In the latest news from the labor wars, workers at a Starbucks in Portland, Maine, just voted to unionize, while those at an Amazon warehouse in upstate New York voted not to. Opinions on the value of unions obviously differ, and passions run high. As an economist, I try to assess these kinds of issues rationally. Here is my attempt to explain how I think about unions.
The brief for unions starts with the possibility of higher wages: Union workers enjoy a wage premium of 10% to 20% (although many of these estimates are dated, and globalization may have made the premium much lower, in some cases close to zero). Unions may also give workers a more effective medium for airing their workplace grievances, and may help them coordinate better services with their employers.
The more skeptical view of unions accepts the logic of these arguments, but questions the size of the associated benefits. The union wage premium is good for the workers that receive it, of course, but it also leads to higher prices. Other workers in turn pay those higher prices. So the net return to all workers is smaller than the wage premium would suggest.
It’s not that labor costs and retail prices move exactly in tandem. If labor costs rise by 12% but labor is a small part of the marginal cost of the product, prices may rise by much less than 12%. But if labor is only a small part of the cost, then unions are less likely to be involved. The more important the role of workers, the more likely that union wage hikes will be translated into retail price hikes.
Workers as a whole still may benefit from unions if the burden of the higher prices falls largely on the wealthy. That may be the case for fancy diamonds or expensive restaurants, but historically unions have been more common in industries that provide goods and services for the middle class, for instance automobiles.
The more skeptical view of unions accepts the logic of these arguments, but questions the size of the associated benefits. The union wage premium is good for the workers that receive it, of course, but it also leads to higher prices. Other workers in turn pay those higher prices. So the net return to all workers is smaller than the wage premium would suggest.
It’s not that labor costs and retail prices move exactly in tandem. If labor costs rise by 12% but labor is a small part of the marginal cost of the product, prices may rise by much less than 12%. But if labor is only a small part of the cost, then unions are less likely to be involved. The more important the role of workers, the more likely that union wage hikes will be translated into retail price hikes.
Workers as a whole still may benefit from unions if the burden of the higher prices falls largely on the wealthy. That may be the case for fancy diamonds or expensive restaurants, but historically unions have been more common in industries that provide goods and services for the middle class, for instance automobiles.
It is difficult to trace the causal impact of unions in this matter, since there are so many other factors at play. Nonetheless it is plausible that higher union wages do harm some non-union workers, by lowering demand in the long run for labor in unionized sectors. It’s also worth noting that management tends to be hostile to unions, and part of the reason may be that unionization will lead to lower profits. And lower profits will eventually mean lower investment.
Even taking all these factors into account, it is still possible that unions benefit workers overall. But only by a modest degree. It would not be a reason to make unionization a top priority, or to put unions at the center of a theory of what makes workers better off.
Furthermore, the union wage premium — as opposed to a union wage increase, which is subject to negotiation every several years — is a permanent change to an industry or sector. In the longer run, improvements in productivity (or lack thereof) are more important than the wage premium.
What about working conditions? Here union bargaining can again prove useful, whether it is adversarial or cooperative. Again, however, the benefits are likely to be modest. Better working conditions are another form of a higher wage, and come with the associated costs of higher wages I mentioned earlier.
There is also the question of how important unions are to improving working conditions. US working conditions have improved steadily over the years, at the same time when the US has seen radically falling rates of unionization. So unions are not likely the main factor behind a lot of improvements for workers.
Unions serve useful functions in a market economy, and no one should demonize them. At the same time, at least to this economist, it is a mistake to view unions as the savior of the working class.
Bloomberg
