Collective bargaining agreements for the self-employed

The growth of self-employment and the so-called ‘gig economy’ enabled by the rise of digital platforms (and digitalisation more broadly) offers new opportunities for those who prefer flexible working arrangements, while at the same time creating challenges—such as decreased job security and the risk of unfairly low remuneration. One proposed solution to this problem is to allow collective bargaining by the self-employed, which is currently restricted by EU competition rules.

The European Commission has launched a consultation (the ‘Consultation’) to define ‘EU competition law’s scope of application, to enable an improvement of working conditions through collective bargaining agreements—not only for employees, but also, under some circumstances, for the solo self-employed’.

Indeed, in its current form, Article 101(1) of the Treaty on the Functioning of the European Union prohibits agreements between undertakings that restrict competition. Collective bargaining between employees and employers (often via trade unions) is outside the scope of EU competition law; however, self-employed people are considered to be ‘undertakings’, which means that they fall under the Article 101(1) prohibition above.

The May 2019 Oxera Economics Council discussed the topic of competition in labour markets, with high-profile academics and policymakers contributing to the debate. We addressed the role of collective bargaining for the self-employed, as well as other issues outside the scope of the Commission’s current Consultation. Some of these broader issues included non-poaching and non-compete agreements, and how merger assessments could take labour market competition into account. Our thinking on these topics is summarised in our Competition Law Journal paper¹ and two Oxera articles.²

In this article, we build on our past work to briefly outline how labour markets function and the key elements that the Commission should consider in the later stages of the Consultation.

How do labour markets work?

In any market, the relationship between supply and demand determines the price, output level, and quality of the product supplied. In the labour market, firms are on the demand side, with workers supplying an input to them. ‘Quantity’ refers to the number of workers, which determines unemployment. The overall price that is paid for labour is multifaceted in that it includes not only wages, but also benefits packages such as pensions and parental leave. Additionally, jobs may differ along several dimensions, such as the extent to which they are secure, the working hours, and the broader working conditions.

Employers require specific skills for production; therefore, if two jobs require very different skills, an individual is unlikely to be able to successfully apply for both. Defining skills is not straightforward, but at a minimum the job title, description, and sector should be taken into account. Someone who has worked only as an economics teacher is unlikely to be qualified to teach physics, and is also unlikely to have acquired the relevant skills to be CEO of a large multinational company.

In contrast to product markets, labour markets are ‘matching markets’—in which the supplier (worker) has preferences, and so does the buyer (employer).³ Generally, a supplier has little concern for the use of their product, as long as they get paid. In the labour market, given the pool of jobs that workers can apply for, workers will choose jobs that they prefer in terms of wages and other aspects, such as hours and so on. Workers may prefer certain locations, pay package structures, employers, or specific job titles.

Labour markets essentially match individual workers to specific firms (or sometimes individuals), leading to a bargaining process with possible outcomes that include hiring and the establishment of contractual terms (such as remuneration). Critical drivers of outcomes include the outside options available to workers (i.e. other jobs or the option not to work) and employers (e.g. hiring other workers or not hiring). In this context, a competitive market is one with many entities purchasing and selling labour and no strong relative bargaining power (e.g. no unionisation or non-poaching agreements), leading to wages being close to the value of workers’ marginal outputs. In practice, labour markets often deviate from this competitive benchmark.

A key determinant for the extent of competition in the labour market is whether workers are selling their labour to large firms or individuals. Other aspects include the degree of labour mobility—for example, workers have more outside options if they can easily switch jobs between sectors and geographies. In non-competitive labour markets, wages and other terms can deviate from the competitive level in either direction, depending on the case-specific relative bargaining power of workers vis-à-vis employers.⁴ This is true for offline bargaining, as well as bargaining in the context of digital platforms—for example, depending on the degree of competition between alternative digital platforms (e.g. competition through different business models or terms and conditions).

The issue that the Consultation is trying to address is that certain categories of workers (and especially those under self-employed contracts) may lack the bargaining power required when facing certain categories of employers with strong bargaining power. For these workers, collective bargaining may help them to achieve competitive working conditions (or at least more competitive working conditions).

However, EU competition rules do not allow self-employed workers to exert countervailing supplier power by engaging in collective bargaining, even where there is a need to offset the buyer power of employers. In this context, this Consultation is welcome.

What should the Commission consider?

Based on the above, we encourage the European Commission to consider the following aspects when evaluating the different policy options.

• The policy options set out by the Commission focus on the size and nature of employers. We suggest an additional assessment of both sides of the labour market, including defining the boundaries of the market and the relative bargaining power of the parties within it, as it is the latter that influences whether a collective bargaining agreement is distortionary or not. This would mean that the assessment of collective bargaining under competition rules should be conducted on a case-by-case basis.
• Increases in wages through collective bargaining for the self-employed may be passed on to consumers via higher prices. There may therefore be a trade-off between two policy objectives—protecting consumers and protecting workers. In evaluating this trade-off, distributional effects should be considered.
• The impact on ‘outsiders’—in particular, the unemployed—should also be considered to prevent inadvertent harm to this group. In particular, depending on the membership rules, collective bargaining by a group of workers could increase barriers to entry in the labour market.
• There are significant differences between self-employed people. Any collective bargaining process should ensure that it does not have unintended consequences—for example, by increasing the bargaining power of a subset of workers who may already be able to extract sufficient rents from employers. The ability to safeguard against these consequences would typically depend on each member state’s legal and regulatory framework.

Taking these elements into consideration should help the Commission to define the scope of any policy options, with the aim of ensuring that EU competition law will not stand in the way of improving working conditions through collective agreements by those who need them.

¹ Déchamps, P., Descamps, A., Arduini, F., Baye, C. and Damstra, L. (2019), ‘Labour markets: a blind spot for competition authorities?’, Competition Law Journal, 18:4, pp. 190–99.

² See Oxera (2019), ‘Labour markets: a blind spot for merger control?’, Agenda in focus, September; Oxera (2019), ‘How do non-poaching agreements distort competition?’, June.

³ Naidu, S., Posner, E.A. and Weyl, G. (2018), ‘Antitrust Remedies for Labor Market Power’, Harvard Law Review, 132.

⁴ In practice, most current concerns regarding labour market power relate to monopsony power, i.e. by the employers. Supply side market power would take the form of an important worker facing many potential employers. In this case, classic monopoly theory would apply and the monopolist worker would choose a wage such that their marginal revenue from working equals the marginal cost of working (e.g. lost opportunity of leisure).