, where the parties involved can’t come to an agreement. If the negotiation period expires without a collective bargaining agreement in place, union representatives may suggest that workers go on strike until their demands are met.
Employers, on the other hand, may decide to lock out their employees until a suitable agreement is reached. If they are locked out, employees have the right to picket. In most cases, neither party wants to reach these points, which are considered drastic measures that are used as a last resort.
Most industrialized countries have laws that protect the right to engage in collective bargaining and form unions, although there may be restrictions on certain industries. In the United States, the National Labor Relations Act (NLRA) protects the right of most workers to engage in collective bargaining activities.
This includes the right to form and join unions, the right to discuss pay and other grievances, and the right to strike. It also prohibits any employee from being fired for protected activity. However, certain categories of workers are specifically excluded from the NLRA; these include federal, state, and local government employees and agricultural laborers.
The National Labor Relations Board (NLRB) is the government body that regulates labor practices and collective bargaining under the NLRA. It is also responsible for supervising union elections and ensuring that workers are not pressured to vote one way or the other.
Many states also have laws regarding collective bargaining. In the 2022 midterm elections, Illinois voters approved an amendment that would enshrine collective bargaining rights in their state’s constitution. Moving in the opposite direction, Tennessee voters approved a referendum that would add a right-to-work law provision to their state constitution, restricting the power of unions.
Not all types of collective bargaining are the same. In fact, collective bargaining can be divided into several categories. We’ve noted some of the most common types below.
Composite bargaining has nothing to do with compensation. Instead, it focuses on other issues, such as working conditions, job security, and other corporate policies. These may include hiring and firing practices as well as workplace discipline. The goal of composite bargaining is to come up with a suitable agreement leading to a lasting and harmonious relationship between employers and their employees.
As its name implies, concessionary bargaining focuses on union leaders making concessions in exchange for job security. This is common during an economic downturn or a recession. Union leaders may agree to give up certain benefits to guarantee the survival of the employee pool and, ultimately, of the business.
This process is characterized as benefiting one party financially at the expense of the other. This can come through increased bonuses, salaries, or any other financial benefits. Distributive bargaining normally favors workers over employers.
Unions must have a higher degree of power for distributive bargaining to work. Higher membership means more power. If an employer refuses to accept a union’s demands, it can call a strike.
Each party tries to benefit through integrative bargaining, which is why it’s often referred to as a form of win-win bargaining. Each side tries to consider the other’s position and bring issues to the table that aim to benefit both parties. As such, employees and employers both stand to lose and gain with integrative bargaining.
This type of bargaining revolves around compensation and the productivity of employees. Labor union leaders often use higher salaries and compensation as a way to boost employee productivity, which leads to higher profits and value for the employer. For this kind of bargaining to work, both parties need to agree to financial terms in order to increase productivity.
Unions represent a variety of workers, including (but not limited to) grocery store employees, airline employees, professional athletes, teachers, autoworkers, postal workers, actors, farmworkers, and steelworkers.
As the name implies, workers have a larger voice through collective bargaining. Being in a group with the same goal(s) gives employees more power to negotiate demands with their employers. Companies may be able to shut out the voices of one or two employees but can’t necessarily do the same with a larger group of unified individuals.
Workplace conditions under collective bargaining can see significant improvements and guarantee all workers the same protections. This includes the implementation of health and safety checks as well as suitable salaries, overtime pay, and vacation time.
Employers and employees are fully aware of their rights and responsibilities under a collective bargaining agreement. Once employment terms are negotiated, a contract is drawn up. Both parties agree to the terms, which are clearly defined.
As mentioned above, collective bargaining is often a long, drawn-out process that can take weeks or even months. Employers and labor union leaders may have to go back and forth with employment terms. Union leaders are required to update employees and must put the terms to a vote. If employees vote to reject a contract, the negotiating process begins again.
Collective bargaining often comes at a high cost. Employees and employers may have to take time off from work to negotiate. This means less time on the job and, therefore, a drop in productivity. Lengthy negotiations can affect a company’s bottom line.
The process is often considered biased. Because employees are able to band together under a single union, employers may be forced to negotiate and accept unfavorable terms in order to keep their businesses running without much disruption.
Collective bargaining is a controversial subject, particularly when it comes to public sector workers. Because tax revenues fund wages for public sector employees, opponents allege that the practice leads to excessive pay that places an undue burden on taxpayers. Supporters argue that any worries about runaway pay are unfounded and that public sector employees covered by collective bargaining agreements earn, at most, 5% more than their nonunion peers.
Former Governors Chris Christie of New Jersey and Scott Walker of Wisconsin fought high-profile battles with public sector unions. Christie drew fire from the New Jersey Education Association (NJEA) for restructuring teacher pensions to rein in state spending. Walker’s initiative to limit teachers’ collective bargaining rights in Wisconsin proved so controversial that its opponents succeeded in collecting enough signatures to force a recall election against Walker in June 2012. The governor prevailed in the election.
In 2021, employees of John Deere attempted to negotiate a more favorable contract with the agricultural equipment manufacturer. However, during the period of high profits for John Deere and higher labor demand during the COVID-19 pandemic, many workers believed that they were entitled to higher wages and retirement benefits than the company’s first offer.
Workers for the company ultimately rejected the first tentative proposal and authorized strike action against the company. On Oct. 14, 2021, they began picketing John Deere factories and headquarters, causing some farm companies to worry about their ability to bring in that year’s harvest. After much pressure from politicians, workers, and the public, John Deere proposed a new contract that met most of the workers’ demands. The strike ended on Nov. 17, 2021, just over a month after it began.
The main objective of collective bargaining is for both parties—the employees’ representatives and the employer—to come to an agreement on employment terms. This is known as a collective bargaining agreement or contract that includes employment conditions and terms that benefit both parties involved.
The main types of collective bargaining include composite bargaining, concessionary bargaining, distributive bargaining, integrative bargaining, and productivity bargaining.
Collective bargaining is not illegal. According to the International Labour Organization (ILO), employers have the right to form unions to represent them and their interests and the right to collective bargaining. As such, union leaders are charged with the task of negotiating employment terms with employers and administering them through employment contracts.
Collective bargaining aims to address concerns that affect employees and the workplace. These issues include compensation, working conditions, the work environment, benefits, and company policies and procedures. Collective bargaining also provides ways to settle disputes that may come up between employers and their employees.
Collective bargaining is the process in which workers join together to demand higher wages, greater benefits, or improved working conditions. By negotiating together as a unit, they can negotiate with much more leverage than they would have alone. In modern economies, collective bargaining has been essential to the creation of an industrial middle class.
