I'll examine whether unions help workers and the wider economy, pulling recent evidence on both sides.
Labor unions have both benefits and costs for workers and the economy, and research finds the effects depend on industry, type of union, and how labor-management relations are structured.
How unions help workers
Most studies find a clear wage and benefit advantage for members:
•Higher wages: Simple comparisons find union workers make about 20 percent more than non-union workers. More rigorous studies that control for worker and job characteristics estimate a causal "union wage premium" of around 10 to 15 percent, with larger effects for longer-tenured workers.
•Better fringe benefits and working conditions: There is strong evidence that unions improve both fringe benefits and non-wage features of the workplace. The U.S. Treasury report found unions also improve fringe benefits and workplace procedures such as retirement plans, workplace grievance policies, and predictable scheduling. These improvements contribute substantially to middle-class financial stability and worker well-being.
•Collective bargaining and job security: The benefits of unions include collective bargaining, which enables workers to negotiate for higher wages and better working conditions. Unions can also provide job security, protecting workers from unjust termination. Other analyses note unions negotiate job security provisions such as protection against layoffs and seniority-based protections, and provide representation for workers who may not have resources to negotiate individually.
•Reduced inequality: Unions lift wages, reduce inequality, and shape how work is organized. Study after study has shown that unions make the economy stronger by boosting wages for workers and reducing wage inequality. By encouraging egalitarian wage practices, unions serve to reduce race and gender wage gaps.
•Spillover benefits to non-members: Unionization also has spillover effects that extend well beyond union workers. 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.
The Treasury Department's 2023 first-of-its-kind report concluded unions play an important role in addressing longstanding challenges faced by the middle class – including stagnant wages, high housing costs, and reduced intergenerational mobility. In doing so, unions contribute to a more robust and resilient economy.
How unions can help the economy
Proponents argue economy-wide benefits occur through several channels:
•Less inequality, more growth: Reducing overall inequality can alleviate borrowing constraints and promote growth and resilience. The report noted unions contribute to economic growth and resilience in part simply by reducing overall inequality.
•Higher consumption and tax revenue: Trade unions help create a more equal and prosperous society, which is the basis of strong consumption that helps to drive economic growth, with higher profits leading to more corporation tax and higher wages leading to more income tax.
•Productivity through voice: In addition to their effect through more equality, unions can have a positive effect on productivity through employee engagement and union voice effects. Some empirical work finds the presence of labor unions has statistically and economically significant positive effects on firm productivity, and classic work by Freeman and Medoff concluded that unions enhance productivity. Trade unions can influence the labour share and productivity channels, enabling coordinated wage bargaining to encourage productivity enhancing measures.
•Civic and community spillovers: Union members improve their communities through heightened civic engagement; they are more likely to vote, donate to charity, and participate in a neighborhood project.
Potential drawbacks and costs
Critics and mixed empirical findings point to costs:
•Higher labor costs and prices: When labor unions negotiate higher wages and benefits, companies may pass these costs onto consumers in the form of higher prices for goods and services.
•Reduced competitiveness and outsourcing: For firms facing global competition, unions raise their employers’ labor costs and make them less competitive. This hastened the outsourcing of production overseas to take advantage of lower manufacturing labor costs. If labor costs become too high, some factories may relocate to areas or countries where labor is less expensive. In the long run, those wages reduce the profitability of employers, and investment will move away from companies with such high costs.
•Profits and investment: While unions can benefit members, research shows they hurt consumers generally, and especially workers denied job opportunities, with unions sometimes described as functioning as labor cartels that harm the overall economy. Other research finds unions directly cause lower profits, and that short-run pay gains often come at the expense of slower employment growth, fewer future job opportunities, reduced investment and productivity. When unions win elections by a large margin, the effect on business performance can be as large as 25 to 40 percent.
•Rigidity and disruptions: Potential disadvantages include higher labor costs, reduced workplace flexibility, strikes, and difficulties adapting to technological change. Unions may restrict management's flexibility in allocating resources and create rigidities by enforcing strict work rules and seniority-based promotions. Labor strikes and disputes can disrupt production and supply chains. Labor unions may also be a monopoly bargaining agent, which may have a negative impact on productivity.
Bottom line
•For individual workers, especially low- and middle-wage workers, union membership is consistently associated with higher pay, better health and retirement benefits, stronger job protections, and safer, more predictable scheduling.
•For the economy as a whole, the effect is more complex. Unions can reduce inequality, raise incomes for both members and non-members, support consumer spending, and potentially raise productivity when there is close cooperation between management and unions. At the same time, they can raise costs for employers and consumers, reduce profits and investment, limit flexibility, and contribute to job losses or outsourcing in globally competitive industries.
Many economists conclude the net effect depends on context: unions that operate cooperatively to improve voice, training, and work organization tend to show positive productivity and growth effects, while adversarial relations or rigid work rules tend to show negative effects.