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What Do Unions Do for Economic Performance?

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  • Hirsch, Barry

    ()
    (Georgia State University)

Abstract

Twenty years have passed since Freeman and Medoff's What Do Unions Do? This essay assesses their analysis of how unions in the U.S. private sector affect economic performance - productivity, profitability, investment, and growth. Freeman and Medoff are clearly correct that union productivity effects vary substantially across workplaces. Their conclusion that union effects are on average positive and substantial cannot be sustained, subsequent evidence suggesting an average union productivity effect near zero. Their speculation that productivity effects are larger in more competitive environments appears to hold up, although more evidence is needed. Subsequent literature continues to find unions associated with lower profitability, as noted by Freeman and Medoff. Unions are found to tax returns stemming from market power, but industry concentration is not the source of such returns. Rather, unions capture firm quasi-rents arising from long-lived tangible and intangible capital and from firm-specific advantages. Lower profits and the union tax on asset returns leads to reduced investment and, subsequently, lower employment and productivity growth. There is little evidence that unionization leads to higher rates of business failure. Given the decline in U.S. private sector unionism, I explore avenues through which individual and collective voice might be enhanced, focusing on labor law and workplace governance defaults. Substantial enhancement of voice requires change in the nonunion sector and employer as well as worker initiatives. It is unclear whether labor unions would be revitalized or further marginalized by such an evolution.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 892.

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Length: 54 pages
Date of creation: Oct 2003
Date of revision:
Publication status: published in: Journal of Labor Research, 2004, 25 (3), 415-455
Handle: RePEc:iza:izadps:dp892

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Keywords: investment; profits; productivity; economic performance; unions; growth; collective voice;

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References

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  1. James T. Bennett & Bruce E. Kaufman, 2001. "The Future of Private Sector Unionism in the U.S," Journal of Labor Research, Transaction Publishers, Transaction Publishers, vol. 22(2), pages 227-228, April.
  2. Macpherson, D.A. & Dunne, T., 1992. "Unionism and Gross Employment Flows," Working Papers, Department of Economics, Florida State University 1992_10_5, Department of Economics, Florida State University.
  3. Freeman, Richard B, 1980. "The Exit-Voice Tradeoff in the Labor Market: Unionism, Job Tenure, Quits, and Separations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(4), pages 643-73, June.
  4. Richard B. Freeman & Edward P. Lazear, 1995. "An Economic Analysis of Works Councils," NBER Chapters, in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52 National Bureau of Economic Research, Inc.
  5. Laroche, P., 2000. "What do Unions do to Productivity? A Meta-Analysis," Papers, Groupe de recherche en économie financière et en gestion des entreprises, Universite Nancy 2 2000-5, Groupe de recherche en économie financière et en gestion des entreprises, Universite Nancy 2.
  6. Fallick, Bruce C & Hassett, Kevin A, 1999. "Investment and Union Certification," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 17(3), pages 570-82, July.
  7. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1986. "The Intertemporal Stability of the Concentration-Margins Relationship," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 35(1), pages 13-34, September.
  8. Michael D. Bordo & Claudia Goldin & Eugene N. White, 1998. "The Defining Moment: The Great Depression and the American Economy in the Twentieth Century," NBER Books, National Bureau of Economic Research, Inc, number bord98-1.
  9. Addison, John T & Hirsch, Barry T, 1989. "Union Effects on Productivity, Profits, and Growth: Has the Long Run Arrived?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 7(1), pages 72-105, January.
  10. Steven G. Allen, 1985. "The Effect of Unionism on Productivity in Privately and Publicly Owned Hospitals and Nursing Homes," NBER Working Papers 1649, National Bureau of Economic Research, Inc.
  11. Chris Doucouliagos & Patrice Laroche, 2007. "Unions and Profitability: A Meta-Analysis," Economics Series 2007_01, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
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