In the latest news from the Labor War, workers at Starbucks in Portland, Maine just voted to join a union, while those in an Amazon warehouse in upstate New York voted against. It is clear that opinions on the value of unions differ, and emotions are running high. As an economist, I try to rationally evaluate these types of questions. Here I try to explain my opinion about unions.
The union summary begins with the potential for wage increases: unionized workers enjoy a 10%-20% premium wage (although many of these estimates are outdated, and globalization may have made premiums higher). Much less, in some cases close to zero). Unions can also offer workers more effective means of expressing their grievances in the workplace, and can help them coordinate better services with employers.
The more skeptical view of unions accepts the logic of these arguments, but questions the magnitude of the benefits associated with them. The union pay premium is good for the workers who get it, of course, but it also drives up prices. In return, other workers pay those high prices. So the net benefit for all workers is less than the wage premium would suggest.
This does not mean that labor costs and retail prices are moving in full swing. If labor costs increase by 12%, but labor is a small part of the marginal cost of the product, prices can increase by much less than 12%. But if labor is only a small part of the cost, unions are unlikely to step in. The more important the role of workers, the more likely union wage increases will translate into increases in retail prices.
Workers as a whole could still benefit from unions if the burden of rising prices fell on the rich. This may be the case with fancy diamonds or expensive restaurants, but unions have historically been more common in industries that provide goods and services to the middle class, such as automobiles.
Another question is whether higher wages for workers lead to more automation and therefore lower demand for labor in general. The manufacturing industry in the United States has become highly automated in recent decades, which represents a decline in the share of employment in the United States. Automation is also coming to Amazon repositories. Also, many union jobs previously went abroad in lieu of robotics.
It is difficult to trace the causal influence of unions in this matter, since there are many other factors. However, it is plausible that higher union wages may harm some non-union workers by reducing the demand for labor in union sectors in the long run. It should also be noted that management tends to be anti-union, and part of the reason may be that unionization will result in lower profits. And lower profits will eventually lead to lower investment.
Even taking all of these factors into account, unions can generally benefit workers. But only to a modest degree. It wouldn’t be a reason to make unions a top priority, or put unions at the center of a theory about what makes workers better off.
Moreover, a union wage premium—as opposed to a union wage increase, which is negotiated every several years—is a permanent change in an industry or sector. In the long run, improvements in productivity (or lack thereof) are more important than wage premium.
and working conditions? In this case, union negotiations can be useful again, either in the form of confrontation or cooperation. However, again, the benefits are likely to be modest. Improving working conditions is another way to raise wages, and it carries the costs associated with the higher wages I mentioned earlier.
There is also the question of the importance of trade unions in improving working conditions. Working conditions in the United States have steadily improved over the years, at the same time that union rates in the United States have fallen dramatically. Therefore, unions are unlikely to be the main factor in many improvements for workers.
Unions perform useful functions in a market economy, and no one should demonize them. At the same time, at least for this economist, it is wrong to regard unions as a savior of the working class.
This note does not necessarily reflect the opinion of the editorial staff or Bloomberg LB and its owners.
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