Do unions increase productivity?

By The Economist | NEW YORK

IF YOU'VE ever spent time in a union shop, in America at least, it's hard to believe they do. It is not that union workers are lazy, a favourite canard of the right; at least in my experience, union workers are higher quality than you would expect for the job they are doing. However, unions often offer resistance to new work processes that might increase efficiency, and not just ones that would decrease labour demand. A friend whose brother is an engineer for an auto parts supplier often keeps us entertained for hours with stories of the epic (and so far fruitless) battles to do things like install digital gauges, or measure things using the metric system¹. Unions also spend a lot of time trying to work in featherbedding provisions to their contracts—forcing companies to use more people than are needed for a given job. This makes perfect sense from the standpoint of the union; more people doing a job means more workers paying dues. But it should put a drag on average productivity. Think of all those GM workers being paid to sit in warehouses, waiting for a job to open up.

But when conservative corporate law blogger Steven Bainbridge avers that, at the very least, unions do not decrease productivity, one must take the argument seriously.

To be sure, unions often do very good work. New York's Local 3 (electricians) is widely known for the slow pace at which union jobs proceed, but also for the extremely high quality of their installations. This is not inconsistent with economic theory. Union electricians get paid more to do the same work, which predicts that they will get more skilled workers than non-union shops, and the workers will be more keen to keep their jobs. Plus the union, eager to prove that there is some sort of value proposition to employing their workers, enforces a higher standard on its members.

Does this bolster the argument you used to hear quite a lot in the late 1980's (and still do from some sectors of the left) that Europe outperforms America because of high unionisation levels? Well, no. First of all, Europe doesn't outperform America, though perhaps that is changing. But also, the economic logic suggests that unions will only keep productivity high so long as they are a relatively small portion of the workforce. If everyone has a high-paying union job, there is no incentive for workers to strive to keep their plum spots. One of the reasons that Local 3 does such a good job is that New York's construction trades work on an ad-hoc basis; even though their tenure in the union is permanent, their tenure with an employer lasts only until the building is completed or the rewiring done. If they want to be hired for the next job, they had better do good wiring on this one. There is also an excess supply of union members over available work, which gives the least competent room to sink out of the labour pool, as well as forcing them to compete with each other to hold the available jobs.

This may explain why some unions are equally well known for their lack of productivity; the American teachers' unions are generally believed (by everyone outside of the teachers' unions) to be the primary obstacle to improving America's appalling public schools.

One possibility is that, to the extent that unions do increase productivity, they do so by forcing less competent workers out of the labour market, because they are not worth union pay. In teaching, where the average wages are nothing special for the target, college educated applicant pool, this doesn't work. Indeed, by compressing wages, it makes the problem worse. In areas where there is an oversupply of graduates, such as English and history, teaching programmes choose from the applicants who have relatively few other opportunities; while in areas like science and math, where almost any qualified applicant has higher-paying alternative opportunities, they face permanent shortages.

Some thoughts on markets where unions will produce higher productivity:

1. There are opportunities for deploying capital to replace low-skilled labour
2. The union wage is higher than the average prevailing wage for the workers' cognitive endowments and/or educational level
3. There are significant transaction costs to finding and retaining labour, such as the construction trades, where it is more efficient to call the union labour hall and tell them to send over 50 guys than hire them individually
4. The work easily lends itself to classification and regularisation
5. Productivity is easily measured
   

Presumably if the good professor is correct, those higher productivity shops offset the lower productivity of union shops elsewhere, producing, on average, no result.

This has interesting implications for the revitalised SEIU (the service worker's union), which is now trying to unionise wide swathes of previously virgin American markets, such as small-scale cleaning services.

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Yes, it takes very little to entertain us.