Unions in the Economy
Unions are as far normalcy as the beginning of labor, where laborers agree to offer their services in exchange of remuneration perceived commensurate to the services offered. Such a dynamic is however a utopian dream that is almost impossible to achieve, consequently causing the workforce to agitate for better pay and better working conditions. Unions’ work, therefore, was agitation for the welfare of the workers, and continues to be so as more unions find their voice for workers’ welfare. What, however, is the place of the unions in the economy? Do unions contribute or curtail economic development in their operation? While some argue that unions are only a nuisance, others see the unions as bona fide members towards the achievement of economic and social development (Fonseca, 1965). The discussion in this paper therefore explores the place of unions in any world economy.
Higher wages, better working conditions and health benefits are among the benefits unions have extended to their members. Negotiating for higher wages as an employee is an especially daunting task. Companies and company executives essentially intimidate employees into accepting the stipulated pay, mostly as a measure of keeping the costs of production low, while increasing their profits (Fonseca, 1956). Through unions, however, employees do not approach their employer as individuals, but a powerful collective force with enough clout to force employers to come to the negotiating table, cede ground on some caveats over wages, and in so doing increasing employees’ wages (Kau & Rubin, 1981). The resultant effect of higher wages is employees’ increased purchasing power. Increased sales in retail and services from better employee pay contribute to economic development. By moving stock fast and providing more services, companies not only improve their bottom lines, but also pay generous taxes to the government for economic development.
Unions additionally agitate for better employee working conditions, health benefits and job security. Better working conditions do not necessary translate to higher wages, but the environment under which the employees work, which sometimes may put the employees’ life at risk, in addition to exposing them to life-threatening chemicals with possibility of developing chronic health conditions. Moreover, unions also push for employee health cover benefits, which while beneficial to the employee, also have economic benefits to the employer’s bottom line and the country’s economic growth. According to Greenberg, Finkelstein and Berndt (1995), health care expenditure in the U.S was more than $1 trillion, a substantial amount of which the private sector paid. While the amount may seem prohibitive to the private sector paying it for the employees, Greenberg, Finkelstein and Berndt (1995) inform that better health care for employees enhances productivity.
Providing good working conditions including health care echoes the benefits not only to the employer, but also to the general national economy. Greenberg, Finkelstein and Berndt (1995) aver that poor working conditions cause health problems, which have significant costs to both the employer and the economy. They inform that illnesses impair functioning and well-being, reduce the overall quality of life, while at the same time increasing health care costs; funds that would have been channeled to other economic beneficial ventures (Greenberg, Finkelstein & Berndt, 1995). For the employer, illness means high employee turnover, and in the unfortunate instances that employee dies, the employer bears the economic brunt of search for replacement and subsequent training (Greenberg, Finkelstein & Berndt, 1995).
Many of the benefits to workers have come out of unions, which have put pressure on business to extend the privileges. Safe workplaces, 8-hour workdays and weekends have all been machinations of unions. Weekend and the 8 hours working days are important to workers as they allow them time off to care for their social needs. Moreover such times allow employees to rejuvenate, a fact that increases productivity, which translates to profitability and better taxes to the government. Times off are also important as they give employees time to venture into personal entrepreneurship, which not only provides employment to other people, but also raise the employees economic and living standards. More important in this regard has been the role of unions in ending child labor, thus allowing children to continue with their education, and eventually becoming productive members of the society (Brazile, 2012).
Unions additionally hold considerable power even in influencing economic policy. Kau and Rubin (1981) opine that unions can build enough power capable of affecting Congressmen voting behavior on minimum wage legislation. Largely, the influence is usually on minimum wage increase, which economists aver that lead to increased economic activity through higher spending that improves both the local and national economy. Even more is that such legislation influences some important aspects of labor market equilibria (Kau & Robin, 1981).
Aside from economic legislation is the impact unions have in training workers for the labor market. According Brazile (2012), unions run some of the biggest career training programs beside the military. Through collaborative efforts with employers and industries, unions have apprenticeship programs that impart excellence skills into workers, in addition to placing graduands from the programs in jobs where they can support their families (Brazile, 2012). Job placement and imparting skills in the workers have innumerable economic benefits. Apart from the economic activities that come from workers earning wages, some of the skills imparted equip workers with knowledge and ability to start their own business ventures. Such ventures reduce the unemployment rate; contribute to the nation’s GDP, even as some eventually end up becoming huge organizations that employ thousands within the nation and internationally (Smallbone et al., 2001).
However, even with such major contributions to the economy and the welfare of workers, evidence points to negative aspects of unions to the economy. In a study of OECD countries between 1960 and 1998, the results indicate that unions had very weak association with positive economic performance indicators (Aidt & Tzannatos, 2002). In fact, unemployment rate, inflation, labor supply, and adjustment speed to wage shock had negative association in countries with high union concentration (Aidt & Tzannatos, 2002). From the study, unions’ collective bargaining had only a positive association with high real wage growth, but at the same time caused higher unemployment rates and higher inflation (Aidt & Tzannatos, 2002).
Sherk (2009) argues that unions have no place in the economy, given the negative impact that they have. He points out that unions operate as labor cartels, where they (unions) restrict the number of workers in a company or industry as a way of driving up the wages of remaining workers (Sherk, 2009). Thus, while union members benefit from the higher wages, consumers have to pay more for goods and services, even as the companies earn less in profits, translating to reduced taxes to the government, and an even lesser contribution to the GDP.
One assumption from unionized members and workers looking to join unions is that union membership will guarantee higher pay. However, in the current competitive market, companies cannot increase wages and pass the costs to consumers; they are likely to go out of business, as consumers will look for alterative goods or services (Sherk, 2009). Unions therefore bargain for higher wages in companies with capital investments or research and development projects. The cost of high wages to workers for the company, however, is reduction in investment, which essentially hurts the economy (Sherk, 2009). Any time companies cut on their capital investments means higher unemployment rates, a blame that sits squarely on unions for the higher wages they negotiate for their members.
Perhaps one of the worst effects of unions is their contribution to job losses and slow recovery from economic down turns. Sherk (2009) argues that the majority of manufacturing job losses was among union members over the past three decades; this is even as non-union employment continues to rise. Most employers are averse to union members and do not employ them, given the intricacies and economic burden that comes with dealing with unions. Therefore, unions increase the number of their unemployed members, even as non-unionized members get employment.
Unions have played an important role in advancing workers’ welfare and in negotiating higher wages for their members. Through such efforts, they have made immense contribution to the economy. However, the unions also harm the economy by increasing inflation and high goods and services’ prices as employers pass down the high cost of wages to the consumers. It is important to reach a middle ground, which will allow unions to agitate for better workers’ welfare, even as they reduce their impact on the economy.
Aidt, T. & Tzannatos, Z. (2002). Unions and Collective Bargaining: Economic Effects in a Global Environment. Washington, DC: The World Bank
Brazile, D. (2012). What have unions done for us? CNN. Retrieved from http://edition.cnn.com/2012/09/04/opinion/brazile-unions/index.html.
Fonseca, A. (1965). Contribution of the Trade Unions to Development. Indian Journal of Industrial Relations, 1(2), 170-184.
Greenberg, P., E., Finkelstein, S., N. & Berndt, E., R. (1995). Economic Consequences of Illness in the Workplace. MIT Sloan Management Review. Retrieved from http://sloanreview.mit.edu/article/economic-consequences-of-illness-in-the-workplace/.
Kau, J., B. & Rubin, P., H. (1981). The impact of labor unions on the passage of economic legislation. Journal of Labor Research, 2(1), 133-145.
Sherk, J. (2009). What unions do: How labor unions affect jobs and the economy. Backgrounder, 2275, 1-17.
Smallbone, D. et al. (2001). The Contribution of Small and Medium Enterprises to Economic Development in Ukraine and Belarus: Some Policy Perspectives. MOST: Economic Policy in Transitional Economies, 11(3), 253-273.