Are labor unions good for workers and the economy?

Both sidesSays it is contestedSources conflict

Treasury sources argue unions boost productivity and the economy, while Heritage and Mercatus argue unions reduce investment, employment growth and competitiveness.

I'll give you a balanced look at how unions affect workers and the economy — gathering the latest evidence on wages, benefits, and growth.

Labor unions have both benefits and costs for workers and for the broader economy - research does not support a simple "always good" or "always bad" conclusion.

For Workers: Mostly Positive Effects

1. Higher wages - the union wage premium
Economists distinguish between simple averages and causal estimates.

•Simple comparisons find union workers make about 20 percent more than nonunion workers.

•More rigorous methods that control for worker characteristics or compare workplaces that barely won vs barely lost union elections point to a causal premium of around 10 to 15 percent, with larger effects for longer-tenured workers.

•The Treasury Department's 2023 report summarized: Unions raise the wages of their members by 10 to 15 percent.

•Other estimates find: Unionized workers earn 10.2% more than their non-union peers, and over eight decades unions have consistently provided a 10- to 20-percent wage boost.

•Recent studies suggest the premium has narrowed since the 1980s due to global competition and technological change and may even be negligible or zero in some competitive markets.

2. Better benefits and working conditions

•Unions also improve fringe benefits and workplace procedures such as retirement plans, workplace grievance policies, and predictable scheduling.

•Unions negotiate increased pay and benefits for workers and create a formal dispute resolution process.

•Research on amenities finds strong evidence that unions improve both fringe benefits and non-wage features of the workplace.

3. Reducing inequality

•By encouraging egalitarian wage practices, unions serve to reduce race and gender wage gaps.

•Unionization increases wages by 17.3% for Black workers and 23.1% for Latino workers.

•Modern union membership is now roughly equal across men and women, with Black men having a particularly high representation rate at 13 percent compared to 10 percent average in 2021. The diverse demographics mean benefits would be felt across the population.

4. Spillover effects for non-members

•Competition means workers at nonunionized firms see increased wages too.

•Each 1 percentage point increase in private-sector union membership translates to about a 0.3 percent increase in nonunion wages, with larger estimates for workers without a college degree.

•Unions also improve communities through heightened civic engagement; they are more likely to vote, donate to charity, and participate in a neighborhood project.

For the Economy: Debated and Context-Dependent

Advocates and critics draw on the same facts to reach different conclusions:

Arguments that unions help the economy:

•The Treasury report argues unions contribute to a more robust and resilient economy and that increased equality can promote growth and resilience by allowing workers to start businesses and build human capital.

•The evidence challenges the view that worker empowerment holds back economic prosperity, finding unions can have a positive effect on productivity through employee engagement and union voice effects.

•Treasury found unions can boost businesses' productivity by improving working environments and by giving experienced workers more input into decisions that design better workplace procedures.

•In addition to their effect through more equality, unions can have a positive effect on productivity through employee engagement and union voice effects.

•Historically the combination of strong unions, government investment and widespread growth contributed to a "Golden Age" where productivity grew ~97% and real compensation grew ~91% from 1945-1973.

Arguments that unions harm the economy:

•Economic theory describes unions as labor cartels that restrict labor supply to raise wages, just as OPEC attempts to cut oil supply to raise its price. In that model, unions benefit members but hurt consumers generally, and especially workers who are denied job opportunities.

•On balance, Heritage Foundation research concludes unions bring less investment, fewer jobs, higher prices, and smaller 401(k) plans for everyone else.

•A Mercatus Center review of 147 studies finds although unions have historically secured short-run pay gains, these victories often come at the expense of slower employment growth, fewer future job opportunities, reduced investment and productivity, and diminished firm growth and viability.

•When the monopoly face dominates, companies respond by trimming R&D, cutting capital, reducing company growth, and ultimately shrinking jobs — dynamics that explain roughly 55 percent of the decline in the Rust Belt's share of manufacturing employment between 1950 and 2000.

•Powerful unions can limit job growth and reduce company investments in R&D and long-lived tangible capital.

•For employers, unions can increase labor costs that lead to employer becoming less competitive.

•Unions restrict employment flexibility and can make it harder to fast-track promotions for high-performing workers and/or get rid of low-performing ones.

Why Findings Differ

Recent synthesis research argues the structure of representation matters more than the presence of a collective voice:

•US laws create more powerful and adversarial unions with monopolistic characteristics compared to Germany and the UK, where unions tend to be more cooperative.

•Moderate union power, characterized by balanced demands, greater representation and increased flexibility, can better preserve benefits while avoiding downsides.

•Studies tracking workplaces that narrowly unionized vs. narrowly rejected unionization find wages do not rise relative to plants that vote against unionizing, suggesting in highly competitive markets unions have little power to raise wages because companies cannot raise prices without losing customers.

Bottom line: For individual members, unions are consistently associated with higher pay, better benefits, more predictable scheduling and greater job protection, with spillovers that can raise standards even for non-members. For the economy as a whole, unions can reduce inequality and improve productivity through voice and engagement, but if they pursue aggressive, monopoly-like demands that raise costs without productivity gains, research finds they can reduce investment, employment growth and competitiveness, pushing costs onto consumers and unorganized workers.

Whether unions are net positive therefore depends on industry competitiveness, bargaining moderation, and the legal framework that shapes cooperation versus conflict.

Citations (4)

1treasury.govGovernment
Labor Unions and the U.S. Economy
Backs: “For Workers: Mostly Positive Effects. 1. Higher wages - the union wage premium. Economists distinguish between simple averages and causal estimates.”
evidence, article, points to yes. Claim: Unions raise members' wages and benefit the economy; Treasury report summarizes a 10 to 15 percent union wage premium.
2treasury.govGovernment
FACT SHEET: Treasury Department Releases First-Of-Its-Kind Report on Benefits of Unions to the U.S. Economy
Backs: “More rigorous methods that control for worker characteristics or compare workplaces that barely won vs barely lost union elections point to a causal premium of around 10 to 15 percent, with larger effects for longer-tenured workers.”
statistic, official document, points to yes. Claim: Causal union wage premium of around 10 to 15 percent, with larger effects for longer-tenured workers.
3mercatus.orgNonprofits and think tanks
Do More Powerful Unions Generate Better Pro-Worker Outcomes?
Backs: “Other estimates find: Unionized workers earn 10.2% more than their non-union peers, and over eight decades unions have consistently provided a 10- to 20-percent wage boost. Recent studies suggest the premium has narrowed since the 1980s due to global competition and technological change and may even be negligible or…”
statistic, article, points to no. Claim: Union wage premium figures and review finding union pay gains come at expense of employment growth, investment and productivity.
4heritage.orgNonprofits and think tanks
What Unions Do: How Labor Unions Affect Jobs and the Economy
Backs: “Historically the combination of strong unions, government investment and widespread growth contributed to a "Golden Age" where productivity grew ~97% and real compensation grew ~91% from 1945-1973. Arguments that unions harm the economy: Economic theory describes unions as labor cartels that restrict labor supply to…”
attribution, official document, points to no. Claim: Heritage research concludes unions bring less investment, fewer jobs, higher prices; unions act like labor cartels harming consumers and outsiders.