The Effects of Labor Unions on the US Economy - Research Paper Example

Effects of Labor Unions on US Economy of The Positive and Negative Effects of Labor Unions on the United s Economy Introduction The economy of the United States has received both positive and negative effects from the presence and actions of labor unions. These effects are somewhat arguable, but they are effectively represented here from a perspective that is relatively unbiased. Labor unions’ critics normally argue that the organizations actually have harmful effects to the overall economy (Thomas, John, & Valletta, 2004). The perspective of many people towards labor unions is that they have more negative effects than positive effects in economy of US. However, proponents of efficiency wage concept argue that unions make workers increase their morale and hence raising the overall economic growth. Households that have current union members positively view labor unions as having positive effects on American economy than those with former union members and those who have never been union members. People in different income levels observe that unions have positive effects on members’ benefits, working conditions and salary. On the other hand, the bureau for statistics for US says that households in current unions also believe that unions have a positive impact in workplace and US economy. 48% of union household members agree to this, while 34% of the former union members oppose it. In the US, workers who are members of unions receive more benefits at the cost of those who have no unions. However, it has been discovered that unions are fighting for the rights of member workers, but at the same time trying to reap large bundles of their own benefits. The worst problem is that this reduces the competitiveness of US companies in global markets and consequently the economy (Thomas, John, & Valletta, 2004). The authors further state that the benefits of union workers are derived from bargaining power of the union, monopoly, and the face of collective voice. Literature Review of Effects of Labor Unions in US Economy It is clearly evident that labor unions are mainly good for US workers as opposed to the competitiveness of the economy. A research presented by Bureau of Statistics for US in 2009 shows that the rating in favor of labor unions is 45% and though at a low level, it is an expression of a positive view. The rating for business corporations is 47% which also indicates a favorable impression; drop is about a historic low. The expression of American view of labor union’s effects on wages and working conditions are mixed. 53% of them believe that they positively affect union workers’ benefits and salaries, while 17% argue that they have negative effects. The table below shows the declining labor and business favorability. Table 1: Declining Business and Labor Favorability Year 1985 1990 1995 2000 2005 2010 Business 58 63 59 60 45 44 Labor 43 46 44 46 48 40 Source; Pew Research Center, research conducted on Feb 2011. Many Americans believe that the negative effects of labor unions are positive effects in terms of good jobs and productivity of a workplace in America according to the Bureau. Furthermore, it observed that 36% observes that unions negatively impact on the competitiveness of American economy, while 24% believe that they positively impact on US companies to internationally compete recent national survey conducted by Pew Research Center among 1385 respondents on Feb 2011 found out that 2-7 people in every 10 individuals do not find any virtual difference about public and private sector unions. According to The Bureau of statistics (2009), 48% favor unions that represent private company workers while 37% do not favor them. On the other hand, still 48% favor unions that represent public company workers, while40% do not favor them. The table below shows how labor unions benefit American workers as opposed to the competitiveness of American companies. Table 2: Benefits of Labor Unions to American workers and Global Competitiveness of American Companies Positive Negative Not much Effect Other Labor union effect on % % % % American workers ‘ working conditions 51 18 20 8=100 Benefits and salary of union workers 53 16 22 9=100 Workplace productivity 33 29 25 9=100 Jobs availability in America 33 34 29 8=100 Global competitiveness of American companies 23 35 29 10=100 Source: Pew Research Centre (Feb, 2011) A previous research conducted by Pew Research center states that budget balancing proposals indicated that decreasing pension of employees of state government was preferred to raising taxes or cutting programs. From mid 1990s, there has been very little change in support for labor unions in business disputes by the public. In case of a business dispute, 43% will first react by siding with the business, while 40% would react but siding with the labor unions. In 1995, the union-business opinion was almost similar with 36% and 43% respectively. However, when there is a dispute between state and unions, 44% would side with unions, while 38% would side with the government. Generally, many Americans believe that an agreement with the union would give them a fair advantage over workers who side with the state. The following table shows how the workers side with either the state or union incases of a dispute in 1995 and 2011. Table 3: Workers side with either the state or union incases of a dispute in 1995 and 2011. Siding with either State or labor union 1995 2011 Union - 43 State - 39 Both/depends - 7 Don’t know - 11 Source; New York Times The government data indicates that unions are becoming less as a factor of determining the overall economy of US in the last decade, especially in the private sector. Bureau of Labor Statistics (BLS) of US observes that 11.9% of US workers’ salary and wages in 2010 belonged to labor unions. However, this is slightly lower than the 12.3% in 2008 and lowly compared to 20.1 % in 1983. The US bureau of statistics found the same report that shows that more workers in the public sector are joining labor unions than workers from the private sector. In 2007, US Bureau of Labor Statistics (2008) observed that the favorability of labor unions was still low with 45% saying they favor labor unions while 40% say they do not favor them. Democrats and youths continue to strongly support organized labor unions.65% of old people do not favor labor unions, while 66% of the youth do favor opinion of labor unions. 61% of democrats favor labor unions compared to 30% and 42% of republicans and independents respectively who favor unions. Similar partisan differences are evident in opinions about public and private sector employees (US Bureau of Labor Statistics, 2008). Based on household income and education level, the current survey indicates that opinion difference about labor unions is little. In many groups, these opinions dropped between 2008 and 2010, and later covered that decrease over the last year. African Americans prefer labor unions to whites, with their percentage figure standing at 62% and 43% respectively (US Bureau of Labor Statistics, 2009). Household union members continue to labor unions at 69%. It is true that all economists do not hold similar views concerning the effects of labor unions on economy. Richard (1984) discovered that many economists analyze that many labor unions work as cartels in order to raise wages above competitive levels, by restricting worker supply to industries. By improving members’ working conditions and wages, unions reduce availability of jobs in firms that are unionized. He further discovered that gains that unions get are attained at the cost of non union members, businesses and consumers. Positive Effects Of Labor Unions to US Economy Households that have current union members positively view labor unions as having positive effects on American economy than those with former union members and those who have never been union members. People in different income levels observe that unions have positive effects on members’ benefits, working conditions and salary. On the other hand, households in current unions also believe that unions have a positive impact in workplace and US economy. 48% of union household members agree to this, while 34% of the former union members oppose it (US Bureau of Labor Statistics, 2009). Many American workers believe that unions protect them more than giving them an unfair edge. One of the positive effects of labor union is that it protects workers from being manipulated by state and other employers. Democrats are the number one supporters of this. This ensures that workers are assured of job security, income and long-term benefits such as pension. Labor union is a voice for the voiceless workers and equally represents them in defending their rights. This ensures that the employer fairly treats his employees, failure to which the union steps in their defense. The wage effect of labor unions in US is shorter working hours, higher wages and more fringe benefits. Unions have legal rights to call for workers to strike and enter into agreements of collective bargaining. This ensures that safe and equitable working conditions are maintained by business for the sake of the employee. Together with regulations imposed by government, union agreements ensure that employees are fairly treated by employers in all industries. Union members benefit from paid vacations, health coverage in addition to other benefits. They also play a major role in reducing wage inequality by raising average wages for low, middle and blue collar workers and those without good education. In 2008, unions in US forced employers to increase non-unionist employees’ wages in order to prevent unionization and this was called the effect of union threat (John and Karen, 2004). This has been seen as a factor resulting in low union membership in US today, since they can all enjoy some benefits of the union without membership costs. Unions help in reducing worldwide age inequality. In the United States, it was found that wage gap decreases with increase in union membership. US, with low unionization recorded the biggest wage inequality, while Finland and Sweden, with high union membership, recorded low wage gaps. The benefits and higher wages that are as a result of union membership are not achieved at the cost of industrial productivity. (John, 2004) found a positive, although a weak one, correlation between higher rates of unionization and worker productivity increase. Negative Effects of Labor Unions Labor union critics believe that unions have negative effects to the US economy because they sometimes raise the wages and salaries of workers (Richard, 1981). To start with, labor unions in US form cartels. A cartel is a practice in business where members cut off or reduce the supply of something in order to raise its price. For instance, OPEC can decide to cot off the supply of oil in order to raise the price of oil, as a result of increased demand and low supply. Therefore, labor unions reduce the supply of workers and hence increasing the wages of the other people. This is a serious issue in US and has resulted into very high cost of wages, and hence they cost of production. Workers who are members of labor unions benefit from very high wages at the cost of workers who have no labor unions. Being cartels, unions limit workers supply and consequently, this negatively affects the company in US. By reducing workers supply, they reduce productivity, while increasing current employees’ wages, they increase production costs (Richard, 1981). Low productivity and higher costs of employment force companies in US to pass this cost to the final consumers. Therefore, consumers are forced to pay more for the same goods. Labor unions seriously harm the economy by use of cartels that by definition restrict employment. Unions have no resources or time to negotiate wages for each individual. They want to be seen as the only reason for the raise of employees’ wages and not the employees’ hard work (John, 2007). This is due to the fact that such a view from employees increases the unions ‘power for negotiation. Consequently, wage is increased on seniority, that is, depending on your loyalty and length of duration that you have been a member of the union. This has demotivated many US workers since it raises the wages of workers who are less competent, and restricts that of highly motivated and skilled workers. This is because the employer goes through the union, since they cannot directly negotiate with them. Families that have higher income believe that unions negatively impact workplace productivity and hence the competitiveness of American economy. According to the US Bureau of Labor Statistics (2009), about 54% of families that earn an annual income of about $75,000believe that unions negatively affect the ability of a company to compete in international markets. Those who earn higher wages also believe that unions have a negative effect on productivity. The US Bureau of Labor Statistics (2009) found out that 44% of higher wage earners support this, compared with 35% of middle income earners. Union forms a kind of monopoly that has a very negative effect in the economy. This is because it does not give room for competition. In US, labor unions have negatively affected the competitiveness of employees and hence their productivity (John, 2007). Even if they are paid higher wages, they do not reciprocate to the companies through hard work because they know that they are protected by the union. This leads into higher cost of production and low productivity in output. This has a negative impact in the economy of US. Many companies are now selling their goods and services at very high prices in order to cover these costs (John, 2007). Though the greatest loser is the final consumer who has to incur all these costs, the companies are also affected from reduced sales and hence low profits. The overall loss is the deterioration of US economy. The effects of labor unions and unionized workers in the economy are detrimental and long term. They promote practices that negatively affect productivity growth or working hours. These range from reduced formation of capital, union rules and resource mobility barriers. Studies conducted by Freeman and Medoff, (2001) shows that labor unions are negatively related to economic performance. Another negative effect of labor unions is seen in cost effects. According to Freeman and Medoff, the power of unions to increase the wages of employees increases employers’ costs. This can possibly make the firm lose employees. Furthermore, employers’ cost effects can make union employers to be reluctant in undertaking significant investment opportunities. This causes a drop in employers’ incentives because they do not want to share the returns from the investment with employees. As we have seen, labor unions in US have the right to call workers for a strike. A strike negatively affects the economy since it results into low productivity. A prolonged strike makes many companies to incur serious losses during the period, since they cannot meet the demand of their customers. Consequently, to reduce losses, the prices are increased and the competitiveness of the economy falls. Conclusion In conclusion, the statistical data and techniques clearly show that labor unions have decreased the out of US economy in significant amounts, which amounts up to trillions of dollars. On the other hand, the ratio of unemployment-population and the rate of unemployment have been negatively affected by availability of labor unions. Right from the beginning, unions have lowered employment opportunities in the steel and auto industries, and the militancy of the union in mining of coal has importantly contributed to reduced employment in this industry, which was once very large. Even if some individuals have benefited from unions, they have had an aggregate economic effect that is strongly negative. The effects of unions on the overall economic performance would of course depend on their importance in markets of labor, which has drastically changed over time. A rough summary of experiences of the 20th century, for the centuries first third, is that the membership of labor unions happened to be small, about 10% of total employments (US Bureau of Labor Statistics, 2009). It was however much larger in the centuries’ mid third while the last third registered a marked decrease in the market share of private companies’ labor unions. This shows hat unions have a negative effect on economic growth rate. Finally, it is true that labor union benefit the unionists, while negatively impacting on the economy of US. Recommendations Since it is evident that labor unions negatively affect the economy of United States, it is recommended that the government should control their legal rights. They should only be allowed in levels that do not compromise the overall economy. The employees who are union members are not more important than the overall economy of US. Agreement should be designed such that no one is compromised at the expense of the other, like non union members, businesses and consumers. The economy should be equally protected like t5the consumers. The US government should reassess the formation of monopolies or cartels by unions should be addressed and eliminated in order to deal with the many negative impacts that such cartels have in the economy like reducing labor supply in order to increase wages. If this is not possible, they should be completely done away with for the sake of the economy. However, if this is so, the government should responsibly cater for the welfare of employees in terms of salaries, working conditions and other fringe benefits. References Freeman and Medoff, (2001). What Do Unions Do? An Additional Possibility is that Unions Promote Awareness of Existing Benefits. Princeton River, Princeton University Publishers. John, W. B., (2004). Non-Wage Forms of Compensation; Journal of Labor Research. Princeton NJ. Princeton university publishers. John, W. B., (2007). Industrial Relations. Minnesota, Carlson School of Management, University of Minnesota. John, W. B., and Karen, M., (2004) Trade Unions and Family-Friendly Policies in Britain; Industrial and Labor Relations Review. New York, University Publishers. Pew Research Center (2011) Numbers Facts and Trends Shaping Your World. Pew Research Center. Richard, B. F., (1981). The Effect of Unionism on Fringe Benefits; Industrial and Labor Relations. Washington DC, Harvard University Press. Richard, B. F., (1984). “Longitudinal Analyses of the Effects of Trade Unionism”. Journal of Labor Economics, Chicago, Chicago press. Thomas, C. B., John, D., & Robert, G. Valletta. (2004). Union Effects on Health Insurance Provision and Coverage in the United States; Industrial and Labor Relations Review. Cambridge, Cambridge University Press. US Bureau of Labor Statistics Division of Information and Marketing Services (2009) Labor Union Membership. 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