Open University

A Poor Strike Against Unions

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by Eric Rauchway

Tyler Cowen has devoted a number of recent posts to complaining about labor unions. In his latest, he says, "I've unearthed Barry T. Hirsch's useful and serious [2003 Institute for the Discussion of Labor] piece, which looks at whether the Freeman-Medoff pro-union work from the 1980s has held up," quotes the finding that evidence relating to union's effects on productivity is "less than clear-cut," and concludes, "I am genuinely puzzled why the highly intelligent segment of the left-wing blogosphere is so attached to the legal encouragement of labor unions."

I can't speak for the left-wing blogosphere, or even its intelligent segment: but I can unearth papers, too. Here's Freeman's National Bureau of Economic Research working paper from 2005. Why would anyone remain attached to labor unions? Because productivity isn't everything, and maybe isn't even a problem:

any evaluation of the benefits and costs of unionism has to balance the costs due to monopoly wage or compensation setting against the economic benefits that unions bring through lower turnover, improved productivity, more desirable distributions of compensation between wages and benefits, reduced dispersion in pay for workers, and the political success of unionism in advancing the well-being of workers broadly....

[Freeman's own] empirical assertions [in What Do Unions Do?] about what unions do to wages, dispersion and inequality of pay; fringe benefits; quits and turnover; profitability; job satisfaction; human resource management policy; and political activity and outcomes, appear robust over the past two decades....

In 1995 the [World] Bank's World Development Report stated that "Free trade unions are a cornerstone of any effective system of industrial relations that seeks to balance the need for enterprises to remain competitive with the aspirations of workers for higher wages ...unions can help raise workplace productivity and reduce workplace discrimination."... Part of the Bank message has been that represession of unions in developing countries can be associated with excessive intervention and regulation by the state....

... in the US, unions have arguably contributed to aggregate economic growth through a very different mechanism: by increasing the savings of American workers through union negotiated defined benefit retirement plans.... Since pension fund moneys are deferred compensation and thus savings, these figures show that unions increase the savings of American workers and thus the supply of capital for economic growth. Given that saving and investment rates are highly correlated by country ... this can be expected to increase investment and growth.

Why would anyone encourage unions if they might suppress overall economic growth? Apparently because they might not, and meanwhile they confer other advantages.

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