What Is the Meaning of Productivity Bargaining?

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Three construction workers discussing building plans
Three construction workers discussing building plans (Image: Design Pics/Design Pics/Getty Images)

Productivity bargaining is a trade-off in labor negotiations. In return for the employer offering more pay, the union agrees to changes that will increase productivity. The term isn't an exact legal phrase -- contract discussions may involve productivity bargaining without ever using the words. The concept developed in England in the 1960s and it's commonly used in nations with ties to the United Kingdom.

Why Bargain

The underlying principle is that if workers want more pay, they should be more productive. In theory, at least, the wage increase in a productivity bargaining agreement is paid for by the productivity gains. Employers and workers use the bargaining to hash out terms of the agreement, such as how much more money is on the table and what kinds of policies should be put in place to ensure improved productivity.

Productivity Steps

Management and labor are free to set whatever bargain they choose. Some British unions, for instance, have agreed to annualized-hours contracts that guarantee workers a set number of hours a year, rather than a week. This gives employers more flexibility managing the work force. Another option is to set specific production targets such as increased output or reduced waste.

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