Are labor unions good for workers and the economy?

Both sidesSays it is contestedSources conflict

The Treasury report concludes unions boost growth, productivity and equality, while the Mercatus review concludes powerful unions slow employment, investment, productivity and firm growth.

Wondering whether unions lift workers and the economy? I'll gather recent evidence on their benefits and trade-offs.

Labor unions have both benefits and costs for workers and the broader economy, and research shows effects depend on how unions operate and how powerful they are.

Benefits for Workers

The most consistent finding is a wage and benefits premium for members:

•U.S. Department of the Treasury's 2023 report, the first of its kind on unions and the economy, 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.

•These improvements contribute substantially to middle-class financial stability and worker well-being.

•For example, Bureau of Labor Statistics data cited in other summaries shows 94% of union workers have access to employer-sponsored retirement benefits versus 72% for nonunion workers, and union workers are more likely to have healthcare benefits.

Other worker-level benefits include:

•Spillover effects:

the positive effects of unions are not only experienced by workers at unionized establishments. Other workers see increases in wages and improved work practices as their nonunionized workplaces compete with unionized ones for labor.

•Reduced inequality: By encouraging egalitarian wage practices, unions serve to reduce race and gender wage gaps. In 2021, for example, Black men had a union representation rate of 13 percent compared to a population average of 10 percent, meaning benefits are distributed across demographics.

•Research also points to better access to paid sick leave, predictable scheduling, and job security, and that low-wage workers see particularly large wage gains from unionization.

Benefits for the Broader Economy

The Treasury report argues unions contribute to more robust growth through inequality and productivity channels:

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in addition to supporting the middle class, unions contribute to more robust general economic growth and resilience. They do so, in part, by reducing overall inequality.

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Income inequality often feeds back into inequality of opportunity, which impedes growth if disadvantaged people cannot access the resources necessary to acquire job skills or start businesses.

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unions can spur overall economic productivity by improving working environments and giving experienced workers more of an input into decisions that design better and more cost-effective workplace procedures.

Other studies cited by pro-union researchers note that when unionized workers earn more and have more stable housing and education investments, that spending also supports communities, and that union-led advocacy for labor standards can raise working conditions economy-wide.

Public support reflects these perceptions - support for unions was at its highest level in over 50 years as of 2022, and union election petitions in 2022 rose to their highest level since 2015, according to Treasury's summary of polling and NLRB data.

Potential Costs and Negative Effects

Research also documents trade-offs, especially when unions exercise strong monopoly bargaining power:

•A Mercatus Center review of 147 studies 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.

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when the monopoly face dominates and delivers seemingly “big wins” at the bargaining table, companies respond to wage pressure by trimming R&D, cutting capital, reducing company growth, and ultimately shrinking jobs for unionized workers

- a dynamic the authors estimate explains roughly 55 percent of the decline in the Rust Belt's share of manufacturing employment between 1950 and 2000.

Other economic studies find more mixed productivity and growth effects:

•One panel study of 48 U.S. states 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.

•A review of the literature concluded unions do not on average increase productivity and that collective bargaining is associated with lower profitability, with subsequent evidence suggesting an average union productivity effect near zero.

Common criticisms articulated by business and labor economists include:

•Higher labor costs:

By driving up labor costs, unions can reduce a business’s profitability, which can force companies to raise prices for consumers, leading to market share loss. This increased cost burden can also discourage business investment and expansion.

•Competitiveness and automation:

high domestic labor costs may incentivize businesses to outsource manufacturing and other jobs to countries with cheaper labor, resulting in domestic job cuts. Companies may also accelerate the adoption of automation and technology

•Disruption from labor disputes:

the use of strikes to enforce demands creates significant economic disruption, resulting in lost wages for striking workers and substantial revenue losses for the business. Work stoppages can also inconvenience the public

•Critics also point to rigid work rules and seniority-based promotion that can reduce management flexibility, slow adaptation to technology, and in some cases protect low performers, as well as concerns about dues, bureaucracy, and internal governance.

The distinction emphasized in recent research is between the collective voice function of unions and the monopoly function. Studies suggest moderate, cooperative unions with balanced demands preserve wage and benefits gains while avoiding the downsides of aggressive, exclusive bargaining that blocks alternative forms of worker representation and discourages hiring and investment.

Bottom Line

•For workers — especially members, and to a lesser extent non-members in competing firms: unions are generally good, associated with 10-15% higher wages, better benefits, more predictable scheduling, and narrower race/gender pay gaps.

•For the economy as a whole: effects are more nuanced. Unions can reduce inequality and improve well-being and job quality, which supports growth and resilience, but if bargaining is overly aggressive or rigid, evidence links that to slower employment growth, lower investment in R&D and capital, near-zero average productivity effects, and in some regions and industries, reduced firm growth and viability.

Whether unions are net positive therefore depends on institutional design, the balance between worker voice and exclusive monopoly power, and the broader competitive and technological environment in which firms operate.

Citations (3)

1treasury.govGovernment
U.S. DEPARTMENT OF THE TREASURY Labor Unions and the Middle Class
Backs: “Department of the Treasury's 2023 report, the first of its kind on unions and the economy, 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.”
evidence, official document, points to yes. Claim: Treasury report found unions raise members' wages 10 to 15 percent, improve benefits and workplace procedures, and support economic growth and resilience.
2mercatus.orgNonprofits and think tanks
Do More Powerful Unions Generate Better Pro-Worker Outcomes?
Backs: “Potential Costs and Negative Effects. Research also documents trade-offs, especially when unions exercise strong monopoly bargaining power: A Mercatus Center review of 147 studies found although US unions have historically secured short-run pay gains, these victories often come at the expense of slower employment…”
evidence, official document, points to no. Claim: Mercatus review of 147 studies found union pay gains often come at cost of slower employment growth, reduced investment, productivity and firm viability.
3climbtheladder.comNot yet classified
Why Do People Not Like Labor Unions? 7 Key Criticisms
Backs: “Higher labor costs: By driving up labor costs, unions can reduce a business’s profitability, which can force companies to raise prices for consumers, leading to market share loss.”
attribution, article, points to no. Claim: Critics say higher union labor costs reduce profitability, raise prices, cause market share loss and discourage business investment and expansion.