Are Unions Good or Bad for the Economy?

Are unions good or bad for the economy?  As with most economic topics, this question is heavily debated. Ask yourself, what is your opinion about unions?  Most people have their minds made up on whether they are good or bad.  I’m guessing that the people that like unions the most are people that are in a union themself.  For all of those people that are not in a union, they probably lean slightly toward not liking unions.

Whatever your stance on unions, it pays to know the good and bad, or pros and cons of their effect on the economy.  Let’s look at what I believe are the pros and cons of unions.

Advantages of a Union

Let’s start by saying the advantages to a union are mainly to the members of such union.  The main thing that a union does is establish a set of rules that regulate the employment of all of its members.  The unions take the collective bargaining rights of their members and negotiate wages, benefits and create a hierarchy of how employees interact with the company or government entity that they work for.

With that said, the biggest advantage of a union is that they bargain for much higher wages than non-union workers.  For an example, look to what the United Auto Workers (UAW) union posted on their website here.  An excerpt from the article is printed here:

Union workers earn more wages and benefits for the average union worker in the private sector totaled $37.85 per hour in September 2010, compared to $26.74 an hour for the typical non-union worker.

These figures were gathered by the Bureau of Labor Statistics.  As you can see, for this particular union, workers earn 41.5% more than non-union workers in the same industry.  That is a huge difference.  While wages are higher, it’s the negotiated benefits that make up a lot of the difference.  I must also note that these figures are for 2010, which is after the major car manufacturers went bankrupt and negotiated much lower wages.  Before that, union workers in the UAW were making almost twice that of non-union workers.

So, what impact does this have on the economy?  First of all, higher wages go to the workers.  These wages are then spent throughout the economy.  That means that higher wages for union workers can lead to more spending and a more robust economy.  Of course this is only part of the picture, but from what I can see it is the only thing that a union does to help the economy.  I guess all of the jobs of the union leaders are also created, but that isn’t that many.  And where else does the money controlled by the unions go?  Well, since benefits are a big part of the unions, there is a lot of money being paid to insurance companies and other benefit providers.  Also, unions are one of the largest political contributors and lobbyists, sending billions of dollars to politicians.  It can be argued that these contributions go to pay for such things as advertising and to other political uses.  This in turn helps businesses like the media companies and even companies like Google, which is filled with political ads.

Disadvantages of Unions

This brings us to the cons of what unions do for the economy.  To start with, you should know about an economic principle called free markets.  It states that the more free an economy is, the more efficient it will run and the more productive and competitive it will be.  Of course, governements and unions are the opposite of free markets, as they levy extra expenses and burdens on the capitalist theory that make the markets less “free”.  While it’s a fact that free markets work for many things, people can always make the case that some oversight is necessary.  The question comes down to how much interference do unions add and what effect does that have on the economy?

For starters, the typical union has so many rules in place that control how employees are promoted.  As far as what I’ve seen and read about, almost all unions are based on seniority.  That means that if an employee has more tenure, that they get paid more than others.  To me, this is one of the unions biggest disadvantages.  That’s because this methodology basically promotes complacency.  After all, why would someone want to work harder if they aren’t going to be rewarded for it?  Also, it’s hard for a company to be productive if the most productive people aren’t getting promoted.  After all, not all workers are equal, and they shouldn’t be treated as if their skills were all the same.  If an employee is better equipped to take on responsibility, and they add more value to the overall company, shouldn’t they be promoted ahead of someone that is complacent and not nearly as productive, just because that person was hired first?

Another disadvantage of unions is actually the same as the advantage – the much higher pay.  While being paid more is good for the employee in a fiscal sense.  The fact that the same amount of money they are getting paid can pay for 1.5 non-union employees, it stands to reason that a company that utilizes union labor cannot afford to hire as many workers.  What does this mean to the economy?  It means that a non-union company has a huge advantage over a union company, in terms of cost and perhaps productivity (see above).  While you can argue either side of this, the global economy doesn’t really care where things are built anymore.  That means that new contracts typically go to lower cost companies.  Whether they’re in China or the US, the lower your costs, the more business that you’ll get.

Union protestors at the WI state capitol

Here in Wisconsin, this state is a union state.  That means that unions are commonplace and that labor costs are higher than they would be without them.  So what has this meant to our economy here?  A local company called Sub Zero (they making the fridges and also Wolf ranges) recently decided to expand into dishwashers.  The company decided that they couldn’t make a competitive product with their current union labor agreement, so they asked their union to make some concessions for them to build the plant here and create new jobs.  The union voted against the proposal.  Now, Sub Zero is building a new plant in another state, a state that is a right to work state (opposite of a union state).  Obviously, you can see the disadvantage that this has caused to our local economy.  Besides, Sub Zero, Harley Davidson and Mercury Marine faced the same issues the past few years.  Both nearly left the state, and hundreds of good companies that have been founded locally have relocated headquarters to more employment friendly states.  I consider this to be a huge disadvantage.  Others say that it is just another company trying to take advantage of its employees.  And when the state stepped in and gave tax breaks to Harley and Mercury, people screamed that the government was subsidizing big business at the expense of the workers.  However, I see the government as subsidizing the union workers.

So, Are Unions Good or Bad for the Economy?

As with any heated debate, this article isn’t going to change any minds.  And while I tried to write it somewhat objectively (at least trying to state both sides), it is obvious how I feel about them.  Of course, just like most things, unions were started for good reasons and there are still plenty of unions that are good for both their employees and the economy.  But like most things, the collaberation of all of the bargaining power into a few union leaders isn’t a good thing.  So, the answer may be that unions are both good and bad for the economy, but I would argue that they are bad.  They are an inefficient use of capital – period!  Before you get angry, realize that I answered whether or not they are good for the economy, not whether they are good or bad in themselves.  After all, they help some people find much better lives than they would without them.

Do you have a strong opinion about unions?  If so, please share your thoughts below.

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