Historically, Labor Unions have imposed huge costs on the economy while providing little social benefit.
Image from the Daily Signal
People on the left generally are fans of labor unions. Some of them have a tendency to attribute nearly all progress to such organizations. From the view of economic theory however, unions may impose net costs on society by pushing wages above the free market equilibrium. The free market equilibrium is the price (in this case the price of labor) at which the quantity demanded equals the quantity supplied. Since the quantity demanded equals the quantity supplied, at this price, all the people who are willing work should be employed.
However, at a price above the free market equilibrium, more people will want to work (because higher wages will encourage them to do so) and firms will be less willing to hire them (because the price of labor has increased, reducing the demand for labor). Theoretically, this will result in more unemployment than if the price of labor (wages) had been determined by the free market (i.e the forces of supply and demand).
Thus, since unions push wages above the free market equilibrium, they may result in more unemployment. In fact, empirical research tends to back up this theoretical presumption. According to one paper, unionized businesses employ fewer people and are more likely to go out of business. Other economists have found that “union influence leads to slower job growth during an economic recovery” following recession. Unions impose other costs as well, according to research by Barry Hirsch of Florida State University’s Economics Department, “…increased collective bargaining is associated with lower profitability, decreased investment in physical capital and research and development (R&D), and lower rates of employment and sales growth.”
Using a variety of statistical techniques, economists Richard Vedder and Lowell Gallaway examined the data and came to the conclusion that labor unions have reduced U.S. output by significant amounts, trillions of dollars over time, as a result of the adverse economic effects of unions (such as those previously noted). While individual workers may benefit from being in a union, the economy as a whole suffers as a result of unionization. Vedder and Gallaway conclude by stating that “the overall evidence is overwhelming that labor unions in contemporary America have had harmful aggregate effects on the economy.”
For all these costs, unions provide little benefit. Although labor unions claim that they have reduced working hours and improved workplace safety, there is little evidence this is actually the case. According to one researcher, “most empirical studies of the relationship between unionization and important safety outcomes, such as injuries and fatalities, have failed to find statistically significant evidence of a `union safety effect.”
Research also finds that during the early 20th century, when the number of hours worked declined rapidly, “high unionization and strike levels reduced hours [only] to a small degree.” Among economic historians, the “consensus [is] that economic growth was the key to reduced work hours,” not unions.
The evidence presented here shows that labor unions aren’t all they are cracked up to be. They benefit some workers but concurrently impose rather large costs on the economy as a whole, amounting to $50 trillion in lost economic output from 1947-2000 according to Vedder and Gallaway. While the reduction in working hours and improvement in workplace safety over the course of US history has been attributed in large part to labor unions, the evidence simply does not justify this. Indeed, it seems like labor unions are taking credit for accomplishments which are actually a result of a growing economy, which is ironic considering that labor unions actually seem to hinder economic growth.
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