The financing of trade unions: a comparative study of administration

Introduction

With a view to achieving clarification and supporting the trade unions, the Minister Delegate for Labor Relations has initiated negotiations with the five main trade union confederations regarding their financing. Several meetings to discuss this matter were held during the fall of 2004.

Against this backdrop, between May and October 2004 the General Inspectorate for Social Affairs (Igas) conducted an investigation into the financing of trade union organizations in five countries of the European Union: Belgium, Germany, Great Britain, Italy and Sweden. Analyzing the financing mechanisms of French trade unions did not fall within IGAS’ remit. Nevertheless, it believes that studying systems in other countries provides interesting insights into the situation in France.

In order to gain an in-depth understanding of the various financing methods, the mission first identified the key characteristics of each country’s labor relations system. These systems differ considerably. They can generally be placed in one of three categories:

• Belgium and Sweden are characterized by very high unionization rates (65% and 83% respectively), which have remained stable since the 1970s. Thanks to this high level of representation, the three confederations that dominate the trade union landscape in each of these two countries enjoy undisputed legitimacy. They are key players in the collective bargaining systems that have been developed.
• At around 30 percent, unionization rates in Germany and Italy are more modest, but the trade unions still hold power in the industries where they are represented. Industry collective agreements regulate a considerable part of the relationship between employers and employees. In Germany, however, trade unions have been weakened in recent years by the drop in membership numbers and the trend towards decentralized collective bargaining.
• In Great Britain, the trade unions were permanently weakened during the Thatcher era. Trade union membership has fallen dramatically since the late 1970s; it now stands at 29%. Furthermore, in the absence of an organized social partnership, the relationship between employers and trade unions is governed by the balance of power, which makes it difficult for British trade unions to fulfil their role.

1. Members and the financial independence that they guarantee form the basis of trade unions’ legitimacy.

1.1. Keeping membership numbers up is an essential priority for trade unions.

Taking unionization rates and the size of the working population in each country into account, the number of trade union members ranges from just over 3 million in Belgium to 11.7 million in Italy. Workers’ subscription costs, which are set by each trade union and take the form of either a flat rate or an amount based on one’s salary, are generally around 12 euros per month (substantially higher in Sweden and lower in Great Britain).
The subscriptions paid by members therefore add up to a considerable sum, which is around one billion euros per year per country (a little less in Belgium). As trade union concentration is relatively high, these resources give the main trade union organizations a remarkable amount of financial independence and power. This is illustrated by the fact that subscriptions account for more than 80% of trade unions’ revenue. If we add their other resources, which are mostly generated by the trade unions' members, this share is generally greater than 90%.

Key data on trade unions

Source: Igas report on the financing of trade unions

* Unionization rates are determined by the ratio of trade union members to the total working population. In some countries, however, trade unions include many people who are not currently employed. For example, 50% of Italian trade union members are retired.

In the eyes of the trade unions, maintaining a sufficient number of members and the financial independence that this guarantees is vital if they are to avoid losing their power of representation and prevent a serious financial crisis:

• Representation. In Germany, in order for a trade union to be recognized as representative, the Federal Labor Court not only requires it to provide evidence of a sufficient number of members but also to prove its “social power”, which is measured in particular by its financial power (as shown by the size of its strike fund, for instance). In Great Britain, the law states that trade unions must represent more than half of a company’s employees to be formally recognized. In Belgium and Sweden, on the other hand, no formal or quantitative criteria are used to determine representative authority, given the very high unionization rates. Nevertheless, in Belgium, the reserves accumulated in the strike funds are indicators of the trade unions’ credibility, particularly vis-à-vis employers.
• Financial constraints. Most trade unions have considerable assets, but current expenditure is mainly covered by resources generated from subscriptions. The drop in membership numbers, a trend observed in Germany and Great Britain in particular, is causing financial difficulties. The trade unions affected by this have resorted to various strategies: cost-cutting through downsizing (e.g. the German Trade Union Confederation, the DGB), trade union mergers (Great Britain, Germany, Sweden) or active recruitment policies. In Great Britain, it is not uncommon for unions to openly compete with each other, despite trade union unity at confederation level. It is not expected that the state will intervene in order to resolve trade unions’ financial difficulties in any of the countries studied.

1.2. Developing a range of services is a key tool for recruiting and retaining members.

There are many different factors that determine unionization rates, with the cultural factor often playing a significant role. However, those the mission spoke with recognized that this in itself was no longer enough to maintain a stable unionization rate. The employee must be convinced that it is in their own personal interests to join a trade union.

This is why the mission believes that subscription subsidies are not enough to boost the recruitment of new members. These subscription subsidies come in the form of tax reductions in Sweden and trade union membership bonuses in Belgium; they do not exist in the other three countries. Trade union membership bonuses are an original method of financing unions. They are financed by employers, who reimburse more than half of employee’s subscription fees in the industries where such a scheme exists. Unlike the trade union voucher, which has been introduced in some French companies, the trade union membership bonus is only paid to employees who maintain their trade union membership. However, analysis of the Belgian and Swedish system shows that these incentives are undoubtedly useful, but still insufficient.

The incentive to join a trade union may also be impacted by the power that trade unions wield within the company. In Sweden, trade unions have a sometimes decisive influence on individual decisions, as they can, for example, change the order of dismissals in the event of mass redundancies. A certain degree of insecurity is therefore associated with not being a member of a trade union. However, these measures cannot be applied elsewhere, as they require trade unions to have a great deal of legitimacy.

In the countries studied, the key recruitment strategy involves developing a wide range of services that meet employees' needs. The range of services offered by trade unions commonly includes information and advice on collective labor relations (content of collective agreements) and individual relations (transfers, pay rises, etc.); legal protection in the event of a dispute with one’s employer; various types of insurance at preferential rates (home insurance, travel insurance, etc.); and compensation for loss of income in the event of a strike approved by the trade union.

Particular mention should be made of the services offered by trade unions through affiliated bodies in the context of the delegation of work in the public interest. Sweden and Belgium benefit considerably from their involvement in the management of unemployment benefits in the form of new members. In Italy, the trade unions offer help with applying for social security benefits, which has been recognized by the government as an essential service. This role played by the trade unions explains why the percentage of jobseekers among trade union members in Sweden and Belgium and the percentage of retirees in Italian trade unions is particularly high. These groups within the population, which are traditionally underrepresented in trade unions, not only value the personalized service being offered to them, but also believe that trade unions work to defend their interests.

2. Part two – Employers only give trade unions the necessary resources to represent employees within the company.

2.1. Employee representatives have the necessary resources to do their job within the company.

Employee representation within the company is ensured in two ways: either through elected works councils, whose members are not necessarily unionized, or through trade union representatives. European systems generally combine these two types of representation, as is the case in France. Germany and Sweden, however, illustrate two extreme situations. In Germany, trade unions have no official status within companies, while works councils play an important role in co-determination. Nevertheless, the majority of works council members are unionized. In Sweden, on the other hand, trade unions have a monopoly on employee representation.

Whatever form the employees’ representative bodies take, in all the countries studied, the company’s recognized representatives have facility time and material resources at their disposal. These are generally guaranteed by law, but sometimes by general provisions. In Great Britain, Sweden and Germany, employers are obliged to grant a “reasonable” amount of facility time, taking both the requirements of trade union work and those of the company into account. The exact resources that are to be provided are then specified in the industry or company collective agreements. The results vary greatly: Swedish employees, for example, benefit from far more favorable conditions than their British counterparts.

2.2. These resources are not used for trade union activities outside of the company.

Analysis of the resources given to employee representatives by employers shows that there are two features common to the five countries studied:

• Employees’ representative bodies do not receive support in the form of financial assistance. The lack of such assistance, or even their own budget, as is the case for French works councils, precludes the flow of finance to trade unions.
• In large companies, the accumulation of facility time and specific provisions of collective agreements mean that employees can dedicate themselves to trade union-related activities on a full-time basis. However, these can only be trade union-related activities that are directly associated with defending employees' interests within the company. As a result, neither local or national trade union structures have these employees at their disposal. Such arrangements are prohibited in both the public and private sectors. The only exception to this principle noted by the mission involves Italy’s public sector, where nearly 3,000 employees are made available to trade union organizations. Such arrangements are provided for in the collective agreements that have been concluded in the pubic sector, meaning that they benefit from a legal framework.

3. Part three – Strictly defined activities in the public interest receive targeted funding.

None of those the mission spoke with talked about work in the public interest. Nevertheless, the mission tried to determine which trade union activities could be placed in this category by looking at whether this work is recognized by the state and therefore financed using public funding.

3.1. Participation in collective bargaining and in the management of joint organizations is not viewed as work in the public interest.

In the five countries studied, representing employees within companies and participating in collective bargaining at all levels are considered the core elements of the work carried out by trade unions. This is particularly true in countries with very well-developed collective bargaining systems, which require trade unions to invest heavily in human resources (Belgium, Sweden).
The work of trade unions, as defined above, is financed using the trade union's own resources, i.e. subscriptions plus financial income. Trade unions are not able to claim subsidies from the public authorities.

An exception to this rule is the support provided by the Belgian and Swedish governments for trade union training. However, the amounts of these subsidies are very small compared to the resources generated through subscriptions. In Germany, employers are obliged to fund the training of works council and supervisory board members to ensure that they are able to do their job properly,
while only allowances or attendance fees, which are generally small, are paid for participation in the management of joint organizations or advisory boards.

3.2. Activities in the public interest are carried out by legal entities that are separate from the trade unions.

In each country, the mission was able to identify an activity in the public interest that has been delegated to the trade unions:

• the payment of unemployment benefits in Belgium;
• the management of unemployment insurance in Sweden;
• the provision of information and help with completing applications for social security benefits in Italy;
• the training of jobseekers in Germany (this role is not performed exclusively by bodies affiliated with trade unions);
• the promotion of professional training in Great Britain.

The public authorities help to finance this work. However, the trade unions are obliged to set up separate legal entities (unemployment insurance funds in Belgium and Sweden, patronati in Italy, training organizations in Germany), to ensure that separate accounts are maintained for public funding. Financial flows to trade unions are prohibited and compliance with regard to separation of accounts is carefully monitored. In Great Britain, professional training is promoted directly by trade union representatives who have been appointed for this purpose, but public funding can only be used to co-finance projects that have been pre-approved by a committee.
Is this respect, the benefits that trade unions gain from these activities are mostly indirect. Work in the pubic interest firstly supports the trade unions' policy of proximity and enables economies of scale (Italy, Belgium, Sweden) and, secondly, helps to improve the trade unions’ appeal in the eyes of their members.

3.3. Other public subsidies, which are made available for various purposes, are marginal.

The mission identified some public subsidies for international cooperation (Belgium), measures to improve working conditions (Sweden), political training (Germany) and promoting social partnership and trade union modernization (Great Britain). However, the amounts of these subsidies are marginal compared to the trade unions’ resources.

4. Part four – Controls can be designed in a way that respects trade unions’ autonomy.

With the exception of Great Britain, trade unions are not obliged to ensure transparency of their accounts. They also refuse to have a binding legal status imposed on them. The Belgian, Italian and German trade unions are therefore de facto associations. In Great Britain, on the other hand, trade unions are registered and must submit details of their accounts to a certification authority each year; the information collected in this way is publicly available and easily accessible.
However, a lack of binding regulations has not stopped trade unions from establishing control mechanisms. In this regard, a distinction must be made between the trade unions' own resources and public funding.

• The trade unions’ own resources. The checks are often both internal and external. Internal inspectors are elected by the Congress. They must ensure that funds are being used properly and report on their monitoring activities to the body that appointed them. In Sweden, internal monitoring is accompanied by the certification of accounts by “professional” auditors in a process similar to that used to certify company or association accounts. This type of control guarantees that the accounts comply with applicable regulations, whilst respecting the trade unions’ autonomy with regard to the public authorities. Likewise, in Great Britain, the accounts are certified before being sent to the certification authority.
• Public funding. The entities affiliated with the trade unions which undertake activities in the public interest and which, on account of these activities, receive public funding, are closely monitored by state supervisory bodies. They ensure that separate accounts are kept for the entity and the trade union. When trade unions receive public subsidies directly, they must report on how these funds have been used, by providing activity reports, for instance.