What Economists Think about Unions


Freeman and Medoff

In 1984, Harvard economists Richard B. Freeman and James L. Medoff published a book called What Do Unions Do? It is an extensive (251-page) quantitative analysis of the wage and nonwage effects of trade unions. Their conclusion:

On balance, unionization appears to improve rather than to harm the social and economic system. (Page 19)

However, they do acknowledge the negative effect of unions:

Most, of not all, unions have monopoly power, which they can use to raise wages above competitive levels. Assuming that the competitive system works perfectly, these wages have harmful economic effects, reducing the national output and distorting the distribution of income. [The higher wage] causes firms to lower employment and output, thereby harming economic efficiency and altering the distribution of income. (Page 6)

As monopoly institutions, unions reduce society's output in three ways. First, union-won wage increases cause a misallocation of resources by inducing organized firms to hire fewer workers, to use more capital per worker, and to hire workers of higher quality than is socially optimal. Second, strikes called to force management to accept union demands reduce gross national product. Third, union contract provisions - such as limits on the loads that can be handled by workers, restriction on tasks performed, and featherbedding - lower the productivity of labor and capital. (Page 14)

The negative effects of unions are outweighed, the authors say, by several socially beneficial effects.

  • [U]nions alter the entire package of compensation, substantially increasing the proportion of compensation allotted to fringe benefits, particularly to deferred benefits such as pensions and life, accident and health insurance, which are favored by older workers. (Page 20)

    My response: Fringe benefits certainly are good for union members, but I see no benefit to society. They are a form of wages, and if they are above competitive levels, they are harmful. See Ending Fringe Benefits.

  • [Because they] raise blue-collar earnings relative to the higher white-collar earnings [and] reduce inequality among workers in the same [and different] establishments . . . on balance, unions are a force for equality in the distribution of wages among individual workers. (Page 20)

    My response: In a free labor market, there is nothing wrong with having different wages for different jobs.

  • [By providing a collective voice in dealing with management, problems with individual workers are more likely to be worked out and the workers are less likely to quit.] As a result, unionized work forces are more stable  . . . (Page 21)

My response: I do not disagree. However, a well-managed, non-union business can set up non-threatening procedures for dealing with personnel problems that would achieve the same result.

  • Union workplaces operate under rules that are more . . .explicit than nonunion workplaces. Seniority is more important . . . management operates more "by the book", with less subjectivity . . .and in more professional, less paternalistic or authoritarian ways. (Page 21)

My response: I do not disagree. However, a well-managed, non-union business knows the value of contented employees and can make sure all are treated fairly.

  • Some nonunion workers . . . obtain higher wages and better working conditions . . . because of the threat of unionism . . . Some workers, however, may suffer from greater joblessness as a result of higher union wages in their city or their industry. (Page 21)

My response: Workers may also suffer from greater joblessness due to the excessive wages of those nonunion workers whose wages are higher because of the threat of unionism. In a 12/20/2005 story about Toyota workers in Kentucky, National Public Radio claimed that an assembly worker there made more than twice the average manufacturing wage in the area.

  • [Usually,] unionized establishments are more productive than nonunionized establishments. [This] is due to . . . lower turnover . .  , improved managerial performance in response to the union challenge, and generally cooperative labor-management relations at the plant level. (Page 22)

My response: Maybe they are forced to be more productive to make up for their high labor costs. They have to stay competitive some way.

  • Most union political successes have come in the area of general labor and social goals that benefit workers as a whole rather than unionists alone. (Page 22)

My response: Since workers outnumber employers, they should already have the upper hand in a democratic nation.

Milton Friedman

Milton Friedman was awarded the Nobel Prize in Economics in 1976 for his achievements in the fields of consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy. According to The Economist, Friedman "was the most influential economist of the second half of the 20th century…possibly of all of it." Friedman died in 2006. (Source: Wikipedia) Here's what he said about unions in his book Capitalism and Freedom (page 124):

If unions raise wage rates in a particular occupation or industry, they necessarily make the amount of employment available in that occupation or industry less than it otherwise would be - just as any higher price cuts down the amount purchased. The effect is an increased number of persons seeking other jobs, which forces down wages in other occupations. Since unions have generally been strongest among groups that would have been high-paid anyway, their effect has been to make high-paid workers higher paid at the expense of lower-paid workers. Unions have therefore not only harmed the public at large and workers as a whole by distorting the use of labor; they have also made the incomes of the working class more unequal by reducing the opportunities available to the most disadvantaged workers.

And from Free to Choose (page 234):

A successful union reduces the number of jobs available of the kind it controls. As a result, some people who would like to get such jobs at the union wage cannot do so. They are forced to look elsewhere. A greater supply of workers for other jobs drives down the wages paid for those jobs. Universal unionization would not alter the situation. It would mean higher wages for the persons who get jobs, along with more unemployment for others. More likely, it would mean strong unions and weak unions, with members of strong unions getting higher wages, as they do now, at the expense of members of weak unions.

Albert Rees

Albert Rees, a labor economist, was the chief inflation monitor in the Ford Administration, provost of Princeton University and president of the Alfred P. Sloan Foundation. He died in 1992. The following is from his 9/7/1992 New York Times obituary:

Mr. Rees influenced a generation of labor economists with his analyses of wages, unemployment and labor markets. He was one of the first economists to conduct studies that compared the relative wealth of people in different eras. . . He graduated from Oberlin College and received his master's degree and his doctorate in economics from the University of Chicago. He became a full professor there in 1961 and served as chairman of the economics department from 1962 to 1966. During his tenure at the University of Chicago, he served on the President's Council of Economic Advisers and the President's Committee to Appraise Employment and Unemployment Statistics. . . With George P. Shultz, the former Secretary of State and former dean of the University of Chicago School of Business, Mr. Rees was author of a landmark study, called the Chicago Labor Market Project, that was one of the first to collect and analyze data on the wages and employment conditions of individual workers.

This is from his book The Economics of Trade Unions, third edition, 1989, page 191:

If the union is viewed solely in terms of its effect on the economy, it must in my opinion be considered an obstacle to the optimum performance of our economic system. It alters the wage structure in a way that impedes the growth of employment in sectors of the economy where productivity and income are naturally high and that leaves too much labor in low-income sectors of the economy. It benefits most those workers who would in any case be relatively well off, and while some of this gain may be at the expense of the owners of capital, most of it must be at the expense of customers and the lower paid workers. Unions interfere blatantly with the use of the most productive techniques in some industries, and this effect is probably not offset by the stimulus to higher productivity furnished by some other unions.

I think Rees is being generous here. He doesn't mention that unions actually increase unemployment, the effect that causes the most acute human suffering. And then he talks about two ways in which unions benefit society (page 192):

  • The protection against the abuse of managerial authority given by seniority systems and grievance procedures seems to me to be a union accomplishment of the greatest importance.

My response: The reduction of abuse by managers is certainly desirable, but abuse is mitigated in other ways in a free labor market. One is that an employee can easily move from one employer to another without taking a big pay cut, and he can do so to escape the abusive manager. Another is that when employers compete for employees in a free market, a reputation for fair treatment can give them an advantage.

  • (T)he organized representation in public affairs given the worker by the political activities of unions. If, as most of us believe, America should continue to have political democracy and a free enterprise democracy, it is essential that the great mass of manual workers be committed to the preservation of this system and that they should not, as in many other democracies, constantly be attempting to replace it with something different. Yet such a commitment cannot exist if worker feel their rights are not respected and they do not get their fair share of the rewards of the system. By giving workers protection against arbitrary treatment by employers, by acting as their representative in politics, and by reinforcing their hope of future gain, unions have helped to assure that the basic values of our society are widely diffused and that our disagreements on political and economic issues take place within a broad framework of agreement. If the job rights won for workers by unions are not conceded by the rest of society simply because they are just, they should be conceded because they help protect the minimum consensus that keeps our society stable. In my judgment, the economic losses imposed by unions are not too high a price to pay for their successful performance of this role.

My response: Maybe things were different in 1989, when this edition of the book was published, but I am not aware today of any free enterprise democracies where unhappy workers are "constantly" attempting to replace the system with something different. I can't imagine that not having union representation in public affairs would make workers a threat to democracy. Currently, 92.5% of private industry workers in the U.S. have no union representation and there seems to be no revolution brewing. Representation is provided by political parties and by elected representatives at the state and national level. And in a free market, a worker's "fair share of the rewards of the system" is determined - as it should be - by the value of what he produces.

Henry Hazlitt

From Wikipedia: "Henry Stuart Hazlitt (November 28, 1894 – July 9, 1993) was an American economist, philosopher, literary critic and journalist for such publications as The Wall Street Journal, The Nation, The American Mercury, Newsweek, and The New York Times. . . Hazlitt was a prolific writer, authoring 25 works in his lifetime." One of those books was Economics in One Lesson, published in 1946. With a million copies sold and available in ten languages, it is considered an enduring classic in conservative, free market and libertarian circles. A recurring theme in that book is "the fallacy of overlooking secondary consequences." Hazlitt says there is a tendency for people to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups:

[I]t is easy . . . for unions  . . . to go beyond their legitimate functions, to act irresponsibly, and to embrace short-sighted and antisocial policies. They do this, for example, whenever they seek to fix the wages of their members above their real market worth. Such an attempt always brings about unemployment. The arrangement can be made to stick, in fact, only by some form of intimidation or coercion. (Page 141)

[T]he moment workers have to use intimidation or violence to enforce their demands - the moment they use mass picketing to prevent any of the old workers from continuing at their jobs, or to prevent the employer from hiring new permanent workers to take their places - their case is suspect. For the pickets are really being used, not primarily against the employer, but against other workers. These other workers are willing to take the jobs that the old employees have vacated, and at the wages that the old employees now reject. The fact proves that the other alternatives open to the new workers are not as good as those that the old employees have refused. If, therefore, the old employees succeed by force in preventing new workers from taking their place, they prevent these new workers from choosing the best alternative open to them, and force them to take something worse. The strikers are therefore insisting on a position of privilege, and are using force to maintain this privileged position against other workers. (Page 142)

[T]hough [unions] may for a time be able secure an increase in money wages for their members, partly at the expense of employers and more at the expense of nonunionized workers, [they] cannot, in the long run and for the whole body of workers, increase wages at all. (Page 148)


Unions are Killing Michigan
The Wagner Act
What Economists Think
Why the Market Wage is Better
The Illogic of Collective Bargaining
Market Wage vs. Fair Wage
Imagining a Free Labor Market
Rights and Freedom
Destruction of the Middle Class
Employee Free Choice Act (EFCA)
Job Security
Collective Bargaining and Unemployment
Social Costs of Collective Bargaining
Ending Fringe Benefits
Democrats and Unions
Collective Bargaining in Government