The production of this forecast is supported by the Institute's Corporate Members: Bank of England, Barclays Bank plc, Dixons plc, GlaxoSmithKline, INVESCO Europe Ltd, Marks and Spencer plc, Morgan Stanley Dean Witter (Europe) Ltd, Morley Fund Management, The National Grid Company plc, Nomura Research Institute Europe Ltd, Pearson plc, The Post Office, Rio Tinto plc, Standard Chartered Bank, UBS Warburg, Unilever plc and Willis Corroon Group plc.

The broad picture shown in our latest forecast is for a continuation of sustained non-inflationary output growth. Economic activity has clearly slowed in recent months, and the UK economy is beginning to be affected by developments in the United States and elsewhere. But a number of temporary factors that have acted to restrain activity should come to an end over the course of this year, and recent and prospective fiscal and monetary policy changes are likely to support activity over the next two years. We expect to see a continuation of the recent pick-up in labour productivity, which should help to contain cost pressures even if the rate of growth of average earnings rises back to around 5 per cent. Inflationary pressures are thus expected to remain quiescent unless the level of sterling falls more rapidly than presently seems likely.

The five years up until the end of 2000 saw a period of rapid growth in the world economy, with OECD output increasing by 3¼ per cent a year, and overall world output rising by 3¾ per cent a year. Sustained strong growth of this nature is an unusual occurrence. Once capacity limits are reached, growth is bound to slow. This is particularly likely if full capacity output is attained simultaneously in a number of regions, much as we believe happened in North America and Europe in 2000, where growth was 5 per cent and 3¼ per cent respectively. We anticipate that growth will slow to 1.9 per cent in North America and to 2½ per cent in the European Union in 2001. World growth is expected to slow to under 3 per cent in 2001, with OECD growth declining to under 2¼ per cent, which would be the weakest seen since 1993. Although this cannot be regarded as a deeply worrying slowdown, there are significant risks associated with our projections.

Dispersion in pay is lower among union members than among non-unionists. This reflects two factors. First, union members and jobs are more homogeneous than their non-union counterparts. Second, union wage policies within and across firms lower pay dispersion. Unions' minimum wage targets also truncate the lower tail of the union distribution. There are two major consequences of these egalitarian union wage policies. First, the return to human capital is lower in firms which recognise unions than in the unorganised sector. Second, unions compress the wage structure by gender, race and occupation.

The decline in trade union influence over the past two decades raises the question of whether pay levels in lower-skilled jobs now lie outside the unions' sphere of influence, as tacitly acknowledged by their acceptance and later endorsement of the principle of the statutory minimum wage. This article examines pay levels among lower-skilled jobs in the private sector in Britain using the Workplace Employee Relations Survey of 1998. It shows that trade unions still had a positive impact upon pay levels in lower-skilled jobs and identifies those forms of unionism associated with the largest premiums. However, the article also shows that the activities of trade unions did little to counteract the forces generating the lowest levels of pay.

This article addresses the question: what impact do trade unions have on employee trust in management? Using nationally representative data on employees in the British Social Attitudes Survey (BSAS) 1998, we assess associations between measures of unionisation and employee perceptions that managers usually keep their promises to employees. The article provides broad support for the three hypotheses explored here. First, employee trust in managers is higher where there is a balance of power between unions and management at the workplace. Secondly, employees' trust in managers is higher where management supports union membership, and is lowest where management actively discourages membership. This is equally true among employees in unionised and non-unionised workplaces. Thirdly, employees' perceptions of union effectiveness are positively associated with higher trust in management.

The positive association between managerial support for union membership and employee trust in management can be interpreted in various ways. But the finding suggests that management can influence employee perceptions of them for better or for worse through their engagement with unions.

Management can also foster a high trust relationship with employees by ensuring that unions have sufficient power to make a positive contribution to the running of the workplace, since unions with the ‘right amount of power’ are associated with higher trust in management. Weak unions are particularly bad for employee perceptions of management, raising the question why employers often recognise unions for pay bargaining, but preside over a decline in union strength at the workplace.

Unions are best able to create a climate in which employees trust management where they are perceived to be doing their job well, where they have regard to union members' problems and complaints, and where they contribute to the smooth running of the workplace. In these circumstances, trust in management is generally no different from that found among employees in non-unionised workplaces. However, where unions are viewed as ineffective, trust in management is lower than in comparable non-unionised workplaces.

The article examines whether ethnic minority employees report poorer treatment at work than white employees, and evaluates the impact of three key features — gender differences, formal equal opportunities policies and trade union recognition. The analysis reveals that ethnic minority men and women receive poorer treatment than their white counterparts. In addition, there is evidence to suggest that ethnic minority women receive poorer treatment than ethnic minority men. Equal opportunities policies are effective in ensuring equal treatment, but the presence of a recognised trade union is not. White men and women in unionised workplaces enjoy better treatment than their white counterparts in non-union workplaces, but the same is not true for ethnic minorities. By contrast, there is very little evidence of unequal treatment in non-union workplaces.