Are labor unions good for workers and the economy?
Sources such as the Minneapolis Fed and the IZA paper stress unions' efficiency costs, while EPI, TCF and Treasury stress benefits for growth, equality and workers.
This is a topic with extensive economic research and ongoing debate. Let me look into recent data and studies on this.# Are Labor Unions Good for Workers and the Economy?
This is a genuinely contested question among economists, with research supporting benefits for union members but more mixed findings on broader economic effects. Here's what the evidence shows:
Effects on Workers: Generally Positive
Higher wages. The most consistent finding across decades of research is a "union wage premium." Simple comparisons of the wages of union workers and nonunion workers find that union workers typically make about 20 percent more than nonunion workers, though more rigorous methods that control for worker characteristics narrow this. The evidence from these two approaches points to a union wage premium of around 10 to 15 percent, with larger effects for longer-tenured workers.
Benefits beyond wages. Unions also help workers bargain for improved non-wage amenities such as vacation time, sick leave, scheduling predictability, and a grievance procedure protected from employer retaliation.
Spillover effects. Benefits may extend to non-union workers too. Each 1 percentage point increase in private-sector union membership rates translates to about a 0.3 percent increase in nonunion wages.
Reducing inequality. The combination of the direct wage effect for union members and this spillover effect for nonunion workers means unions are crucial to raising wages for working people and reducing income inequality. Research also shows unions have closed race and gender gaps within firms, with one study finding the wage gap between Black and white women was significantly reduced due to union measures.
Effects on the Broader Economy: Genuinely Mixed/Debated
The critical view: Some economists argue unions act like cartels that create inefficiencies. Economists point out that a union slicing the pie to labor's advantage by constraining the labor market is no different than an industrial monopolist increasing profits by fixing prices—it distorts factor costs and creates market inefficiencies, and most economists say the ability of labor unions to raise wages above competitive levels has a net negative impact on society. Critics argue this can reduce employment: the higher wage causes firms to lower employment and output, thereby harming economic efficiency and altering the distribution of income.
The pro-growth view: Other economists argue reduced inequality actually boosts growth. Numerous studies have found that unions spur the economy by reducing income inequality, which harms overall economic growth by putting more money into the hands of the very wealthy, who tend to save it, versus lower and middle-income people who are likely to spend it and thus stimulate demand. Economists Lawrence Summers and Anna Stansbury have gone further, arguing the decline in worker power in the United States, caused in large part by the decline of unions, may contribute to slower economic growth and "secular stagnation."
Productivity — not clearly harmed. A large-scale review found nuanced results: a survey of the global evidence from more than 300 studies on the economic impact of unionisation concluded that unions do not, overall, reduce productivity, though it varies according to specific circumstances. However, the same research notes a real cost to owners: unionisation does make businesses less profitable for owners, but it also reduces income inequality, a useful social function given the problems that flow from a widening wealth gap. Effects also vary by country and sector — in Britain, union influence has reduced company productivity, while in the US, unionisation appears associated with higher productivity in construction and education but makes no difference in manufacturing; in developing countries the overall effect is generally positive.
Profits and investment. There's stronger consensus that unions reduce firm profitability. Subsequent literature continues to find unions associated with lower profitability, and lower profits and the union tax on asset returns leads to reduced investment and, subsequently, lower employment and productivity growth — though the same source notes there is little evidence that unionization leads to higher rates of business failure.
The Classic Scholarly Verdict
The most influential academic treatment remains Freeman and Medoff's book. Their bottom-line conclusion was that on balance, unionization appears to improve rather than harm the social and economic system, though they do acknowledge that most unions have monopoly power which they can use to raise wages above competitive levels, which in a perfectly competitive model would reduce output and distort income distribution. Importantly, they argue the negative effects of unions are outweighed by several socially beneficial effects.
Bottom Line
The evidence is clearer on the "workers" half of your question than the "economy" half:
In short: strong evidence unions help their members; much more contested and context-dependent evidence on net economy-wide effects.
Citations (17)
- Labor Unions and the U.S. Economy
Source excerpt: “While simple comparisons of the wages of union workers and nonunion workers find that union workers typically make about 20 percent more than nonunion...”
statistic, article, points to yes. Claim: Simple comparisons show union workers make about 20 percent more than nonunion workers, though controlled methods narrow this.}
- Labor Unions and the U.S. Economy
Source excerpt: “All in all, the evidence from these two approaches points to a union wage premium of around 10 to 15 percent, with larger effects for longer-tenured w...”
statistic, article, points to yes. Claim: Rigorous approaches point to a union wage premium of around 10 to 15 percent, larger for longer-tenured workers.
- LABOR UNIONS AND THE MIDDLE CLASS
Source excerpt: “Unionized workers earn 10 to 15 percent more than nonunionized workers in similar jobs,^8 and unionized workers tend to be those in the middle of th...”
statistic, official document, points to yes. Claim: Unionized workers earn 10 to 15 percent more than nonunionized workers in similar jobs.
- Labor Unions and the U.S. Economy
Source excerpt: “For example, one study finds that the wage gap between Black and white women was significantly reduced due to union measures.^[12] Another study provi...”
evidence, article, points to yes. Claim: Unions closed race and gender gaps; one study found the Black-white women wage gap significantly reduced by union measures.
- Unions aren’t just good for workers—they also benefit communities and democracy
Source excerpt: “## Background ### Higher wages and decreased income inequality The combination of the direct wage effect for union members and this spillover effect f...”
evidence, article, points to yes. Claim: Direct wage effects and spillover to nonunion workers raise wages and reduce income inequality.
- Do Unions Work?
Source excerpt: “But economists point out that a union slicing the pie to labor's advantage by constraining the labor market is no different than an industrial monopol...”
attribution, article, points to no. Claim: Economists argue unions act like monopolists, distorting factor costs and creating market inefficiencies.
- What do Economists Think?
Source excerpt: “\[The higher wage\] causes firms to lower employment and output, thereby harming economic efficiency and altering the distribution of income. ”
evidence, article, points to no. Claim: Higher union wages cause firms to lower employment and output, harming efficiency and altering income distribution.
- How Unions Work for the Economy
Source excerpt: “# How Unions Work for the Economy ## Economic Benefits of Unions ### Unions Spur Overall Economic Growth Numerous studies have found that unions spur ...”
evidence, article, points to yes. Claim: Numerous studies find unions spur the economy by reducing inequality and putting money in the hands of spenders.
- How Unions Work for the Economy
Source excerpt: “Lawrence Summers, the former secretary of the treasury and former Harvard president, and Anna Stansbury, a professor at the MIT Sloan School of Manage...”
attribution, article, points to yes. Claim: Summers and Stansbury argue declining worker power, due largely to union decline, may contribute to slower growth and secular stagnation.
- Unions do hurt profits, but not productivity, and they remain a bulwark against a widening wealth gap
Source excerpt: “To answer this question, my colleagues Richard Freeman and Patrice Laroche and I surveyed the global evidence from more than 300 studies on the econom...”
evidence, article, points to yes. Claim: A survey of more than 300 studies concluded unions do not overall reduce productivity, though it varies by circumstance.
- Unions do hurt profits, but not productivity, and they remain a bulwark against a widening wealth gap
Source excerpt: “Unionisation does make businesses less profitable for the owners. But importantly, it also reduces income inequality, a useful social function given t...”
evidence, article, neutral. Claim: Unionisation makes businesses less profitable for owners but reduces income inequality, a useful social function.
- Unions do hurt profits, but not productivity, and they remain a bulwark against a widening wealth gap
Source excerpt: “## National differences In Britain, for example, union influence has reduced company productivity. In the US, unionisation appears to be associated wi...”
evidence, article, neutral. Claim: Productivity effects vary by country and sector: negative in Britain, positive in US construction and education, none in manufacturing.
- What Do Unions Do for Economic Performance?
Source excerpt: “Subsequent literature continues to find unions associated with lower profitability, as noted by Freeman and Medoff. ”
evidence, article, points to no. Claim: Literature continues to find unions associated with lower profitability.
- What Do Unions Do for Economic Performance?
Source excerpt: “Lower profits and the union tax on asset returns leads to reduced investment and, subsequently, lower employment and productivity growth. ”
evidence, article, points to no. Claim: Lower profits and the union tax on asset returns reduce investment, employment and productivity growth.
- What Do Unions Do for Economic Performance?
Source excerpt: “There is little evidence that unionization leads to higher rates of business failure.”
evidence, article, points to yes. Claim: There is little evidence that unionization leads to higher rates of business failure.
- What do Economists Think?
Source excerpt: “Their conclusion: On balance, unionization appears to improve rather than to harm the social and economic system. (Page 19) However, they do acknowled...”
attribution, article, points to yes. Claim: Freeman and Medoff concluded that on balance unionization improves rather than harms the social and economic system, while acknowledging monopoly power.
- What do Economists Think?
Source excerpt: “(Page 14) The negative effects of unions are outweighed, the authors say, by several socially beneficial effects. ”
attribution, article, points to yes. Claim: Freeman and Medoff argue the negative effects of unions are outweighed by several socially beneficial effects.