Unions are back in the headlines — I'll weigh the evidence on how they affect workers and the wider economy.
Labor unions have both benefits and costs for workers and the economy, and research is mixed on the net effect.
For Workers - Generally Positive
Wages and Benefits:
Most economic studies find a significant "union wage premium."
•The U.S. Treasury Department's 2023 Office of Economic Policy report found Unions raise the wages of their members by 10 to 15 percent. Unions also improve fringe benefits and workplace procedures such as retirement plans, workplace grievance policies, and predictable scheduling.
•Other estimates are similar: Unionized workers earn 11.2% more across industries — with Black union members earning 13.7% more and Hispanic members earning 20.1% more than their non-union counterparts. The Bureau of Labor Statistics data cited shows unionized workers earn on average 16% more per week than non-union workers in comparable jobs.
•For the lowest-paid workers, the effect is larger: for the typical lowwage worker unionization raises wages by almost 21%.
•Benefits are also higher: 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.
The Treasury report noted workers value predictable scheduling highly, estimating the average worker values their ability to avoid short-notice schedule changes at up to 20 percent of their wages.
Equality and Working Conditions:
•Unionization also has spillover effects that extend well beyond union workers. Competition means workers at nonunionized firms see increased wages too. Heightened workplace safety norms can pull up whole industries.
•Unions help create a fairer economy by encouraging egalitarian wage practices, unions serve to reduce race and gender wage gaps. Research on wage inequality indicates declines in private-sector unionization may account for as much as a fifth of the rise in male wage inequality.
•Unions provide worker protections through grievance procedures, legal representation, and a voice for labor in the workplace that an individual employee may not have.
Costs / Cons for Workers:
•Unions charge dues to pay salaries of union leaders and during strikes, and membership can mean less autonomy, workplace tension, and slower advancement.
•Critics note unions can discourage individuality and make it harder to promote and terminate workers, and members may lose income during strikes or work stoppages.
For the Economy - Mixed Evidence
Potential Benefits:
•The Treasury report argues unions contribute to economic growth and resilience in part simply by reducing overall inequality, 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 research has found The presence of labor unions has statistically and economically significant positive effects on firm productivity. Some studies indicate unions improve productivity by providing training, reducing turnover and improving labor-management communication.
•By reducing inequality and providing more stable housing and investment in education, higher pay for middle-class workers can spill over to families and communities.
Potential Costs:
Standard economic theory argues unions exercise market power that can create inefficiencies:
•Supporters argue unions protect rights, but Critics claim that unions can lead to labor market rigidities, reduced competitiveness, and higher unemployment.
•Unions may create allocative inefficiency by pushing wages above market-clearing levels, leading to unemployment and a deadweight loss.
•Unions often secure higher wages, better benefits, and improved working conditions which can significantly increase a company's overall expenses. ... This can reduce profitability and competitiveness, especially in industries with tight profit margins.
•From an economy-wide perspective, most economists say the ability of labor unions to raise wages above competitive levels has a net negative impact on society because it distorts factor costs and creates market inefficiencies.
•Employment effects: employment growth in union firms is from 2 percent to 4 percent lower than that in nonunion companies.
•Productivity effects are debated: One Harvard economist summarized: "About two-thirds of the studies show [improvement] and about one-third show there might be negatives," and "Your best guess would say it's a wash". Even studies showing productivity increases find the higher wage costs paid to union labor exceed productivity increases so "what is absolutely clear is that profits fall".
•One analysis of state data found unions adversely affect unemployment rates and the growth rates of gross state product (GSP), productivity, and population, while increasing the rate of wage inflation.
In special cases where employers have monopsony power — like a "company town" with one or two employers — a union can counteract that power resulting in more efficient resource allocation and a net benefit to society.
Bottom Line
•For individual union members, evidence is strong that wages, benefits, job security and workplace protections are higher than for comparable non-union workers.
•For the broader economy, the trade-off is between greater equality, higher consumer spending power, and potentially better workplace practices versus higher labor costs, lower profitability, possible reduced employment growth, and reduced flexibility for employers.
Whether unions are "good" therefore depends on which goals are prioritized: worker compensation and inequality reduction vs. firm competitiveness, employment expansion and allocative efficiency. Most recent policy-focused research like the 2023 Treasury report emphasizes the middle-class and inequality benefits, while much of the traditional labor economics literature emphasizes efficiency costs and mixed productivity results.