Sunday, October 11, 2009

How Unions Impact the Economy, Jobs and Wages

Unions say they benefit the workers. This may be true - they may help workers to obtain higher wages. Unfortunately unions' goals are essentially to redistribute the wealth between all of the workers. That means taking away from the more productive workers to give to the less productive workers. Great for the less competent, less desirable members of the workforce but not so great for those workers who work harder and do a better job. Unions take away the individual rewards for accomplishments. How would you feel if you went to work every day and put 110% effort into doing your job well and you were paid exactly the same as the person who gave 50% effort most of the time? How would you feel if all your hard work essentially meant nothing?

For all the good unions may do for workers as a group as far as wages, they actually harm the overall economy. Most economists compare unions to cartels because both work in a similar way. It's all about supply and demand. Unions restrict the number of workers available and force higher wages. This makes the unionized company less profitable which in turn lessens the number of jobs available. Unionized companies are also less competitive due to the higher cost of doing business. In fact, over the past thirty years or so most of the manufacturing jobs lost in the United States were at union companies. Non union manufacturing jobs have actually risen.

So who pays for the higher wages paid to union workers? You do! The higher wages reduce the profits of the union companies. Reduced profits lead to less demand for workers because the company has to cut costs. The company can also absorb the increased costs by passing the cost on to the buyer. So we pay more for the same product. A good example of how this works is the auto industry. The United Auto Workers Union (UAW) has forced the combined wages and benefits of union autoworkers to over $70 per hour. That doesn't include the cost of benefits for retired workers. The automakers are forced to deal with these union demands because if they do not pay what the union demands, the workers will strike. Of course all of this means we, as consumers, pay more for our cars. Higher prices to purchase a car leads to lower car sales - less demand - which in turn leads to job loss for the auto workers.

It is a vicious cycle which could be changed by allowing for normal business competition. Unions oppose trade and competition. Even in normal economic conditions unions have negative effects. The negative effects are compounded during times of economic recession and unions delay economic recovery during times of recession.

Sources:
http://www.heritage.org/research/labor
http://www.econlib.org/library/enc/laborunions

2 comments:

  1. I did not realize that unions have such a negative affect on our economy. Using the auto workers union as an example was a very effective way to illustrate your point. It defiantly got my attention.

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  2. I agree that unions have had a negative overall effect in the last 25 years and that the most recent labor contracts had much to do with the bankruptcy filings by GM and Chrysler. However, there was a time when unions were a very necessary component of our nation's manufacturing structure.

    I also disagree that hourly workers make as much as $70 per hour. That figure does indeed include the legacy costs (pensions and health care) for retirees. My research has shown that every active autoworker supports 4 retirees with monthly pensions and health care benefits, some of which have recently been taken away. That is where that high dollar amount comes from (the cost of health care for older autoworkers).

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