The introduction and rise of labor unions have had a significant impact on the economy and companies’ relationships with their employees. Essentially, labor unions are formed to represent workers in bargaining processes. According to Hirsch (2017), these bodies have many positive effects on employment and work-life although they can also have distinctive adverse effects. For example, they enable workers to enjoy extensive fringe benefits, shorter working hours, and higher wages among other benefits. Moreover, a labor union with extensive powers to bargain can effectively indulge in collective bargaining agreements that help the workers to maintain equitable and safe working conditions, and set standards of how to treat employees across all industries (Kaufman & Bennett, 2017). Consequently, union employees tend to exhibit higher levels of productivity in their areas of work than their non-union colleagues.
When workers’ salaries are increased due to the advocacy of the labor unions, employers are forced to seek avenues of raising money for salaries. One of the means of doing so is increasing the prices of goods and services. Such a move could lead to the loss of customers (Xing, & Yan, 2018). Paying employees highly may lead to the failure of organizations to make substantial investments opportunities. An employer may drop investment in research and development incentives because a portion of the returns from the investments has to be divided with the union employees (Devicienti, Naticchioni, & Ricci, 2018). Theoretically, labor unions can create a perfect competition environment by generating a bargaining atmosphere that encourages productivity and efficiency because they help to increase the member’s wages at the cost of the employer’s profits. However, in practice, a perfect completion environment is not possible to achieve.
Devicienti, F., Naticchioni, P., & Ricci, A. (2018). Temporary employment, demand volatility, and unions: Firm-level evidence. ILR Review, 71(1), 174-207.
Hirsch, B. T. (2017). What do unions do for economic performance?. In What Do Unions Do? (pp. 201-245). Routledge.
Kaufman, B. E., & Bennett, J. T. (2017). What do unions do? A twenty-year perspective. In What Do Unions Do? (pp. 9-19). Routledge.
Xing, X., & Yan, S. (2018). Labor unions and information asymmetry among investors. The Quarterly Review of Economics and Finance.