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Union productivity effects.

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.--
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Publication:Monthly Labor Review
Date:Jan 1, 1985
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