Do Labor Unions Help The Economy?

Most people want straightforward answers to questions. They want to know whether things like labor unions are good, or bad. Unfortunately the world doesn’t work that way. Labor unions can both contribute to society’s ills and relieve them. Understanding the subtleties of the distinctions is the key to making sure they offer the maximum benefit.

Unions Protect Jobs

Interestingly the fact that unions protect jobs is part of the case against them from an economic standpoint. Any individual wants their job protected. We don’t want to have to find a new job, retrain, or go without income for some period.  However being good for its members and being good for the economy are two different things.

Sometimes jobs become obsolete. For example, between the beginning and end of the twentieth century, agriculture went from employing ten million people to fewer than two million. This makes food cheaper and allows those workers to go do something more productive. But to those workers who lost their job, they certainly would have liked some protection.

Unions also tend to protect their employees in situations where we might like them to not do so. Teachers Unions for example are notorious for making it tremendously expensive to fire teachers, even incompetent or insubordinate ones. While almost certainly exaggerated in number, it’s not hard to believe stories of teachers drawing salaries to sit at home, because it’s cheaper than firing them.

Finally a problem with unions is that they protect their members, not everyone. Many industries would like to replace their older more expensive workers with cheaper new blood. The unions preventing this to happen are great if you’re the older worker, but not nearly as appealing if you’re the new blood. 

So Do They Hurt the Economy?

The theoretical evidence is pretty clear; however there is also empirical evidence. The distribution of wealth has been much more even during times of powerful unions than during times of weak ones, like today. While unions may be poor at bringing changes in efficiency, they can be great at bringing changes in divisions of profit. The aggregation and collective bargaining of labor, can lead to a higher percentage of the fruits of labor flowing to the union members. While this may suggest inefficiencies and increased prices elsewhere, it’s worth noting that we live in a country where a hedge fund manager in 2007 made more money than every police officer, firefighter and public school teacher in Chicago combined. 

The economy is not a magical thing that lives in isolation from the people who it affects. If people don’t feel they have a reason to participate in the economy, then the economy can suffer. A more even distribution of wealth can help people’s level of “buy in” and support for the system. An economy that only serves a few is not going to last. Thus the answer is that unions both hurt and help the economy and they should be viewed in this light. We shouldn’t talk about them in the abstract, but instead deal with specific instances and whether they seem to be working for good or ill.