Union productivity effects Essay

Union productivity effects



The impact of collective bargaining on productivity has been a
frequent subject of debate. The question remains: do unions increase
productivity and if they do will the increased productivity offset the
greater compensation unionized employees receive?



In Trade Unions and Productivity: Some New Evidence on an Old
Issue, Richard B. Freeman and James L. Medoff use the “production
function’ technique to study the relationship between unionism and
productivity. They add a new variable: the fraction of the work force
that is unionized. The authors of this National Bureau of Economic
Research working paper use the tool in an attempt to adjust for
differences in employees’ skills and the amount of capital per
employee. Their findings indicate a positive correlation in many
sectors, particularly manufacturing and construction, between unionized
workplaces and high productivity. But, this positive effect does not
always hold true, particularly over time. For example, in the
underground bituminous coal industry, mines with a union were notably
less productive than nonunion mines in 1975, but looking back, in 1965,
the unionized mines were more productive. It is the authors’ view
that this change was due in large part to a deterioration of industrial
relations. During the early 1980’s, as the union began to
stabilize, productivity has again increased.



The authors argue that the coal industry is the exception rather
than the rule, mainly because of the relative lack of competition within
the industry. Coal can be mined only in certain places, thereby
severely limiting the number of competitors. Therefore, even when
higher labor costs per unit of output exist, the industry survives. In
contrast, in a competitive product market only the unions which can
offset wage gains with higher productivity will survive, the authors
assert. Also, the union productivity effect seems to be greatest when
markets are the most competitive. Thus, lower productivity under
unionism is prevalent under the opposite situation.



In another section, the authors turn from the level of productivity
to productivity growth. They find that there is essentially no link
between productivity growth and unionization. The evidence gathered by
the authors indicates that unions do not hinder firms from adopting new
technology, nor do unions take other steps to retard productivity
growth.



The authors conclude that even though the productivity effect of
unions is generally positive, on average, it will not outweigh the
greater capital intensity and labor costs which are also couple with
unionism. A higher rate of return on capital is not guaranteed by
higher labor productivity.–