This is a big question — I'll pull together the latest research on how unions affect pay, benefits, and the broader economy.
Labor unions have both significant benefits and significant costs for workers and for the broader economy. Research finds the effects depend on the industry, the labor market, and the relationship between union and employer.
How unions affect workers
Pros for workers:
•Higher wages: Multiple studies find a union wage premium. The U.S. Treasury Department's 2023 report found Unions raise the wages of their members by 10 to 15 percent. Other estimates include unionized workers earn 10.2% more than non-union peers, with larger gains for Black workers (17.3%) and Latino workers (23.1%). Bureau of Labor Statistics data cited in 2022 showed median weekly earnings of $1,169 for unionized workers compared to $975 for non-union workers.
•Better benefits and working conditions: Unions also improve fringe benefits and workplace procedures such as retirement plans, workplace grievance policies, and predictable scheduling. Research finds unions reduce turnover and increase access to sick pay and annual leave. Data show 85 percent of unionized workers have access to paid sick leave, while only 62 percent of non-union workers have access.
•Protection and representation: Unions can protect workers from exploitation, and help to uphold health and safety legislation, and give representation to workers facing legal action or unfair dismissal.
•Reduced inequality: By encouraging egalitarian wage practices, unions serve to reduce race and gender wage gaps.
•Spillover effects: Competition means workers at nonunionized firms see increased wages too. Heightened workplace safety norms can pull up whole industries.
Cons for workers:
•Costs to belong: The fees charged by the Labor Union can be very high.
•Pros of labor unions for employees: better wages, more access to benefits, job security while Cons: union dues and initiation fees, loss of autonomy, less collaborative work environment.
•Unions only consider the needs of its members; they often ignore the plight of those excluded from the labour market, e.g. the unemployed.
How unions affect the economy
Potential positive effects:
•More robust and resilient economy: The Treasury report concluded that in addition to supporting the middle class, unions contribute to economic growth and resilience in part by reducing overall inequality, which otherwise impedes growth if disadvantaged people cannot access resources necessary to acquire job skills or start businesses.
•Productivity gains: And unions can boost businesses’ productivity by improving working environments and by giving experienced workers more of an input into decisions that design better and more cost-effective workplace procedures. Other positive factors include reduced employee turnover and higher morale. From a macroeconomic perspective, unions can support growth by reducing income inequality and boosting aggregate demand.
•The overall role of labor unions is often disputed, but generally, unions advocate for a higher wage and benefits for members. This improves the standard of living for members and increases their consumption, stimulating the economy.
Potential negative effects:
•Higher labor costs and reduced competitiveness: The disadvantages can include increased costs for labor, the possibility of strikes or work stoppages causing financial loss, and loss of management control. By increasing the average wage and benefit package above the natural market level, unions adversely affect the profit margins of the businesses particularly significant for smaller businesses, and By contributing to increased labor costs and decreased profitability, unions can also slow the growth of businesses.
•Employment effects: Critics argue that unions make workplaces less competitive by raising labor costs and making it harder to fire underperformers, that they reduce employment by limiting the labor supply. If labour markets are competitive, and trade unions are successful in pushing for higher wages, it can cause disequilibrium unemployment. Lessons from Europe also show the long-term costs of powerful unions: slower growth and higher unemployment, and that powerful unions that make significant demands have harmed workers by contributing to conditions that impede employment growth, cut jobs, reduce investment.
•Prices and inflation: This also increases the cost of labor for the business ... which can increase the cost of goods. Unions make the nation less competitive since non-unionized organizations in India, China, Taiwan can pay laborers far less and consequently charge less. If unions become too powerful they can bargain for higher wages above the rate of inflation. If this occurs it may contribute to wage-inflation, as in the UK's 25% inflation rate in 1975.
•Strikes and lost output: If unions go on strike and work unproductively (work to rule) it can lead to lost sales and output. Critics also argue unions can hinder economic growth by driving firms into bankruptcy or by opposing new technologies.
Bottom line
Economists often describe a trade-off:
•Where employers have monopsony power - market power to pay wages below competitive equilibrium - a union can increase wages without causing unemployment and can be efficiency-enhancing.
•If unions become too powerful and they force wages to be too high, then they may cause unemployment and inflation.
It also depends very much on the nature of the relationship between trade unions and employers. If relations are good and constructive, the union can be a partner with the firm, while if the relationship becomes confrontational, it can escalate into destructive partnerships which cause a decline in profitability.
In general, the weight of modern U.S. research, including the Treasury's 2023 first-of-its-kind report, emphasizes net benefits for members and positive spillovers for the middle class and inequality, while acknowledging that excessive wage pressure, strikes, and reduced flexibility can impose costs on businesses, employment, competitiveness, and prices.