The Legal Framework for Collective Bargaining in Developing Economies

58 Pages Posted: 1 May 1998

See all articles by John H. Pencavel

John H. Pencavel

Stanford Institute for Economic Policy Research (SIEPR); IZA Institute of Labor Economics

Date Written: June 1996


This paper addresses the question, "How should the law treat labor unions and collective bargaining?" Because the answer to this question depends on what labor unions do, the first part of the paper describes the activities of unions and reviews the research designed to measure the consequences of unionism. The context of this review is a developing country which, by its very nature, cannot sustain as high a level of unionism as the more developed economies. This is partly because unions are agents of employees and, in less developed economies, a large fraction of workers are not employees but are self-employed and unpaid family workers.

Developing countries have adopted different approaches to the design of the legal framework of collective bargaining. Some foster and nourish unionism while regimes in other countries actively suppress union activity. Few states adopt a neutral posture. Consequently, in most developing countries, unionism is highly politicized with many unions focusing their energies on political activities instead of representing the interests of their members at their place of work. In general, these political activities of unions have resulted in worse rather than better government economic policy. What is needed is a legal framework that encourages unions to concentrate their activities at the source of their members' welfare, namely, at the enterprise where workers are employed.

A regulatory framework is sketched that proposes confining the collective bargaining activities of unions to the level of the enterprise. Once this is effected, the state should adopt a neutral and "hands-off" policy with respect to collective bargaining. Objections to this position are considered. In the public sector, final-offer arbitration is advocated to resolve disputes that would otherwise result in strikes.

JEL Classification: J50, O17

Suggested Citation

Pencavel, John H., The Legal Framework for Collective Bargaining in Developing Economies (June 1996). Available at SSRN: or

John H. Pencavel (Contact Author)

Stanford Institute for Economic Policy Research (SIEPR) ( email )

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IZA Institute of Labor Economics

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