From the Archive: Why Unions Are Bad For Companies, Employees and Customers

by Michael Haberman on October 15, 2014 · 0 comments


This post is from June 2009. It still attracts attention and comments. It is based on a study by the Heritage Foundation. Since unions are more active than they have been in the past several years I thought it was relevant again.
If you have ever read my blog you know that I am no fan of unions. They may have had their place in the past but not in today’s world. I have mentioned in my blogs on EFCA (Employee Free Choice Act) that unions cost a company. Not just in direct costs, but in indirect costs as well. Slowed work process, lessened productivity, poorer employee relations, and more have been cited as the costs associated with unionism. A study by the Heritage Foundation puts a bit more concreteness to this argument. What Unions Do: How Labor Unions Affect Jobs and the Economy can be read by clicking the title.

This study finds:

  • “Unions function as labor cartels. A labor cartel restricts the number of workers in a company or industry to drive up the remaining workers’ wages….. Companies pass on those higher wages to consumers through higher prices, and often they also earn lower profits. Economic research finds that unions benefit their members but hurt consumers generally, and especially workers who are denied job opportunities.
  • The average union member earns more than the average non-union worker. However, that does not mean that expanding union membership will raise wages: Few workers who join a union today get a pay raise. ….The economy has become more competitive over the past generation. Companies have less power to pass price increases on to consumers without going out of business. Consequently, unions do not negotiate higher wages for many newly organized workers. These days, unions win higher wages for employees only at companies with competitive advantages that allow them to pay higher wages, such as successful research and development (R&D;) projects or capital investments.
  • Unions effectively tax these investments by negotiating higher wages for their members, thus lowering profits. Unionized companies respond to this union tax by reducing investment. Less investment makes unionized companies less competitive.
  • Economists consistently find that unions decrease the number of jobs available in the economy. The vast majority of manufacturing jobs lost over the past three decades have been among union members–non-union manufacturing employment has risen. Research also shows that widespread unionization delays recovery from economic downturns.
  • Some unions win higher wages for their members, though many do not. But with these higher wages, unions bring less investment, fewer jobs, higher prices, and smaller 401(k) plans for everyone else.
  • Economic theory consequently suggests that unions raise the wages of their members at the cost of lower profits and fewer jobs, that lower profits cause businesses to invest less, and that unions have a smaller effect in competitive markets (where a union cannot obtain a monopoly).
  • …..union contracts compress wages: They suppress the wages of more productive workers and raise the wages of the less competent. Unions redistribute wealth between workers. Everyone gets the same seniority-based raise regardless of how much or little he contributes, and this reduces wage inequality in unionized companies… But this increased equality comes at a cost to employers. Often, the best workers will not work under union contracts that put a cap on their wages, so union firms have difficulty attracting and retaining top employees.
  • Studies typically find that unionized companies earn profits between 10 percent and 15 percent lower than those of comparable non-union firms.”

Much more can be read in this study. If you truly want to know the costs, ALL THE COSTS, that are associated with unions read the article. It talks about how unions have cost GM and the US.

Probably the item I find the most disagreeable is this following statement on individualism. It is why I have never belonged to a union, it goes against how I was raised.

“Final union contracts typically give workers group identities instead of treating them as individuals. Unions do not have the resources to monitor each worker’s performance and tailor the contract accordingly. Even if they could, they would not want to do so. Unions want employees to view the union–not their individual achievements–as the source of their economic gains. As a result, union contracts typically base pay and promotions on seniority or detailed union job classifications. Unions rarely allow employers to base pay on individual performance or promote workers on the basis of individual ability.”

Just does not suit me.

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