Hailed as saviors of the common man and derided as communist conspiracies,
unions have long invited controversy. But what really do they do?
What impact does organized labor have on the American economy? And
do unions serve useful purposes not measurable in economic terms?
Unions argue that they improve the economic well-being of labor
by increasing wages and benefits for union members. Indeed, that
seems to be the case. Economic theory suggests that unions attempt
to exercise market power by constraining competitive forces that
might otherwise force wages and benefits down. If the fruits of
productive enterprise can be thought of as a pie divided between
labor and capital, unions hope to slice the pie in labor's favor.
Often, they're able to do so, producing higher wages for union members
than nonunion workers receive in the same industry. (To the degree
that higher labor costs are subsequently reflected in higher product
prices, wage increases will be transitory in real terms, disappearing
as inflation eats into them.)
But economists point out that a union slicing the pie to labor's
advantage by constraining the labor market is no different than
an industrial monopolist increasing profits by fixing prices: It
distorts factor costs and creates market inefficiencies that ultimately
harm an economy's resource allocation. In general, most economists
say, the ability of labor unions to raise wages above competitive
levels has a net negative impact on society.
In special casesfor example in a "company town" where labor
mobility is restricted and there are just one or two employers-a
labor union can counteract the monopsony power of the employer(s),
resulting in more efficient resource allocation and a net benefit
to society. Fortunately, such instances are not as widespread as
they were when the Ninth District saw some of its most bitter labor-management
confrontations in Wisconsin lumber camps and the iron and copper
mines of Minnesota and Montana.
While such cases are less common nowadays," some employers nonetheless
continue to have a net power advantage over workers that is exercised
to the latter's disadvantage, in the form of excessively long hours,
low wages or intense pace of work," noted Bruce Kaufman, labor economist
at Georgia State University. In those settings, labor unions can
help address the imbalance of power and set a floor under labor
standards (for example, maximum work pace and overtime hours).
Some research has indicated that labor unions improve productivity
by providing training for workers, reducing turnover and improving
labor-management communication. Other studies have found a negative
union effect. Richard Freeman, a Harvard University economist, points
out that union productivity effects tend to vary by sector. "About
two-thirds of the studies show [improvement] and about one-third
show there might be negatives," he said. "Your best guess would
say it's a wash."
But even the studies showing productivity increases find that
the higher wage costs paid to union labor exceed productivity increases,
Freeman added, so "what is absolutely clear is that profits fall,
which motivates management obviously to keep the unions out." In
other words, unions don't increase the size of the pie as much as
they cut into management's part of it, so management's natural response
is to fight unionization.
Little empirical work has been done to estimate the impact of unions
on wage disparity among workers, but what there is indicates that
unions tend to reduce inequality among wage earners. Recent work
by David Card, a Princeton University economist, indicates that
declines in private-sector unionization may account for as much
as a fifth of the rise in male wage inequality over the past 25
years, with little effect on female wage inequality. In the public
sector, where union density has increased, "unions have been a significant
force in forestalling the rise in wage inequality among ... workers
of both genders," according to Card.
Other studies show that union involvement in apprenticeship programs
helps raise graduation probabilities for women in skilled trades
above those for women in programs sponsored by employers alone.
Although unions improve compensation for their members, they tend
to limit the number of jobs in an economy. They can do so either
directly, by enforcing a constraint on the number of workers that
can enter a profession or company, or indirectly, by pressuring
employers to raise wages. Having to pay higher wages will persuade
employers to seek less labor-intensive production techniques and
hire fewer workers. Several studies set in Australia, Canada, Britain
and the United States have estimated that employment growth in union
firms is from 2 percent to 4 percent lower than that in nonunion
companies, while a few studies have found no effect or limited impact.
Thus, unions benefit their members, but may have a negative impact
on jobs for those outside the union; moreover, maintaining the wage
premium encourages unions not to expand membership, a factor that
can eventually lead to declines in union density.
Unions also play roles that are less integral to the economics
of the workplace: political lobbying, pension management, social
support, worker education and legal representation. Arguably their
most important noneconomic function is to provide a voice for labor
in the workplace. While speaking out against abusive conditions
or even suggesting changes in work methods can be difficult or dangerous
for an individual employee, workers' unions can speak out for employees
with relative impunity. Unions, noted Freeman, are one of the few
democratically elected bodies to provide participation and representation
Labor scholars have proposed a variety of alternatives to current
American labor unions that would allow increased employee "voice"
while limiting the "rent-seeking" behavior that results in management
opposition and economic inefficiency. But none are optimistic that
labor laws or labor unions are likely to change substantially in
the near future.