The Benefits Of Unions

Unions have a pretty bad reputation. They are often stereotyped as protecting lazy and bad workers, as well as causing unemployment other inefficiencies. However the many benefits of unions are often ignored. These include increased morale, productivity and equality.

Unions provide an important role in providing a voice for their members. If a worker has a grievance it may not be heard (either because the worker is afraid to complain or the boss may not listen). However the union can raise the issue and ensure the boss listens. Addressing grievances improves morale (as the worker feels they are valued, their opinions matter and they have the power change things for the better which increases innovation) which in turn boosts productivity. Whereas if the grievance lingers the workers may vote with their feet and quit. This is inefficient for all concerned as the worker must look for new work (which may include a spell of unemployment) and be trained into their new job, while someone must be found and trained to replace them. This means that contrary to the stereotype unions could actually make a firm more productive.

Unions are often criticized for increasing their members wages. It is claimed that this makes businesses uncompetitive and forces them to close. However if this was true there would be no unions. The fact that some unions survive in the private sector (the number is small in America but high in many European countries, Sweden in particular) shows that they cannot be wholly bad. If they were they would have been driven out of business by more competitive non unionised businesses.

Higher wages has some advantages. It boosts productivity and morale and encourages workers to work harder. After all the higher the wage, the more they have to lose if they get fired. This reduces turnover which is a large cost for businesses. Most importantly, higher wages boosts demand. If workers are paid more then they can afford to buy the products they make. It is a virtuous circle in which higher pay leads to higher demand leads to higher pay and so on. (I discuss this argument in “Pay More, Get More”).

Unions have beneficial effects on equality. Unions tend to be concentrated among the lower paid and ensure they get the highest pay increases. Unions directly redistribute profits (which would have gone disproportionately to the wealthy) towards the lower paid. Unions often aim for a policy of pay equalisation or levelling, which aims to ensure workers doing similar tasks get the same pay. The data clearly shows that the decline of unions since 1980 coincides with the rise in inequality. While correlation is not causalty there is certainly a link in this case.

The middle class is also harmed by the rise in inequality and this study shows that an increase in unionisation would increase the income of the middle class. It also shows that wages of non union workers also increases, demonstrating that unions are not as selfish as they are often described.

It is argued that unions push wages above productivity levels. They are depicted as being too greedy to understand basic economics. However the data tells a different picture. Since 1980, (when America last had strong unions) productivity has increased by 80% but inflation adjusted wages have only increased by 12% (see study above). Without a union to protect them, workers wages are held low and denied their rightful share of the wages. Unions don’t push wages above productivity, they ensure wages keep pace with productivity.

Unions also give their workers a say in their work. They make workers feel valued and respected and that they matter to a business. This probably accounts for why unionisation is higher among larger firms, because they give workers a feeling of anonymity and many feel they don’t matter to the business. Workers often have the best ideas for improving a business as they are on the ground floor and have direct experience of how it works.

Unions have many advantages and benefits. They prevent workers from being exploited and ensure that wages rise with productivity (whereas the decline of American unions has led to stagnating wages). Rather than being drain on businesses, they contribute a lot and benefit the whole economy.

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Filed under Economics

8 responses to “The Benefits Of Unions

  1. Nice article. I like that source, it has some excellent condensed material. I may be interested in using it in future writings. They wouldn’t be on this specific topic. Would you mind?

  2. I only partially agree. Having moved from the US (weak unions) to Quebec (strong unions), I see many negative effects of the strong unions here. There is a union “culture,” in which many workers in all fields and industries are not engaged by their jobs and do the bare minimum required by contracts. This lowers job satisfaction and productivity. Also, jobs are VERY protected – it is almost impossible to get rid of someone who is incompetent, which of course decreases the incentive to work hard and results in reluctance to hire.

    My experience is as a university prof. Our secretaries are in one union, research assistants in another, and so forth. I see the union culture as hurting research productivity compared to the US. One of the unions that includes the people who take care of research animals went on strike over relatively minor issues last fall for 6 months and managed to disrupt government funded research worth millions of dollars, and the careers of many researchers, researchers who were not necessarily on the side of the administration.

    I am not against unions, but I think (like most things) they are neither all good nor all bad. I think they are particularly good when working conditions are particularly bad, but they become less good as their rights become too strongly protected by law, as their members are fully middle-class rather than working-class or poor, and as they protect their own members at the expense of the unemployed.

    My guess is that much of the relationship you show between % of income going to the top 10% and union membership, as well as the stagnation of wages even with productivity increases, is due to globalization and increased capacity to move production to developing countries. This simultaneously increases productivity and the wealth of the wealthiest, while decreasing the power of unions and thus their membership.

  3. I’ve seen your first and third charts before, and they refer to workers in the USA. Is this also true of your second chart?

  4. Pingback: The case for labor unions in two graphs « Phil Ebersole's Blog

  5. Very well written. I agree with you completely. There was a time in this country (before nafta) that some of the biggest companies such as IBM and Honeywell would compete to obtain and keep workers. If I’m not mistaken it was IBM who was the first of it’s corporate peers to offer a defined pension. When you and I go home with a decent wage we will then spend money to shop. I am just repeating you more less.

    “Free trade” is a myth unless you are the global elite who pays people dirt wages and pay no taxes while receiving billions in subsidies. The United States is slowly becoming a nation whose only industry is dependent on armed conflict. Not so good.

  6. The reputations of unions in the U.S. is largely due to a PR campaign designed by conservative think tanks rather than actual behavior. Conservatives have been working hard to eliminate union power to free their hands in businees. (The current state of adffairs shows us what they have done with their free hand.)

    The real (I mean valid) criticisms of unions should lead to an increase in quality of unions rather than their elimination, a little like children can behave poorly, so do we train them or stop having children? No union has so much power that they can dictate the future, they are in a power relationships with management and government, so over time there will be ebbs and flows of this power but complete unbalances are to be resisted. For example, it has been proven over and over that strikes are net losers for all involved, consequently the imminence of a strike is a signal that tells all involved they need to think harder because there must be better options. This is what happens in high quality situations.

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