The case for unions begins with the possibility of higher wages: unionized workers enjoy a wage premium of 10% to 20% (although many of these estimates are dated and globalization may have made the premium much higher low, in some cases close to zero). Unions can also provide workers with a more effective way to air grievances in the workplace and help them coordinate better services with their employers.
The more skeptical view of trade unions accepts the logic of these arguments, but questions the extent of the associated benefits. The union wage premium is good for the workers who receive it, of course, but it also drives up prices. Other workers in turn pay these higher prices. Thus, the net return to all workers is less than the wage premium suggests.
It’s not that labor costs and retail prices move exactly in tandem. If labor costs increase by 12% but labor is only 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 less likely to be involved. The greater the role of workers, the more likely it is that increases in union wages will translate into increases in retail prices.
Workers as a whole can still benefit from unions if the burden of rising prices falls largely on the wealthy. This may be the case for fancy diamonds or expensive restaurants, but historically unions have 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 greater automation and therefore lower demand for labor in general. The US manufacturing industry has automated significantly over the past few decades and accounts for a shrinking share of US employment. Automation is also coming to Amazon warehouses. Additionally, many formerly unionized jobs have gone overseas rather than to robots.
It is difficult to trace the causal impact of unions in this area, as there are so many other factors at play. Nevertheless, it is plausible that higher union wages hurt some non-union workers, by reducing labor demand in unionized sectors. It should also be noted that management tends to be hostile to unions, and part of the reason may be that unionization will lead to lower profits. And lower profits will eventually mean lower investments.
Even taking all these factors into account, it is still possible that unions benefit workers overall. But only to a modest extent. This would not be a reason to make unionization a top priority or to place unions at the center of a theory of what improves the situation of workers.
Additionally, the union wage premium—as opposed to a union wage increase, which is negotiated every few years—is a permanent change in an industry or sector. In the longer term, productivity improvements (or lack thereof) are more important than the wage premium.
What about working conditions? Here again, union negotiation can be useful, whether adversarial or cooperative. Again, however, the benefits will likely be modest. Better working conditions are another form of higher pay and come with the costs associated with higher wages that 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 improved steadily over the years, even as the United States has seen a drastic drop in unionization rates. Unions are therefore probably not the main factor behind 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 a mistake to consider the unions as the savior of the working class.
More from Bloomberg Opinion:
• Unions have not kept up with the new economy: Allison Schrager
• Why companies could learn to love unions: Conor Sen
• Workers of the World Unite Again: Chris Bryant
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the Marginal Revolution blog. He is co-author of “Talent: How to Identify the Energizers, Creatives and Winners in the World”.
More stories like this are available at bloomberg.com/opinion