What do unions do for economic performance?

by on March 7, 2007 at 5:50 am in Economics | Permalink

I’ve spent the last few days perusing the economics of unions.  I’ve unearthed Barry T. Hirsch’s useful and serious piece, which looks at whether the Freeman-Medoff pro-union work from the 1980s has held up.  Here are a few select quotations from the article:

…while it is true that much of the negative relationship between unions and growth is not causal, slower growth is partly attributable to the lower profits and investment resulting from union rent seeking.

Empirical evidence on unions and productivity was rather sketchy in 1984; it remains less than clear-cut today.

…union firms reduce investment in physical and innovative capital, leading to slower growth in sales and employment and shrinkage of the union sector.

…empirical evidence for skill upgrading [through union participation] is weak.

The thesis that unions substantially increase productivity has not held up well.  Subsequent studies are as likely to find negative as positive union effects on productivity.

…employment declines have been concentrated in the unionized sectors of the economy.

…the empirical evidence finds that U.S. unions are associated with slower employment growth…

I am genuinely puzzled why the highly intelligent segment of the left-wing blogosphere is so attached to the legal encouragement of labor unions.

barry March 7, 2007 at 7:44 am

mostly because unions prevent things like dangerous working conditions, below poverty level wages, that sort of thing. these may not help economic performance – but they are necessary for quality of life.

similarly, from the perspective of a worker, higher productivity is not necessarily a good thing, if it means they are being forced to work unpaid overtime, have no home life, use drugs to keep up, etc.

Robert Speirs March 7, 2007 at 8:24 am

The answer couldn’t, of course, have anything to do with the fact that lefties hang around with union bosses who would rather see the whole country go down the tubes than lose their positions of power. Nah. See Peter Sellers in “I’m All Right, Jack” from fifty years ago. What number will the percentage of unionization have to drop to before people realize that unions are the enemy of the working man?

Steve Sailer March 7, 2007 at 8:39 am

Matthew Yglesias is way too young to remember what union power did to Britain in the 1970s.

liberty March 7, 2007 at 9:07 am

The ideology behind government granted union power is the same ideology behind the entire leftwing (socialist / etc) history. Even if most on the left in America today have given up the extreme version or are unaware of the relationship.

James: I doubt anyone thinks people should not be able to unionize, but that is quite a separate question from whether government should grant them special powers. My take is that unions are a cartel just as firms form cartels; both should be legal, there should be no antitrust laws at all, on employer or employee.

alkali March 7, 2007 at 9:37 am

James Grimmelmann sensibly asks:

I’m curious what the limiting principle is … [W]hat organizing rights, if any, should there be? Should attempted union organization be recriminalized?

liberty responds:

James: I doubt anyone thinks people should not be able to unionize …

Well, why not?

steveintheknow March 7, 2007 at 10:06 am

I think it has to do with conceptions of power and who should have it. Libertarians and right wingers fear the guy with the gun, left wingers fear the guy with the money.

Progressives aren’t worried about efficiency they are worried about democracy. As if the purpose of finding a job, or creating one for that matter, was to enter into another arena in which one could cast a vote. It is an issue that strikes at the very core of positive vs. negative rights.

Martin March 7, 2007 at 10:09 am

Tyler

In response to your last question, one might then also wonder why the intelligent right is so enamored of the legislative supports (read defense) of large corporate interests. I suspect it is for similar reasons.

David J. Balan March 7, 2007 at 11:31 am

The other, perhaps bigger, problem with unions is that they tend to be so illiberal and jingoistic. People who cross pickets lines are scabs and rats. People who want to trade with foreigners are traitors. The foreigners themselves are calculating predators with funny names and dark skin, who want to steal food off of the American Working Man’s plate.

idlehands March 7, 2007 at 11:34 am

DiNardo and Lee QJE 2004 uses close union elections(regression discontinuity) to look at the effects of unionization in the manufacturing section from 1984 onwards. The effect of unions on everything (including wages and productivity) is a big fat, precisely estimated 0.

I think if you look at the service sector, e.g. SEIU and HERE unions over the same period, you’ll find substantial gains to unionization. Hasn’t been done, AFAICT.

Matt March 7, 2007 at 11:51 am

There should be no government granted monopolies, either to corporations or to labor. AT&T broke up and everyone benefitted. Break up the UAW and the same will happen with the automotive industry.

tylerh March 7, 2007 at 1:07 pm

Rob,

I think you have it backwards. Paul Fussell notes in his classic Class the university professors, particularly at state schools, tend to have lower-middle class backgrounds. Their attachment Unions developed around the dinner table, not in the classroom. It’s certainly true in my family: my pro-union College Professor father was the son of a unionized Auto worker.

liberty March 7, 2007 at 1:44 pm

“James: I doubt anyone thinks people should not be able to unionize …

Well, why not?”
-alkali

Because in a free market both firms and workers can form coalitions. They can do so because it is their right to do so, and those outside the coalition can see the profit and underbid in order to gain some of it. This is the way that competition and innovation ultimately are induced.

Jon Kay March 7, 2007 at 3:51 pm

liberty said:
My take is that unions are a cartel just as firms form cartels; both should be legal, there should be no antitrust laws at all, on employer or employee.

I think this is reversed. I feel that the problems with unions come largely from their monopoly status, and competing unions should be allowed.

Companies competing for your money are careful to keep your interests in mind and pursue them when offering products and services. That’s not true of unions, cafeterias in big campuses, or any other effective monpoly.

That’s why we only see unions in the worst of workplaces. Because they often don’t act in the interests of those they represent.

dj superflat March 7, 2007 at 5:07 pm

re whether there are people clamoring to take the place of badly paid teacher, there are. there are enormous numbers of grads from great schools who would love to teach, but can’t because of union rules, certification requirements, etc. that’s why teach for america and similar programs have been such a success. i think the problem is that we treat teaching like a career, rather than something that any number of smart, competent people would like to do for a couple years.

Loki on the run March 7, 2007 at 7:36 pm

mickslam says:


In direct economic terms, I am willing to trade a small amount of growth for slightly greater worker happyness, given current U.S. levels of growth and worker happyness. I believe that most US workers would agree with me.

I am a really happy worker. I work in an industry where there are no or few unions, and I have options and a great salary. I can’t see any need for more of it. I would, though, trade a small amount of growth for a more intelligent workforce. Say, one that could spell happiness.

adrian March 7, 2007 at 11:53 pm

In the long run, in free market theory, would unions even be needed?

jaim klein March 8, 2007 at 6:25 am

Unions are good for the workers. When workers are unorganized and stand in front of a monopolic employer, they will be exploited. Union gives them negotiating power. It is so elemental…

Sebastian Holsclaw March 8, 2007 at 12:38 pm

“Capital is allowed to organize into state-chartered companies; why should labor not also be allowed to organize? It would seem unfair to put higher restrictions on labor’s ability to organize than on a company’s.”

They don’t. Corporations are voluntary organizations. If unions were merely voluntary, I wouldn’t have any objection to them. The problem comes when unions can force people who don’t want them to either quit their jobs or join the union. (Note this is not analogous to being forced to sell stock if you disagree with the managment, as money is much easier to redeploy in stock than a job is to redeploy in another company–especially if the union is in control industry-wide).

Mark March 8, 2007 at 3:39 pm

As many people have previously pointed out, the benefits of unionization are not solely wage-based. Wage-based analysis is easier to draw deductions from but too simplisitic to be informative.

For the past 30 years unions have worked cooperatively with governments to create legislation to greater protect basic workers rights. As workers are now guaranteed to far more equitable treatment via government intervention, the need for union representation has diminished. The emergenece of ‘leftie’ think tanks and lobbying agencies also facilitates the process.

Along the same lines, it’s also no coincidence that the decline in unionization occurred at the same time that the most ‘sensitive’ manufacturing processes have been off-shored, think sweatshops and the huge incidence of worker injury in China.

Darren March 11, 2007 at 10:29 pm

In my opinion, unions are bad for economic performance. They do decrease employment growth and employment as a whole. I am from a small town, and unions have been voted down multiple times at different companies. Unions are not good for small towns. Many businesses will move when unions are voted in and that leads to the loss of jobs. I do not support unions and do not think they increase economic performance.

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