Are labor unions good for workers and the economy?

I'll give you a balanced look at how unions affect workers and the broader economy — gathering recent evidence on wages, benefits, and trade-offs.

Labor unions have both benefits and costs, and economic research finds effects differ for individual workers, firms, and the economy as a whole.

Benefits for Workers

Most empirical studies find a positive effect on compensation for members:

•Higher wages: Treasury's 2023 report found unions raise the wages of their members by 10 to 15 percent. Other estimates using different methods also find a premium around 10 to 15 percent, with larger effects for longer-tenured workers. The Joint Economic Committee reported unionized workers earn 10.2% more than their non-union counterparts.

•Better benefits and work environments: Unions also improve fringe benefits and workplace procedures such as retirement plans, workplace grievance policies, and predictable scheduling. Union workers are almost 30% more likely to have access to employer-sponsored health benefits and more than 16% more likely to have access to paid sick leave. Bureau of Labor Statistics data show 85 percent of unionized workers have access to paid sick leave, while only 62 percent of non-union workers have access.

•Less inequality within firms: By encouraging egalitarian wage practices, unions serve to reduce race and gender wage gaps. For example, Black union workers are paid 13.1% more than their non-union counterparts and Hispanic union workers are paid 18.8% more. The decline of unions from 1973 to 2007 is estimated to explain about one-third of the rise in wage inequality among men and 20% of that rise among women.

•Spillover effects to non-members: Researchers find competition means workers at nonunionized firms see increased wages too. Each 1 percentage point increase in private-sector union membership rates translates to about a 0.3 percent increase in nonunion wages. These estimates are larger for workers without a college degree.

Other non-wage benefits cited include lower turnover, formal dispute resolution, voice in workplace procedures that can improve productivity and safety, and greater civic engagement. Treasury notes unions can boost businesses’ productivity by improving working environments and by giving experienced workers more of an input into decisions that design better workplace procedures, and that in hospitals where registered nurses unionized, patient outcomes improved.

These benefits are popular: 71% of Americans approved of unions in 2022, the highest recorded level since 1965.

Costs and Trade-offs

Research also identifies potential downsides, especially when unions act as exclusive bargaining monopolies:

•Higher labor costs and less competitiveness: For employers, unions can increase labor costs that lead to employer becoming less competitive, such as by requiring pensions. Collective bargaining may result in increased labor costs for employers, such as higher wages, benefits, and additional administrative expenses associated with managing union contracts.

•Less flexibility in personnel decisions: Unions can make it harder to fast-track promotions for high-performing workers and/or get rid of low-performing ones, and can make it harder to promote and terminate workers.

•Disruption from strikes: Strikes, work stoppages, or slowdowns can disrupt operations and negatively impact productivity and profitability.

•Employment and investment effects: A common theoretical view is that unions function as labor cartels that restrict the number of workers to drive up wages, with companies passing higher wages to consumers through higher prices. Heritage summary of research concludes economists consistently find that unions decrease the number of jobs available in the economy and that unions effectively tax investments by negotiating higher wages, thus lowering profits, causing unionized companies to reduce investment.

A Mercatus Center review of 147 studies found that although US 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 monopoly power dominates, companies respond to wage pressure by trimming R&D, cutting capital, reducing company growth, and ultimately shrinking jobs, which the authors link to roughly 55 percent of the decline in the Rust Belt’s share of manufacturing employment between 1950 and 2000. Powerful labor unions acting through their monopoly can limit job growth and have led companies to cut investments—particularly in R&D and long-lived tangible capital—thereby reducing productivity, profitability, and long-term viability.

Recent studies also suggest the wage premium has narrowed or disappeared since the 1980s due to global competition and technological changes, and that plants that unionize do not always see wage increases relative to plants where organizing drives failed.

For the Economy Overall

The net economic effect is debated:

Arguments that unions help the economy:

•Reducing overall inequality can improve opportunity and growth if disadvantaged people can access resources to acquire job skills or start businesses, and can promote resilience by reducing financial fragility.

•More equal wages and stable middle-class incomes raise consumer spending and housing and education investment through spillovers to families and communities.

Arguments that unions harm the economy:

•As cartels, unions benefit members but hurt consumers generally, and especially workers who are denied job opportunities, bringing less investment, fewer jobs, higher prices, and smaller 401(k) plans for everyone else.

•Widespread unionization can delay recovery from economic downturns.

Much research concludes the outcome depends on structure, not just presence of unions. The Mercatus review argues trade-offs arise not because unions are uniquely aggressive, but because US labor laws promote a legally protected union monopoly that crowds out constructive representation, while systems permitting multiple forms of representation and flexible agreements retain benefits of worker voice without high costs. Treasury similarly notes unions can have a positive effect on productivity through employee engagement and union voice effects, providing a road map for campaigns that could lead to additional growth.

Bottom line

•For individual union members, evidence strongly shows higher pay, better benefits, and more predictable work environments and reduced within-firm inequality.

•For non-union workers and communities, there are spillover benefits to wages and standards, but also potential costs if aggressive bargaining reduces hiring or investment.

•For the economy, moderate, cooperative unions in competitive markets tend to show small to positive effects on productivity and equality, while powerful monopoly-style unions that secure large wage gains without flexibility tend to be associated with slower employment growth, lower investment, and higher consumer prices.

Whether a specific union is "good" therefore depends on industry competitiveness, how bargaining is structured, and whether gains are balanced with firm viability.

Citations (5)

1treasury.govGovernment
FACT SHEET: Treasury Department Releases First-Of-Its-Kind Report on Benefits of Unions to the U.S. Economy
Backs: “Labor unions have both benefits and costs, and economic research finds effects differ for individual workers, firms, and the economy as a whole. Benefits for Workers. Most empirical studies find a positive effect on compensation for members:”
2treasury.govGovernment
Labor Unions and the U.S. Economy
Backs: “Most empirical studies find a positive effect on compensation for members: Higher wages: Treasury's 2023 report found unions raise the wages of their members by 10 to 15 percent.”
3senate.govGovernment
Unions Support Workers and Grow the Middle Class - Unions Support Workers and Grow the Middle Class - United States Joint Economic Committee
Backs: “Higher wages: Treasury's 2023 report found unions raise the wages of their members by 10 to 15 percent. Other estimates using different methods also find a premium around 10 to 15 percent, with larger effects for longer-tenured workers.”
4heritage.orgNonprofits and think tanks
What Unions Do: How Labor Unions Affect Jobs and the Economy
Backs: “Disruption from strikes: Strikes, work stoppages, or slowdowns can disrupt operations and negatively impact productivity and profitability. Employment and investment effects: A common theoretical view is that unions function as labor cartels that restrict the number of workers to drive up wages, with companies passing…”
5mercatus.orgNonprofits and think tanks
Do More Powerful Unions Generate Better Pro-Worker Outcomes?
Backs: “Heritage summary of research concludes economists consistently find that unions decrease the number of jobs available in the economy and that unions effectively tax investments by negotiating higher wages, thus lowering profits, causing unionized companies to reduce investment. A Mercatus Center review of 147 studies…”