Unions are back in the spotlight — I'll dig into what the evidence shows about their impact on workers and the wider economy.
Labor unions have both significant benefits and significant costs for workers and the economy - the net effect depends on how unions operate, the industry, and the labor market structure.
How unions benefit workers
Historically, unions have been credited with helping to enact laws to end child labor, create Social Security/Medicare, establish the eight hour work day, the 40 hour week and paid overtime, and improve workplace safety.
More recently, research points to direct material gains:
•Higher wages: Simple comparisons find union workers typically make about 20 percent more than nonunion workers, while more rigorous analyses controlling for worker characteristics or using regression discontinuity find a causal union wage premium of around 10 to 15 percent. Other estimates find unionized workers earn 10.2% more than their non-union peers, with larger premiums for disadvantaged groups - 17.3% for Black workers and 23.1% for Latino workers.
•Better benefits and working conditions: Workers represented by unions get higher wages, and are also more likely to enjoy benefits like paid sick days, paid holidays, and paid vacation than their non-union counterparts. 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.
There is strong evidence that unions improve both fringe benefits and non-wage features of the workplace, such as healthcare, retirement, safety regulations and protection from unfair dismissal.
•Representation and voice: Unions fight to secure better pay and conditions for workers and provide a collective voice that can reduce turnover, provide or promote training and encourage innovation.
•Reduced inequality within firms: Unions promote within-firm equality by adopting explicit anti-discrimination measures and wage-setting practices that are less susceptible to implicit bias.
Polling reflects these perceived benefits: 67% of Americans believe labor unions increase workers' wages, 63% job security, 63% negotiation power, and 51% job satisfaction.
How unions affect the broader economy - the positive case
Proponents, including a 2023 U.S. Treasury Department report, argue that unions serve to strengthen the middle class and grow the economy at large.
Mechanisms cited:
1.Raising standards beyond members: By advocating for better conditions in their own workplaces, unions also set standards for workers throughout the country. They also raise wages at non-union facilities, improve workplace safety conditions and help close wage gaps. Empirically, each 1 percentage point increase in private-sector union membership rates translates to about a 0.3 percent increase in nonunion wages.
2.Reducing inequality and boosting demand: From a Keynesian standpoint, they make sure workers have enough money to live and purchase the goods needed to keep the economy going. The Treasury report argues increased financial stability could alleviate borrowing constraints, allowing workers to start businesses and build human capital, and promote economic resilience by reducing financial fragility.
3.Productivity and civic effects: The report challenges the view that worker empowerment holds back economic prosperity, noting unions can have a positive effect on productivity through employee engagement and union voice effects. Unions may also enhance social capital and civic engagement - union members vote more often and are more likely to volunteer.
In short, unions can promote economy-wide growth and resilience.
Potential costs and negative effects
Critics and some economic research point to trade-offs:
•Unemployment and reduced hiring: In a competitive labour market, trade unions pushing wages above the equilibrium point can lead to unemployment. Union members can benefit from higher wages, but outside the union, there will be higher unemployment. On the negative side, unions can lower the hours that employers demanded, limit growth in labor supply, and create walkouts or strikes that shut down production.
•Higher costs, prices, and inflation: Potential disadvantages include higher labor costs, reduced workplace flexibility, strikes, management-worker conflicts, and slower decision-making. Increased labor costs can distort the labor market and be passed on to consumers through higher prices. Unions can increase wages which leads to inflation. If unions become too powerful they can bargain for higher wages above the rate of inflation and contribute to wage-inflation.
•Reduced profitability and investment: Research shows unambiguously that unions directly cause lower profits. If unions are very powerful and disruptive, it can discourage firms from investing and creating employment - firms may prefer to invest in another country with better labour relations. For example, in the 1970s, the UK experienced widespread industrial unrest cited as a factor behind relative decline. The Rust Belt offers a case study: As union power and frequent strikes drove up labor costs and reduced productivity, many firms responded by downsizing or relocating to regions with weaker union influence.
•Aggregate output effects: Some studies conclude that labor unions have reduced U.S. output by significant amounts -- trillions of dollars over time and that the employment-population ratio and the unemployment rate have been adversely affected. Analysis by the American Action Forum found the long-term decline in union membership has had a positive impact on the economy, including greater economic growth, faster job creation, and greater earnings, leading to an additional $115 billion in economic growth.
•Lost output from disputes: If unions go on strike and work unproductively it can lead to lost sales and output, and unsuccessful negotiation may end up in workers' strikes.
Context matters
Economists often emphasize market structure:
> The benefits of trades unions depend on their circumstances. If they face a monopsony employer they can help counterbalance the employers market power. In this case, they can increase wages without causing unemployment. If unions become too powerful and they force wages to be too high, then they may cause unemployment and inflation.
Trade unions are organisations formed to counter-balance the monopsony power of employers. When employers have monopsony power, a union can increase wages without causing unemployment. When labor markets are already competitive, the same wage increase is more likely to create real-wage unemployment.
The relationship quality also matters: If relations are good and constructive, the union can be a partner in maintaining a successful business; if confrontational, it can escalate into decline in profitability and put long-term job security at risk.
Bottom line
•For individual workers who are members: Evidence is fairly consistent that unions raise wages (10-15% premium), improve benefits, job security and workplace protections, with the largest gains for lower-paid, Black, Latino and female workers.
•For the economy as a whole: There is a trade-off. Unions can reduce inequality, raise consumer purchasing power, and create spillover wage gains for non-union workers, which many researchers associate with stronger, more resilient middle-class growth. At the same time, they can raise labor costs, reduce profitability, discourage investment, contribute to inflation, and potentially reduce total employment and output if wage gains exceed productivity.
Whether unions are "good" therefore depends on the balance policymakers and workplaces strike between worker empowerment and economic flexibility.