Arnold Kling  

Unions and Productivity

PRINT
The Player and the Referee... The Trojan Horse Example...

Ezra Klein writes,


It's an article of faith for some on the right that unions wreck productivity.

Not in the private sector. I would be surprised if you had lower productivity in unionized firms. You can't have both lower productivity and higher wages in unionized firms--they would go out of business.

In the private sector, a union should raise wages. When it raises wages, the firm should substitute capital for labor, raising productivity.

The way to think about dysfunctional work rules is as a tax on labor--causing the firm to substitute even more capital. Other things equal, the dysfunctional work rules reduce productivity, but other things are not equal.

In the private sector, I would look for the adverse economic consequences of unions to show up in the inter-firm allocation of labor. Firms in the union sector will pay too much in wages and hire too little labor. The workers they don't hire will end up either in the non-union sector (where they will be less productive) or unemployed (where they will be really less productive).

In the public sector, I can believe that unions lower productivity. But I would be surprised if it happened in the private sector.

Thanks to Megan McArdle for the pointer.


Comments and Sharing





COMMENTS (5 to date)
Matt writes:

Unions aggregate negotiations, wages, and therefore aggregate production time lines. The resulting economy of scale has two results, first much better efficiency because all production can be precomputed. It also has amazing instability when everyone, in phase time, decides to restructure.

SheetWise writes:
"Not in the private sector. I would be surprised if you had lower productivity in unionized firms. You can't have both lower productivity and higher wages in unionized firms--they would go out of business."

Unless they're regulated. Think of utilities.

Mr. Econotarian writes:

Unions are often as interested in number of union positions as in salaries. Union members are also often the first to complain about labor saving devices or about having a member do more than one specific job.

Also you assume that there is an option. In many fields, if you aren't a union shop, you can not be in the business (for example, in Hollywood). In this fashion, the unions drive a monopoly reduction in productivity industry-wide.

And the union shops do basically go out of business - but in terms of strikes first before going under.

Josh writes:

... Unless they have monopoly power, in which case there aren't other companies with non-union workers to compete away the inefficiency. But I'm not sure there are any private-sector union monopolies any more, so in practice I think you're right.

scott writes:

What you predict in your comments appear to be what is happening in the automotive industry. Capital has been substituted for labor (slowly due to agreements witht he unions). The union causes a price floor for wages in the industry that is slightly less than the union wages but the automotive jobs are being created in non-union states where they build cars with higher quality and probably higher productivity. But the labor force is moving both overseas and to non-union states. The unions (or
their companies) are paying too much and reducing employment (buyouts anyone?). There is still a large auto manufacturing employment base in the US just not in the union states.

Unfortunately, the least secure jobs are often union jobs. If you lose an above market wage job it will not be replaced by a similarly compensated position. It is a difficult position to be in for both the union member and the company they work for.

Comments for this entry have been closed
Return to top