Despite its goal of promoting global economic stability, the IMF has consistently pressed countries to institute labor policies that history shows work against stable economic growth, a new report concludes. The policies advocated by the IMF seem to be more aimed at attacking collective bargaining for the benefit of employers in those countries.
Released earlier this month, the ITUC Frontlines Report April 2013 provides an analysis of this problem, looking at the empirical evidence of the relationships between collective bargaining and various economic indicators. The report found that countries with stronger protections for and higher levels of collective bargaining achieved a wage distribution more compatible with social cohesion, political stability and stable economic growth.
The findings also concur with those by Club de Madrid, Center of Concern and others that “Shared societies” – those that enjoy higher levels of social cohesion – improve their economic performance. Indeed, the report provides very specific data – in regards to collective bargaining— that supports the more general notion that improving social policies and social protection is quite relevant (as a cause rather than a consequence) of successful macroeconomic policy management.
IMF economists like Lusine Lusinyan have argued that labor reforms to create a more flexible labor market, such as those IMF advocated in Italy are “crucial to reviving growth through increased productivity but also to address equity concerns more broadly.” The report from the ITUC shows these claims to be inaccurate, and the evidence indicates the exact opposite to be true. The report found “no hard evidence showing that countries with highly decentralized bargaining systems and weak unions have stronger economies or lower unemployment than other countries.” The evidence in this report also supports that higher trade union densities are associated with higher wages, smaller income disparities, and greater social protections.
At times, even the IMF has seemed to recognize the importance of collective bargaining in their public comments, but their actions tell a different story. The ITUC report goes in depth on how the IMF has sought to limit the collective bargaining power of unions in Romania, Greece, Spain, and Portugal through methods such as decentralization of the collective bargaining process. These examples, while notable, are not the only cases in which the IMF has pushed for such policies despite evidence such as that which is presented in the ITUC report.
The question is, therefore, why is the IMF intent on implementing such policies when the evidence seems to clearly indicate that they do not accomplish the goals the IMF uses to justify them? According to the ITUC, the reforms in question are driven by a failed ideology rather than hard evidence. Will the institution change in the face of such hard evidence? ITUC’s new report will, on this, be a significant test to an institution that asserts to be capable of change.
Kellen Grode is a program assistant at the Center of Concern.