The composition of union membership: the role of pensioners in Italy

The Composition of UnionMembership: The Role of Pensionersin ItalyBruno Chiarini

Abstract

This paper considers changes in the membership composition of the threeleading Italian trade union confederations during the last ®fteen years. Theanalysis emphasizes the remarkable growth of membership among pen-sioners and the drop in active workers. The key issue here is thatintergenerational aspects of unions' membership components are taken intoaccount in the bargaining process. Unions internalize unemploymentexternalities on pension bene®ts resultant on the wage outcome as theyconsider the welfare of all their members in the economy. A formulation ofthe union monopoly model with endogenous membership supports these®ndings, while the econometric evaluation of the membership componenteffects shows that unions are forced to pursue wage moderation andimprovements in employment conditions.

1. Introduction

In recent years there has been an increase in the literature that explores anumber of theoretical models of union behaviour and the determination ofunion wages. Recent papers have set out formal models of the union basedon the distinction between insiders and outsiders or the preferences of themedian seniority member. Further developments include the potentialcon¯ict of interests between union leaders and membership and theimportance of political and bureaucratic behaviours (see the surveys ofOswald 1985; Farber 1986; Turnbull 1988; Pencavel 1991; Creedy andMcDonald 1991 and Booth 1995, to name a few).

A parallel growth area in labour economics and industrial relations is thestudy of the divergence of unionism among different countries. Startingfrom the strikingly divergent rates of unionization, analyses have focusedinter alia on the composition of union members, the industrial composition

Bruno Chiarini is in the Faculty of Economics at the University of Rome `La Sapienza'.

British Journal of Industrial Relations37:4 December 1999 0007±1080 pp. 577±600

# Blackwell Publishers Ltd/London School of Economics 1999. Published by Blackwell Publishers Ltd,108 Cowley Road, Oxford, OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.

of employment, the public attitude towards unions, the industrial relationsystems (neocorporatist or decentralized), the incentives available toemployers to oppose unions and, ®nally, the macroeconomic environment(e.g. Freeman 1989, Visser 1990, Blanch¯ower and Freeman 1992, ILO1997). In particular, since the work of Bain and Elsheikh (1976), there hasbeen considerable debate over the determinants of trade union recruit-ment. The nature of the contributions is intended to highlight thedifferences between men and women, manual and non-manual workers inunion membership, stressing how earning levels, industrial structure, socio-demographic features, education and quali®cation factors and even estab-lishment size may be determinants of union membership.1

In this paper a description is provided of membership trends among theItalian trade union confederations over the last ®fteen years. The veryconsiderable increase in pensioners' membership is a peculiar featuredistinguishing Italian unions from those of other countries. We also stressthe implications of this change in the internal structure of union member-ship for models of union objectives as a function of wages and the level ofemployment.

The paper is organized as follows. The following section highlights therole of pensioners in the leading Italian trade unions. Section 3 outlines thekey historical and institutional issues underlying this phenomenon andindicates the changes in union objectives during the last decade. Section 4examines how the Italian social and welfare system might have had a role inin¯uencing pensioners' membership, while Section 5 argues that a well-de®ned framework, such as a corporatist system, has allowed the union toincrease its role in social and welfare policy. Section 6 provides an empiricalevaluation of the effects of the membership composition on wages andemployment (technical details in Appendix B). Appendices A and Breport, respectively, the implication for a monopoly union model of a highpensioners' membership share, and the results obtained using econometric(cointegration) analysis.

2. Union membership trends

Membership trends of the Italian leading major confederations, CGIL(Confederazione Generale Italiana del Lavoro), CISL (ConfederazioneItaliana dei Sindacati Lavoratori) and UIL (Unione Italiana del Lavoro)over the last ®fteen years have shown an interesting number of factors thatshould be included in conventional models. In particular, a striking changein the structure of union membership, with a remarkable increase in thenumber of pensioners and a signi®cant rise in membership in the southernregions, has been observed (see e.g. Santi 1988; CESOS 1995 and Merolla1996).

Considering the three union confederations as a whole, the number ofpensioners as a percentage of total membership rose from 7.4 to 20.3 per

# Blackwell Publishers Ltd/London School of Economics 1999.

578 British Journal of Industrial Relations

cent during the period 1950±80 and reached 47.6 per cent in 1996. (Theunions' estimate for 1997 is 49 per cent.) In other words, almost half of totalmembers are now pensioners (Figures 1 and 2). In particular, during theperiod 1980±96 the pensioners' federations belonging to CGIL and CISL(the two largest trade union confederations) saw a rise in their membershipshare, respectively, from 23.9 to 54.5 per cent and from 14.4 to 47.4 per cent,while the UIL confederation showed an increase of about 14 percentagepoints, from 11.3 to 25.5 per cent. On the other hand, the percentage ofactive workers in total membership showed a remarkable drop of about 28percentage points through the period under consideration, from 81.9 to 52.4per cent. For the period 1980±96, the corresponding decline in the threemajor confederations was 730.6 percentage points for CGIL; 733.0 forCISL, and 714.1 for UIL. It should be noted that during the same periodunion density dropped continuously, from 48.7 to 36.6 per cent (see Table1).

TABLE 1Trade Union Membership (CGIL±CISL±UIL) and Density, 1980±1996 (million)

CGIL CISL UIL Total Total Densitya

members pensioners (%)

1980 4.599 3.060 1.347 9.006 1.690 48.661981 4.585 2.989 1.357 8.931 1.865 47.891982 4.570 2.262 1.311 8.744 2.028 45.601983 4.556 2.953 1.352 8.861 2.181 44.431984 4.538 2.946 1.302 8.786 2.366 44.311985 4.570 2.801 1.268 8.639 2.567 41.401986 4.647 2.975 1.306 8.928 2.786 39.701987 4.743 3.080 1.344 9.187 3.059 39.351988 4.867 3.288 1.398 9.554 3.329 39.351989 5.027 3.378 1.439 9.845 3.658 38.931990 5.150 3.508 1.486 10.145 3.898 36.221991 5.222 3.857 1.524 10.403 4.108 38.201992 5.231 3.797 1.572 10.800 4.333 38.401993 6.236 3.788 1.588 10.594 4.586 38.891994 5.247 3.752 1.594 10.584 4.789 38.291995 5.235 3.773 1.579 10.587 4.939 37.511996 5.212 3.837 1.594 10.642 5.065 36.64

a Dependent active workers in membership divided by dependent employees.Sources: CESOS Reports (several years); Osservatorio Sindacalizzazione±CISL; Merolla(1996).

It is worth emphasizing the signi®cant role of pensioners in the unions.Within the union confederations, the latest available data (1996) show thatmembership of the pensioners' federation amounted to 2.842 million forthe CGIL out of a total membership of 5.212 million; the largest of 19af®liated federations of active workers numbered 372,000 members. In theCISL confederation (total membership 3.837 million), there were 1.817million pensioners, whereas the largest of its 20 largest federations of activeworkers had 214,000 members. Finally, the UIL confederation (total


The Role of Pensioners in Italian Unions 579

membership 1.584 million), with a membership of 405,000 pensioners, had154,000 in the biggest of its 24 federations of active workers.

Table 2 shows the downward trend of union membership across broadsectors of the economy. The fall in membership has exceeded the fall inemployment over the whole period, largely because of the continuingcontraction of industry, agriculture and public services, sectors in whichunions have traditionally been strongest. During the 1980s employmentrose in market services, where union confederations had, however, greaterorganizational problems. In contrast, pensioners showed strong growth,gaining more than 3.375 million members between 1980 and 1997 (Table 1).

TABLE 2Trade Union Membership in Italy, 1980±1996

Agriculture Industry Public Market Pensionersservices services

CGIL1980 551,052* 1,831,261* 547,200 560,405 1,097,3601985 410,661* 1,463,581* 593,197 483,903 1,619,1141990 341,069* 1,336,881* 515,722 531,130 2,353,8911996 342,860* 986,227* 457,731 531,416 2,842,186

CISL1980 501,824* 1,011,586* 715,440 375,772 439,7251985 300,933* 730,970* 717,481 307,351 743,9591990 251,657* 715,517* 595,529 461,099 1,274,4891996 308,611* 643,595* 563,658 433,536 1,817,171

UIL1980 177,087* 480,839* 305,471 228,291 152,9481985 114,256* 408,417* 327,509 213,922 203,5731990 121,154* 407,078* 324,748 270,807 268,0761996 194,895* 363,212* 317,846 262,522 405,487

Percentages in trade unions1980 13.7 36.9 17.4 12.9 18.81985 9.6 30.1 19.0 11.6 29.71990 7.0 24.2 14.2 12.4 38.41996 7.9* 18.7* 12.6 11.5 47.6

* The agriculture federations merged with the food industry federations.Sources: CESOS Reports (several years); Osservatorio Sindacalizzazione±CISL.

3. The growth of pensioners' unionism

From 1968 to 1980, Italy experienced an extraordinary increase in union-ization (see Figures 1 and 2). CGIL increased its membership by almost 66per cent in the period 1968±75, and membership of CISL grew by about 60per cent in the same period. The sharp rise in the unionization rate has beeninterpreted as a growth of members in already highly unionized sectors ofindustry and to a greater diffusion of union membership among white-collar workers in industry and public administration. The 1970s started off



with a major change in industrial relations, in a context of high unemploy-ment and a rapid growth in con¯ict. In the period 1969±77 the number ofindustrial disputes was on average more than 4,080 per year with about 6.4million workers involved each year, and the number of hours lost throughstrikes averaged 154 million per year.

The rise of con¯ict was related to a greater wage push from the rank and®le in a context of considerable rationalization of the productive system(e.g. Tarantelli 1973; Tarantelli and Willke 1981). Moreover, the need forsocial reforms, the failure of the 1966±70 National Economic Plan toachieve its social targets (such as employment and regional inequality), andthe unsatis®ed political demand for reforms to taxation, social services andthe public services (see Tarantelli 1978) all widened the unions' objectives.

However, during these years a growing number of workers in the highlyunionized sectors of industry and public administration reached retirementage. These union members were neither passive nor accustomed todelegating their interests; on the contrary, a large share of them took anactive part in union activities, and they were still willing to serve the tradeunion movement. The loyalty of many of these members was the strengthbehind the pensioners' federations. From 1968 to 1975, pensioners'membership of CGIL grew by almost two-thirds, standing at 676,000 in1975, while the number of CISL pensioners rose from 143,000 to 253,000 inthe same period.

The tensions between the three union confederations that characterizedthe Italian industrial relations system throughout the 1970s and beyondturned out to be less acute among pensioners. Consequently the pen-sioners' federations were able to strengthen their position and credibilityamong retired workers, demonstrating a considerable degree of intra-classsolidarity and adopting a common strategy.

The Trade Union Automatic Checkoff

The sharp increase in the level of con¯ict in the 1970s allowed the unions toobtain a number of gains, such as an upward revision of the wageindexation mechanism, a reform of the social security system and a lawstipulating the rights of workers and unions, the Workers' Statute,approved in 1970. This law constituted a radical change in labourinstitutions and labour legislation. It recognized the basic rights of unions,considerably strengthening their position, and it also established anautomatic union check-off (adesione-trattenuta per delega) for both workersand pensioners.

There is no doubt that the steep increase in pensioners' trade unionmembership that started in the mid-1970s re¯ects the trade union check-off,since the latter effectively changed the rules under which unions recruitedand operated, reducing membership uncertainty. Before 1970, pensioners'subscription dues were collected through a diffuse and dif®cult process atthe local organization level (Leghe Territoriali). This union organizational





FIGURE 1Trade Union Membership (CGIL+CISL), 1951±1997

FIGURE 2Trade Union Membership (CGIL+CISL) and Union Density

structure made it very dif®cult to control resources and engendered high®nancial uncertainty. The system could not provide the unions with thestrength to programme medium and long-term policies and to focus theiractivities on the needs of union members and the elderly.

Pensioners' federations, along with the INPS (National Social SecurityInstitute), the Treasury Ministry, Casse di Previdenza (Social SecurityFunds) and IPOST (Post and Telegraph Social Security Fund), drew up anagreement on the automatic deduction of union dues from pension bene®tsat the rate of 0.40 per cent. The public bodies supply the whole amountcorresponding to the automatic check-off to the pensioners' federations,while the federations share out this sum to union confederations, regionalpensioners' federations and territorial membership structures. (For exam-ple, the CISL's division of the pensioners' membership dues is, respectively,20, 15 and 65 per cent.)

Union organization and bargaining strength are facilitated by thisautomatic procedure which, therefore, links pensioners' membershipdirectly to work-force membership. This link could be undermined ifunion subscriptions became subject to a repeated and voluntary choice.2

This possibility promoted a new interest in identifying the demands ofmembers and analysing the means whereby recruitment could be under-taken. In recent years numerous recruitment campaigns have beenlaunched with positive results. Pensioners' federations have developedtheir organizational structures, becoming more professional and establish-ing a much closer rapport with their members.

The Power of the Pensioners' Federations

As a whole, the growing unionization of pensioners has considerablyimproved their position within the union confederations' power distribu-tion. There have been signi®cant reforms of trade union structures atnational federation level as well as at confederation level. Federations ofpensioners now enjoy their own collective bargaining powers on issuesrelated to pensions and, more generally, social welfare. For instance, whenthe new pension system was reformed in Italy in 1995, by a nationalagreement discussed and reached between unions and government, theCGIL, CISL and UIL federations of pensioners were part and parcel of theunion negotiating team. The reform was submitted to a secret ballot, whereboth active employees and retired working people had the same votingrights.

Given that pensioners pay lower union dues than active union members,the pensioners' voting power in each confederation's national congress wasreduced proportionally by mutual agreement. For instance, the CISL'sconstitution sets the pensioners' share of national congress delegates at 25per cent; CGIL and UIL have similar arrangements. If we turn to theGeneral Council, the CISL governing body between national congresses,we ®nd that 11 out of 35 national federations' ex of®cio General Council



members come from the federation of pensioners. The General Councilmeets twice a year and is also made up of another 220 elected members ofCongress, of whom 11 are pensioners. Such an arrangement is reiterated,with some adjustments agreed case by case, at all levels of the CISLterritorial, rank-and-®le structure. For instance, at regional GeneralCouncil level, delegates elected by the pensioners' federation cannotcomprise more than 14 per cent of the General Council's composition.These arrangements constitute a threshold to the pensioners' federationspower which, nevertheless, turns out to be suf®cient to constrain unionleadership policy.

The pensioners' political in¯uence within each confederation is signi®-cant not simply because of their voting power: pensioners are, by de®nition,among the most experienced union members, and are extremely active insupporting union claims, platforms and demonstrations. Finally, in spite oftheir reduced membership dues, the pensioners' federations enjoy fairlysubstantial resources (a crucial determinant of union power). Most Italiantrade union income comes from members; substantial decline in member-ship can, therefore, pose serious ®nancial problems for Italian unionconfederations. Pensioners' federations have limited the scale of union®nancial problems, preserving solvency by their striking increase inmembership.

One issue in the development of pensioners' union membership in theindustrialized countries is whether to organize them through speci®c,autonomous federations (as in Italy) or through af®liated unions or unionfederations (as in the UK).

Table 3 shows that only the Greek unions were found to have rulesrestricting membership to those in work. In other countries, trade unionswere seeking to keep in close contact with their retired members, though inpractice no union movement was able to retain their retired members in thesame way as the Italians. In the mid-1980s, more than 2.6 million pensionersbelonged to Italian unions. For most countries (the exception beingNorway) the pensioners' membership share was around 7 per cent of allunion members. Moreover, the high percentage of retired members (18%)shown by the Norwegian data includes independent employees of profes-sional associations.3 In general, in these countries trade unions have foundit very dif®cult to recruit and/or retain workers once they are retired.

What is interesting is that Italy is the only country where unions haveestablished powerful retired members' associations, though these arestrongly af®liated with the general confederations. Each Italian pensioners'federation is autonomous within the confederation. The latter allows themto have relatively strong organizational capacity, a key factor permittingthe federations to identify and assess opportunities for intervention(unresolved grievances, unmet needs) and to frame coherent policies. Thestrengthening of this autonomy has probably contributed to the develop-ment of pensioners' membership from the 1950s onwards.

Could the presence of retired workers in the membership confederations



TABLE 3Pensioners' Membership: Forms of Organization (1986)

Country Speci®c Af®liated Number of Share of retiredfederation federation members members (%)

Greece Ð Ð Ð Ð

BelgiumCSC Ð x 86,362 6FGTB Ð x 82,000 7

DenmarkLO x x 75,000 6FTF Ð x n.a. Ð

SpainUGT x x 37,000 6ELA-STV Ð x 8,987 8

FranceFO x x 75,000 8CFDT x x 85,000 11

United KingdomTUC Ð x n.a. 510*

NorwayLO Ð x 140,000 18

Germany (RFT)DGB Ð x n.a. 510*

ItalyCGIL x Ð 1,783,000 38CISL x Ð 1,843,000 28UIL x Ð 1,170,000 13

* ETUI estimates.Source: European Trade Union Institute, Report no. 32.

indicate intergenerational solidarity, or does it generate a tension betweenthe pensioners' federations and the active workers trade union leaders? It isclear that union policy has been affected by the growing power of the unionpensioners structures. In a pay-as-you-go ®nancial system, the contribu-tions of the working generations pay the pensions of other generations(already retired). The rates of return for successive generations in generaldiffer because of the evolution of demographic and economic factors, andthese differences may lead to an intergenerational con¯ict. Unions havetraded off lower pay today for higher prospective pension bene®ts. Notsurprisingly, older employees and the generation that is reaching retire-ment age more readily endorse this policy, whereas younger workers may®nd themselves in con¯ict with it.

Consistency in unions' objectives and strategies is a prerequisite forsuccessful results. This is a hard task, and requires trade unions to improvethe collective identity of the membership (see e.g. the CISL±NationalCongress Papers: CISL 1998). The actual behaviour of the union does not



conform to the basic features of union models (e.g. the monopoly union andinsider±outsider models, where unions are concerned with the interests oftheir currently employed members). The trade union is an organizationwith a life longer than that of any single worker or pensioner. To be able totake advantage of this characteristic, unions should not be too closelyassociated with one particular membership component. This impliesreducing the costs of con¯ict and increasing some intergenerational caringamong its membership. To this end, it is interesting to note that the 1996pensioners' federations slogan, `For rights and policy reforms', ultimatelyrests on the fundamental pillar of the union confederation's slogan: `Jobs®rst priority for the country's development and for ensuring a welfare statewhich guarantees the principles of fairness and solidarity' (Pensioners'Federations 1996).

Because union objectives may re¯ect the outcome of a political processof majority voting, pensioners' federations have been led to adopt acommon strategy with active workers' federations, including joint actionssuch as bargaining demands and strikes. However, the intragenerational±intergenerational dilemma may constitute one of the main factors behindthe sharp decline of active worker union membership consensus depictedin Figures 1 and 2.4 The seriousness of this problem for the unions isshown from the fall in unionization levels among young workers in themanufacturing industry sectors (see CESOS 1995 and Cella and Treu1998).

Of course, there may be an ideological commitment to unionization, notdetermined by the prospect of personal gain, but it is likely to be somewhatlimited. However, the inclination to belong to an association, based on theneed for identity and participation, may be felt by individuals who ®ndthemselves excluded from employment, and this fact could account for acomponent of pensioners' membership (e.g. Santi 1988). This idea relatesto the social custom model of trade union membership proposed by Booth(1985): within elderly communities, the unions' utility function for pen-sioners may be assumed to depend on reputation. Adherence to the customcannot be reinforced by the sanction of loss of reputation, but social andpsychological arguments (other than economic incentives) to join the group(union) may play a role.

4. The role of trade unions in the welfare state

Elderly Insurance

Pensioners, and in general the elderly, constitute the most `uncomfortable'and vulnerable share of the population. On average, 24 per cent of theelderly require either temporary or constant help, and this percentageincreases sharply for the highest age groups. The last ISTAT survey onhousehold consumption showed that in 1994, for households in the age



group 60±64, the pension constituted the sole income for 70.5 per cent ofthe sample. This percentage rises to 95 per cent in the higher age groups.The incidence of needy households among elderly households wasestimated at 962,000, involving about 2.085 million people (ISTAT 1995),or about 19.2 per cent of all elderly households. Moreover, the ISTATsurvey indicated that 35.4 per cent of the elderly sample considered theresources available insuf®cient for them to lead a digni®ed life. Theincidence of poverty among these households varies considerably inrelation to family structure, age, sex and geographical area (see e.g.Franco and Morcaldo 1990; ISTAT 1993, 1995; CER±CGIL 1996; Sgritta1997). If the pension system ensures that poverty among the elderly is lesssevere than that recorded for other poor people, there are still many waysin which it is de®cient in alleviating poverty. Moreover, the economicsituation of pensioners and their households is also affected by theassistance services for the elderly, supplied by welfare and care protectioninstitutes. In this respect the Italian situation lacks the standard achieve-ments of other countries.5

A further important role for the trade union is therefore the provision ofservices and private bene®ts, available only for union members.6 Often theprovision of these bene®ts (private goods) is crucial in maintaining andincreasing the membership of pensioners. In particular, unions offer taxand legal assistance bene®ts, as well as information on pensions, ®nancialand insurance services, which helps to disentangle complex bureaucraticprocedures. It is important to emphasize that the pensioners' demand forunion services cannot be considered in isolation: it is interdependent withunion wage, employment and welfare policies.

The Unions' Supplier Services

An important issue in this context is the role of special organizations,known as padronati, set up to provide welfare services and established atnational, regional and local levels. Patronage institutions provide assistancefor dealing with a myriad of intricate bureaucratic and legislative issues anddocuments related to the welfare system. These institutions are managedand controlled by unions' confederations. Public administration employeesand dependent workers normally use these institutions when claimingwelfare entitlements and pensions. This system provides a favourableposition for the unions, and in fact the patronati constitute one of themain channels for recruitment into pensioners' federations. They operateas a monopoly services supplier; there are no close substitutes for theservices they provide and there are `barriers to entry'. In fact, governmentlicensing excludes other public or private competitors (see Regonini 1984;De Luca and Bruni 1993).

The Italian welfare apparatus (and its administrative structure) isdetermined by hundreds of laws and characterized by a large number ofdifferent institutions, themselves highly fragmented. For instance, at the



beginning of the 1990s there were about ®fty different institutes handlingpensions (see Ferrera 1986; De Luca and Bruni 1993). There are numeroussocial assistance programmes, and many of them are much more discre-tionary than rights-based. Moreover, the operation of these schemes variesmarkedly between regions and between groups. Bene®ts and entitlementsare relatively generous for some groups, less so for others, generatinggrowing inequality and new divisions in society. Although there arenational regulatory frameworks, the links between national and locallevels are poorly constructed and monitored, so that the role of localauthorities is substantial.

In a welfare system that cannot supply adequate bene®ts to disadvan-taged groups unless they are organized, pensioners are more and morelikely to remain in the union.

The Pension System

Finally, it is useful to stress that the remarkable growth in the pensioners'federations has been in¯uenced by the growing Italian ®scal crisis and themeasures taken to resolve it (see e.g. Merolla 1998).7 In the 1980s thegrowth of public expenditure was continuous, and the largest item behindthe increase was pensions (including old age, invalidity and survivors'pensions). Pension spending reached 14 per cent of GDP in 1994 (nearlytwo-thirds of the total social spending) and was higher than in any otherOECD country. The public pension system is organized on a pay-as-you-gobasis, and liabilities are not offset by the accumulation of reserves.Therefore payments to pensioners are matched by contributions fromindividuals currently at work. During the 1970s and the ®rst half of the1980s, the pension system underwent several expansive reforms, whereasthe most recent reforms (in particular the 1995 reform) attempted to limitthe imbalance in the social security system. Corrective actions haveinvolved the retirement age, the minimum contribution period, the periodfor computing pensionable earnings and the different pension rulesbetween private and public employees. Italian governments have placedpension reforms on their agenda with determination, in particular duringthe last ®ve years, stressing the impossibility of postponing restrictions onpensions and social security expenditure in the future, in part because ofprospective demographic trends.8

Italian Trade Unions under Government Pension Reforms

The deterioration of the social security system has enhanced the perceptionthat tight measures are soon going to be implemented, and this view mayencourage retiring workers not to resign their union membership. Thisproposition appears to be supported by the crucial role of unions in themost recent pension reforms (from the Amato government's reform in 1992to Dini's 1995 reform). Indeed, the strong union opposition to Berlusconi's



pension reform, in September 1994, induced the government to withdrawthe measures from the 1995 budget.

Pensioners' federations and union confederations were able to achievesuch a result primarily through their credibility. (A further condition indetermining union in¯uence in pension reforms, namely the institutionalstructure of wage bargaining, will be analysed in the next section.) A crucialelement in the negotiating process was the ability of the unions to imposecosts on the other party if it refused to modify its proposal, by engaging instrikes and other con¯ictual actions. Only if the union is able to organizeactive workers (or the majority of workers) on these issues, emphasizingintergenerational solidarity (or relying on the shortsightedness of its activemembers, as Berlusconi's government emphasized), is it credible. Indeed,union policy constituted an effective link between the social security systemand the labour market as witnessed in one of the largest trade union andmass mobilizations in the history of the labour movement Ð over threemillion active workers participated in demonstrations during the generalstrike on 14 October 1994.

The government plan included a number of proposals that wereunacceptable to the trade unions. In particular, the plan included a cut inseniority pensions Ð pensions paid irrespective of retirement age to peoplewith a minimum of 35 years of contributions Ð while blocking andpostponing seniority pensions for many workers who were entitled tothem. A further proposal established a slower rate of accrual pension rights(a reduction in yearly returns from 2 to 1.75 per cent) in order to cut thefuture pensions bill. From the union viewpoint, the proposals presented bythe Berlusconi government aimed to `deprive trade unions of theirbargaining power and to show that trade unions could be happily dispensedwith, and even antagonized'. Trade union mobilization and a nationalgeneral strike forced the government to accept an agreement setting outthe general criteria proposed by the unions for reform (see D'Aloia 1996;OECD 1996). Subsequently unions stated their willingness to negotiate astructural reform capable of re-establishing the system's ®nancial balance,while insisting on their determination to ensure the `fundamental principlesof solidarity, security and social cohesion' (D'Aloia 1996). An agreementbetween the Dini government and the leading union confederations madeit possible to set out a new pension reform in 1995. The agreement wassubmitted to a referendum of workers and pensioners and was approved bya 65 per cent majority of voters, though only 4.5 million out of 10.5 millionactually voted. At the end of 1997 the Prodi government negotiated somemodi®cations of the reform scheme with the unions, but the unions againprevented a more radical review of the scheme. The new reforms wereapproved by more than 80 per cent of employees and pensioners, but lessthan half the members voted.



The Wage±Pension Bene®t Trade-off

With a social security pay-as-you-go method of ®nance, the growth of thenumber of elderly people has brought about heavy economic costs in theshort run, requiring substantial reforms in social security ®nance: payrolltax increases, a drastic reduction in bene®ts, and substantial advances in thesocial security retirement age. The higher the ratio of retirees to activeworkers, the higher is the corresponding ratio of pension bene®ts to wages.The choice of policies to meet this problem will, of course, depend on thespeci®c features of the public pension system together with demographictrends, but pay-as-you-go ®nancing would necessitate signi®cant increasesin contribution rates.

TABLE 4Private-Sector Employees' Pension Scheme (INPS±FPLD): Key Features, 1971±1995a

Pensioners± Ave. pension Taxes as %workers average earnings averageratio ratio earnings

1971 0.65 0.33 21.61975 0.75 0.33 24.31979 0.79 0.34 26.91981 0.83 0.39 32.41985 0.90 0.43 39.11989 0.93 0.47 43.51991 0.94 0.47 44.41995 0.95 0.50 47.3

a FPLD covers more than 70 per cent of total dependent workers. INPS (National SocialSecurity Institute) is the major public agency acting in the pension area (see INPS 1993).

Italian data (Table 4) show that the ratio of pensioners to workers rosefrom 0.79 at the end of the 1970s to 0.95 in 1995. In the same period, theaverage pension bene®ts have risen from 34 per cent of average earnings tonearly 50.1 per cent. The growth in the pension bene®ts±earnings ratio canbe ascribed to employment trends, lower death rates and the effects of thereforms. The table also highlights the substantial increase in the contribu-tion rates required to prevent gaps arising between public pensionexpenditure and contributions. The pay-as-you-go character of the pro-gramme implies that the equilibrium tax rate has to be steadily increased,from 21.6 per cent at the beginning of the 1970s to 43.5 per cent to the endof the 1980s. Despite various reforms in public pension scheme, this trendhas persisted in the ®rst half of the 1990s (albeit at a more modest pace).The tax rate was 47.3 per cent in 1995 and is still rising. The Dini 1995reform should gradually reduce the equilibrium tax rate to a value between34 and 39 per cent in the year 2050 (see e.g. Ministry of the Treasury 1996;Franco and Munzi 1996; OECD 1996). This clear trade-off between wagesand bene®ts, and between the number of retirees and workers, cannot beignored by a union nearly half whose members are pensioners. Appendix A



explains how the substitution process in unionization modi®es unionbehaviour as described by conventional dynamic models.

5. Corporatist governance and trade union policy

In the 1980s comprehensive and centralized unions and employers'organizations were oriented towards `responsible' strategies of collectiveaction, pursuing public goals such as employment, growth and pricestability. This corporatist governance involved tripartite social contractson wage moderation and labour market ¯exibility. As a result, the Italianeconomy has bene®ted from a remarkable change in labour marketstructure. The major reforms have affected the wage bargaining process,the indexation mechanism and protective labour legislation. The impor-tance of trade union action in each of these areas has been considerable.The union confederations have made a considerable effort to reform theirbargaining structures in order to adapt to changes in the supply of anddemand for labour. They have facilitated the reduction of legal protectionin organizing strikes (in particular in the public sector). Finally, they haveagreed to drop the automatic wage indexation mechanism, making themonetary stance of the central bank more credible and, therefore, theeconomy's adjustment to real shocks less dif®cult. Although bargainingover employment is relatively rare, the evidence quoted above suggeststhat Italian unions have been concerned about employment. Of course,existing workers may not be concerned about the level of employment inthe ®rm as such (or they care only when their own job is threatened), butthe unions' confederations' function covers a subject such as employment,even as they bargain on behalf of their existing members.

The studies in this ®eld emphasize the positive association betweenmacroeconomic performance (in particular, real wage moderation) and thedegree of corporatism. However, the concept of political exchange,formulated in Italy mainly by Tarantelli (1978), suggests that corporatistgovernance is not restricted to particular industrial relations matters, butapplies to a wide range of issues and policies extending to the spheres ofsocial security and structural economic reforms (see Chiarini 1995). Itpresupposes that economic authorities are willing to share politicalobjectives and measures with unions' and employers' confederations. Thiscreates pressures for compromise and requires institutional arrangementsfor frequent and protracted contacts between government representativesand unions and employers' leaderships.

The ®rst step in this direction was the 1983 tripartite agreement, whereunions, employers and government negotiated on economic and socialissues. Union modi®cations to the wage indexation scheme and someconcessions regarding hiring procedures were matched by tariff and ®scalpolicies (spending on welfare and health, shouldering a share of socialsecurity contributions paid by ®rms, implementing measures to assist low-



income groups). The corporatist process did not evolve without tensions:the CGIL refused to renew the 1983 agreement, and serious dif®cultiesemerged in the relationship among unions in the subsequent years, whenattempts were undertaken to agree an incomes policy accord. However,matters improved from July 1993, when under the 1993 incomes policyaccord the government froze tariff and administrative prices and abolishedthe wage indexation mechanism. The result was a successful policy of wagerestraint while labour market regulation became more ¯exible andcollective agreements signed at national level were coupled to negotiationsat company level.

A dif®culty that emerges in the institutional tripartite agreement is thateach draft of welfare reforms or government ®scal policy or planningguidelines must be subject to a complex and dif®cult revision process withtrade unions, in order to avoid serious clashes and social con¯ict. Theconsequence was that the programme of the welfare state was anchored toa tripartite incomes policy, making it possible for the unions to de®ne theinterests of their different membership components. The high pensioners'membership levels certainly helped when unions claimed a role in pensionreforms, and governments are now unable to work out pension reformswithout seeking an agreement with the unions. Consequently the member-ship strength of trade unions is not simply re¯ected in union density orcoverage measures within the labour market. Furthermore, negotiationsover wage payments cannot be analysed in isolation from negotiations overemployment and pension bene®t. Under centralized wage and pensionbene®t formation, unions will take into consideration the full social costs ofhigher wages and pension bene®ts.

6. Empirical evaluation of union membership components

What can be inferred about trade union membership composition fromempirical analysis? Is pensioners' unionization associated with a moremoderate wage policy in Italy? A vast theoretical literature predicts thatactive workers' membership does signi®cantly affect wages (see Creedy andMcDonald 1991 and Booth 1995 for surveys). However, we have littlesystematic evidence as to how membership components affect wages. Moststudies have examined the impact of union density (or other measures ofunion strength) on relative wages under decentralized or centralizedbargaining (see Modigliani and Tarantelli 1977; Checchi 1995; Lucifora1993).

In order to consider whether pensioners' membership has a stablerelationship with real wages (and, therefore, employment), I estimate thelong-run relationship between real wage per labour unit (w7p)t, output yt,and the two membership components of the CISL and CGIL confedera-tions, Mpt and Mat respectively, for pensioners and active workers. Theempirical analysis (reported in Appendix B) implies long-run wage



responsiveness to active workers' membership, whereas pensioners' mem-bership tends to curb real wages. These ®ndings are also achieved by usingmembership shares of pensioners and workers.

Following the theoretical model presented in Appendix A, this resultmay be viewed as an outcome of union strategy aimed at increasingemployment and, therefore, active workers' membership share. A neces-sary condition for this assumption to hold is a negative wage elasticity oflabour demand and a positive and statistically signi®cant long-run relationbetween active membership and labour demand. To this end, we need toconsider the stationary relationship between active workers' membershipand employment. Including the employment variable nt (standardizedlabour units) in the data set used in model (A4) in Appendix B, theestimated solution (A5±A6) illustrates clearly that, in the long run,employment depends on real wages, and that union membership is relatedto employment. It is important to emphasize that restricting pensioners'membership component to zero in both cointegrating relations is rejectedby the data. This result indicates that it is implausible to rule out theseunion membership components in empirical analyses.

7. Conclusion

This paper offers both an additional explanation for assessing wagemoderation in Italy and an alternative benchmark for evaluating theunion monopoly model. The composition of the membership is animportant determinant of union decisions and it is often overlooked in theliterature because of the central role attributed to the union earningspremium. This paper indicates the role of pensioners' membership inunions wage policy and the possible determinants of pensioners' decision tojoin unions. The magnitude of the phenomenon for the three leadingunions distinguishes Italian unions from those of other countries andmerely reduces the explanatory power of conventional classi®cations ofbargaining structures (see Calmfors and Drif®ll 1988; Calmfors 1993).

In order to support the above statements, we presented a dynamic modelof union behaviour (Appendix A) based on the assumption that bothpresent and future members enter into the inter-temporal objectivefunction, but where a share of these are pensioners. The steady statenecessarily has a lower wage level than the corresponding conventionalinter-temporal model. Since union membership is conditional upon bothemployment and pensioners, and because these are linked in a trade-offbetween wages and bene®ts (via the social security tax rate), the unionnecessarily prefers higher employment. For any given number of pen-sioners, the union objective is to increase employment. The econometricanalysis shows that long-run equilibrium relationships exist between realwages, employment and the components of union membership. Finally the



analysis con®rms that pensioners and active workers' membership tend toinversely affect wages and employment levels.

Appendix A: A Dynamic Formulation of the Union Monopoly Model

I illustrate the implications, for a monopoly union model, of a highpensioners' membership share, and compare the solution with theconventional one. (A detailed analysis is presented in Chiarini 1997.)The labour market is characterized by a conventional demand curve forlabour, n = f(w), f '(w)50. We assume that a single trade union faces adynamic optimization problem considering the post-entry closed-shopevolution of membership (m), m

.= an + (1 7 a) P 7 m, 1 5 a 5 0,

where m.

is the derivative of membership with respect to time and arepresents the active workers' membership share. (Membership in thefuture is conditional upon actual employment and pensioners.9)Moreover, suppose that union and policy authorities share a similarobjective for matching payments to pensioners from the contributions ofindividuals currently at work.

The utilitarian union is concerned about the utilities of current andfuture members, taking into account the following pay-as-you-go pensionscheme:

$?

0

(bP7uwn)e7rtdt = 0.

Firms are assumed to retain the right to determine employment unilater-ally, while the government is assumed to retain the right to determine thesocial security tax rate u.10 The union now has to select a time path for wage(and, implicitly employment) and pension bene®ts (b), considering theoutside opportunities (j). Formally,

max $?

0

{an[u(w)7u(j)] + (17a)P[u(b)7u(j)] + mu(j)}e7rtdt, (A1)

subject to the labour demand, the membership dynamics and the pay-as-you-go pension scheme. Here, u(´) is a non-negative and concave utilityfunction, u'(´)40, u@(´)40. From the ®rst-order conditions, we obtain thefollowing long-run equilibrium:

{(1 + r) + u[1 + (1 + r)]} C (w*) = (r + 1 7 a)u(j), (A2)

and

n* = fm* 7 mP; f '(w*)50; f = (1/a); m = [(1 7 a)/a].

Notice that the membership model forces a negative (positive) relationshipbetween steady-state employment (wage) and union membership. Theunion sets a steady-state wage and lets membership adjust according to themembership dynamic equation. The steady-state equilibrium shows that,with a higher number of aged retirees with respect to active workers'membership, the slope f is steeper and entails lower equilibrium member-



ship for a given value of w* and u. When there are more retirees thanworkers (a reduces), wages fall, increasing the employment equilibriumand curbing the worsening of the active workers±pensioners membershipratio. This solution should be compared with the conventional intertem-poral model (e.g. Kidd and Oswald 1987; Jones 1987), where the unionpicks up a time path for wages and the membership changes are de®ned asm.

= n 7 m. This represents a special case of (A2), when a = 1 and u = 0.The long-run equilibrium is given by the equation

(1 + r) C (wc) = ru(j), (A3)

while employment (n* = f(w*)) and membership are perfectly positivelycorrelated in steady state.

Comparing (A2) and (A3), the implications for union behaviour may beeasily drawn. The long-run wage (employment) is lower (higher) than thatyielded by conventional models, and it is lower the greater the pensioners'share of union membership and the lower the tax rate. The internalstructure of union membership leads, even for a monopoly union, to wagemoderation in order to increase employment and the active workers'membership share.

Appendix B: The Effects of Membership Composition on Wages andEmployment

Estimating a static real-wage equation using annual data for 1951±97produces the following (OLS) results:

(w7p) = 712 +0.95y 7 0.117Mp + 0.24Ma 7 0.062Doil + 0.047Dchoff + e, (A4)

(29) (65) (8.1) (9.9) (3.3) (2.6)

with Rc2 = 0.994 and CRDW = 1.39, and t-ratios are given in brackets. Allthe variables are logs and non-stationary time series.11 Estimates based onunion density do not provide different results. Intuitively, this outcomearises because of the strong similarity of the Ma variable to union density(see Figure 2). The equation is augmented by two shift dummy variables, toaccount for the short-run effects concerning the oil shocks (Doil) and theintroduction of the union checkoff (Dchoff). If the long-run relationshipbetween non-stationary variables provides a stationary error term (e %I(0)), these series would be cointegrated. In our case, the deviation of(w7p) from its long-run path (w7p)* is I(0).

If we consider the stationary relationship between active workers'membership and employment (as in the model reported in Appendix A),including the employment variable nt (standardized labour units) in thedata set used in model (A4), we ®nd two equilibrium relationshipsgoverning the joint evolution of the variables. To test for cointegration,we use the multivariate VAR approach developed by Johansen (1988),with one lag on all stochastic variables. The process of testing for



cointegration (imposing identi®cation restrictions) in the ®ve-variablesystem ends up with the following restricted cointegration space:

n = 7(w7p) + 0.1Mp + 1.8y 70.0361Trend + 0.1Choff (A5)

Ma = n + (w7p) 7 0.043Trend (A6)

The restrictions on identifying the two cointegrating vectors have beentested jointly, with y and Mp being long-run weakly exogenous for thesecond stationary relation. The LR test for these joint hypotheses,distributed as a x2(&4) under the null, gives a value of 7.15 (0.1278),indicating that we cannot reject these restrictions at a 5 per cent level.Replacing the membership components Ma and Mp with their relativemembership shares does not affect the equilibrium relationship betweenthe variables in the cointegration space. (Models, tests and results can beprovided by the author upon request.)

Final version accepted 20 April 1999.

Acknowledgements

I would like to express my thanks to Claudio Lucifora, Giuseppe Ciccaroneand four anonymous referees for their helpful suggestions on earlier draftsand working paper versions. Research in connection with this paper wassupported by Ricerca di Ateneo, `Dinamiche dell'integrazione europea escelta di politica economica', 1996. In addition, I have bene®ted from thesuggestions of John Kelly.

Notes

1. See e.g. Carruth and Disney (1988); Disney (1990); Wheeler and McClendon(1991); Mason and Bain (1991, 1993); Haberfeld (1995).

2. The automatic check-off may be seen as a sort of coercive mechanism of union®nance. Political movements have recently tried to affect the cost of unionorganization, calling for a legislative change to eliminate the union check-off.

3. This information has been provided by an anonymous referee.4. In effect, Italian union membership cannot be readily covered by the median

voter framework. The heterogeneity of membership among active workers ismade more complex by the problems and the aspirations of retired members.An application of the median voter model to union wage and membershipdetermination is found in Booth (1984).

5. Service centres for the elderly, such as day hospitals and health care residences,have been envisaged only recently in the national health programme: seeISTAT (1995); CER±CGIL (1996); Sgritta (1997); Bosco and Hutsebaut(1997).

6. The provision of bene®ts and services is becoming crucial in maintaining (or



widening) membership density in all industrialized countries; see Towers (1989)and Booth (1991) for the UK.

7. In the 1980s Italy failed to reduce the budget de®cit, whose GDP share

consistently exceeded 10 per cent, with a persistent primary de®cit. Thisengendered a rise in the stock of public debt, causing a debt±GDP ratio over100 per cent at the beginning of the 1990s.

8. The remarkable changes in Italian fertility rates over the last decade (among thelowest in the industrialized world, with 1.2 children per woman of childbearingage) have enhanced the ratio of old to young, determining a decline in

population growth with important implications for the social security systemand its ®nancial requirements. In 1995, people above the age of 65 representedabout one-seventh of the whole population (15.8 per cent); this percentage rises

to 21.3 for those above 60. The ageing of population has given rise to anabundant literature on the dif®culties of retirement schemes. For recentprospects for the Italian population, see Franco and Munzi (1996) and Golini

(1998).9. Although crucial, this assumption is adopted only to simplify the analysis. In

fact, in the period examined, union density ranged from about 49 to 37 per cent.

If the union is assumed to be a closed shop, union density is 100 per cent. Ananalogous assumption should be true for pensioners.

10. Social security contributions, paid by employers and employees, constitute the

largest share of the government current receipts. In 1995 this share amounted to261.0 trillion lire (in 1986 it was 125.5 trillion lire), about 12 per cent of GDP.The pension system absorbs about 60 per cent of total contributions. Empirical

estimates suggest that the employment effect (or the labour cost responses) of achange in social security contributions is quite large; see e.g. Tyrvainen (1995);Chiarini (1996).

11. For the two-step Engle±Granger procedure to the cointegration approach, see

Engle and Granger (1987) and Stock (1987).

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The composition of union membership: the role of pensioners in Italy

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