Are labor unions good for workers and the economy?

A nuanced question — I'll look at current evidence on how unions affect workers' wages and the broader economy.

Labor unions have both benefits and costs for workers and the economy, and research suggests the net effect depends on how powerful and how adversarial the union is, and on the bargaining structure.

1. How unions benefit workers

For members, the evidence for higher pay and better benefits is strong:

•Higher wages: The Center for Economic and Policy Research (CEPR) finds that unionization raises wages as well as health care and pension coverage for service sector workers, and on average, unionization raises service sector workers' wages by over 10% – about $2.00 per hour. Nationally, other estimates find labor unions raise average wages by 8%.

•For African American workers, unionized black workers earned, on average, 12 percent more than their non-union peers.

•In recent bargaining rounds, wages of private sector union workers rose 6.3% in the year ended in March, the largest increase in data back to 2001, according to Bureau of Labor Statistics employment cost figures, while non-union workers saw a 4.1% bump. Workers in states protecting collective bargaining rights earned 8% more than their counterparts in right-to-work states in 2025, after adjusting for cost-of-living.

•Better benefits and job security: Workers represented by unions get higher wages, and are also more likely to enjoy benefits like paid sick days, paid holidays, and paid vacation. Data from the Bureau of Labor Statistics show that 85 percent of unionized workers have access to paid sick leave, while only 62 percent of non-union workers have access.

•Black workers in unions were much more likely to have health-insurance benefits and a pension plan.

•Voice and reduced turnover: Research shows union benefits can extend beyond individual organizations, boosting sectors and even the economy by reducing staff turnover, providing or promoting training and encouraging innovation.

Data published in 2021 by the Office of National Statistics (ONS) shows 47% of unionized workers worked for the same employer for ten years or more, compared to 29% of all employees. Unions also reduce employee turnover and wage inequality, and increase access to sick pay and annual leave.

This is often called the "two faces" of unions: Freeman and Medoff's theory starts off unions are a negative monopoly force in wage determination but a positive ''voice'' force in internal firm governance. The voice function can lead to positive indirect economic effects (lower turnover, higher productivity, etc.).

•Reducing inequality: Unions helped to create the middle class by raising wages, benefits, and working conditions. When unions were at their strongest before the 1960s, they helped narrow the gulf between worker and executive pay. Other researchers argue as inequality has become a key economic problem, unions are one of the few social institutions with the potential to limit further growth of inequality.

2. How unions can benefit the broader economy - when moderate

Not all union systems have the same effect.

Research from the Organization for Economic Cooperation and Development (OECD) from 35 countries shows that individuals working in organizations where unions engaged in firm-level collective bargaining enjoy higher wages.

The best outcomes for employment levels, productivity and employee wages are achieved via collective bargaining that aligns wage and working conditions agreements across sectors, but also allows agreements to be adapted at the organization level. This is known as "organized decentralization" and is used in countries such as Austria, Denmark, Sweden and Germany.

Meta-analysis of hundreds of studies finds:

•Unions have no effect on productivity in manufacturing in the United States, a moderate negative effect in the United Kingdom, a moderate positive effect in developing countries, and a small positive effect in Italy and France.

•Production function studies indicate small overall union impacts on productivity; positive effects, where they exist, appear to result from management response to decreased profit expectations.

In other words, unions do not substantially harm business growth in some studies, and supporters point to studies that show in countries with densely and centrally organized labor unions, it is easy to promote the growth of the economy and reduce the levels of inflation and unemployment significantly when labor unions engage in negotiations.

3. Potential downsides for workers and the economy

Economists also identify costs, especially when unions act as a monopoly:

•Higher labor costs and reduced competitiveness: They can lead to higher labor costs as unions negotiate for higher wages, benefits, and job protections. This can increase production costs for businesses, making them less competitive in the market and potentially leading to job losses or reduced profitability. For firms facing global competition, unions raise their employers' labor costs and make them less competitive. This hastened the outsourcing of production overseas.

•Lower profitability, investment and employment growth: Lower profitability among unionized firms is well established. Studies show that powerful labor unions can bring about slower employment growth and fewer jobs for unionized workers and can reduce company investments in R&D and long-lived tangible capital. Companies facing excessive union demands often cut investments—particularly in R&D and long-term capital—reducing productivity and profitability. These effects slightly increase the likelihood of a company closing.

A comprehensive review of 147 studies by Mercatus found: 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. Yet downstream job losses and firm decline can be traced not to the collective voice itself but to the statutory monopoly structures.

•Labor market rigidity: Unions may create rigidities in the labor market by enforcing strict work rules and seniority-based promotions, limiting the flexibility and efficiency of businesses in responding to market changes.

•Costs to workers themselves: Trade unions can have disadvantages for workers, including conflicts with employers, high union dues, and reduced negotiation power. Strikes and labor disputes can disrupt business operations and result in lost wages for workers. Powerful unions can also reduce labor turnover and mobility through job security clauses and seniority promotions, which help union insiders but harm outsiders (e.g., younger or new workers) by discouraging hiring.

•Effect on inequality and growth is mixed: The effect of labor union power on income inequality is, at best, mixed. Some studies find unions do not substantially harm business growth, while others consistently find that union membership has negative economic effects on real GDP, jobs, and wages. Because they raise wages above competitive levels, economists argue that labor unions create inefficiencies resulting in the loss of jobs.

•Diminishing wage premium: While powerful labor unions that use aggressive negotiation tactics have historically secured higher wages, recent studies suggest this wage advantage has declined or disappeared due to global competition and technological changes.

4. Bottom line

•For individual workers who are members: Unions are generally good - higher pay, better health and retirement benefits, more paid leave, greater job security and a collective voice in disciplinary and grievance meetings.

•They provide the most benefits by far to the lowest-paid workers.

•For the economy as a whole: The effect is not uniformly positive or negative.

•Moderate unions operating in cooperative, flexible systems - like the organized decentralization model - can preserve worker gains while supporting productivity, employment, and innovation.

•Powerful, adversarial unions with legally protected monopoly power that push for unsustainable wage increases can reduce profit, deter investment in physical and intangible capital, slow hiring, and increase risk of plant closures or offshoring.

Most economists agree that while most social scientists agree that unions benefit their members, there is considerable disagreement about whether unions have a net positive or negative impact on economies writ large.

Whether unions are “good” therefore depends on: the strength of the union, the legal framework, whether bargaining is centralized or decentralized, and whether the union balances wage gains with concerns for firm viability and job creation.

Citations (3)

1phys.orgNews and mediaquality 0.85
Unions fight to secure better pay and conditions for workers, but they can also benefit employers
Backs: “Voice and reduced turnover: Research shows union benefits can extend beyond individual organizations, boosting sectors and even the economy by reducing staff turnover, providing or promoting training and encouraging innovation. Data published in 2021 by the Office of National Statistics (ONS) shows 47% of unionized…”
2harvard.eduAcademic
The Economics of Trade Unions: A Study of a Research Field and its Findings
Backs: “When unions were at their strongest before the 1960s, they helped narrow the gulf between worker and executive pay. Other researchers argue as inequality has become a key economic problem, unions are one of the few social institutions with the potential to limit further growth of inequality.”
3mercatus.orgNonprofits and think tanks
Do More Powerful Unions Generate Better Pro-Worker Outcomes?
Backs: “Lower profitability, investment and employment growth: Lower profitability among unionized firms is well established. Studies show that powerful labor unions can bring about slower employment growth and fewer jobs for unionized workers and can reduce company investments in R&D and long-lived tangible capital.”