..



.

Business News

Unions do hurt profits, but not productivity, and they remain a bulwark against a widening wealth gap

  • Written by Chris Doucouliagos, Professor of Economics, Department of Economics, Deakin Business School and Alfred Deakin Institute for Citizenship and Globalisation, Deakin University

This article is part of an election series on wages, industrial relations, Labor and the union movement ahead of the 2019 federal election. You can read other pieces in the series here[1].

Some advocates of laissez-faire capitalism argue that trade unions are bad for productivity. “With few exceptions,” according to one American economist, George Reisman[2], “unions openly combat the rise in the productivity of labour.”

Other economists disagree[3]. “Unionisation and high worker productivity often go hand-in-hand,” say Harley Shaiken and David Madland[4]. “Fairness on the job and wages that reflect marketplace success contribute to more motivated workers.”

So who’s right?

To answer this question, my colleagues Richard Freeman and Patrice Laroche and I surveyed the global evidence[5] from more than 300 studies on the economic impact of unionisation.

We conclude that unions do not, overall, reduce productivity, though it varies according to specific circumstances.

Unionisation does make businesses less profitable for the owners. But importantly, it also reduces income inequality, a useful social function given the problems that flow from a widening wealth gap.

National differences

Productivity refers to the efficiency of turning inputs into outputs[6]. It’s a key measure of economic performance. A nation’s productivity raises its per capita GDP.

The evidence from Australia is too thin to draw a credible conclusion (there are just a handful of studies[7]), so our overall findings reflect evidence from other nations.

That evidence is mixed. In Britain, for example, union influence has reduced company productivity. In the US, unionisation appears to be associated with higher productivity in the construction and education sectors, but has made no difference in manufacturing. In developing countries, the overall effect is generally positive.

Such differences can be explained by variations in labour market institutions[8]. These include employment protections, minimum wages and unemployment benefits. Laws influence social attitudes, and vice versa, which in turn affect relative negotiating power and whether unions and employers value cooperation over conflict.

image South Korean trade unionists rally for better working conditions in Seoul in November 2018. Kim Chul-Soo/EPA

In theory, the more labour and capital cooperate, the more productive an enterprise is likely to be, providing higher wages and greater job security to workers and higher profits to shareholders. Less cooperation means lower productivity.

Taking a share of profits

The evidence shows unionisation is associated with lower profits, because unions secure higher wages and benefits for their members.

By reducing the profitability of an investment, unions may discourage further investment as owners of capital seek higher profits elsewhere.

Further, unions can hurt business when they exercise their power to disrupt (through strikes and other industrial action). Union corruption[9] might also add to business costs.

But unions are by no means all bad for business. In representing worker interests, they can help make a company a more attractive place to work, reducing turnover[10] and increasing employees’ commitment to business success. Higher union wages and benefits also attract more job applicants, allowing management to select the best workers.

But a benefit to society

Most importantly, from a societal point of view, unions reduce pay inequalities. They increase the relative pay of lower skilled[11] workers. They help to establish pay norms[12] that extend beyond unionised companies.

Inequality is bad[13] for economic growth, because it discourages investment in education and innovation.

It is bad for democracy. It widens social divisions within societies and reduces participation[14] and political engagement[15]. It drives the rich to oppose[16] democratic reforms that might lead to wealth redistribution[17].

The increase in inequality in wealthy nations as union membership has declined over the past half century suggests unions are a pivotal institution for promoting equality. In OECD nations the average rate of unionisation was about 46% of the workforce in 1980. By 2015 it was 27%.

Meanwhile, the average income of the richest 10% of the population in OECD countries is about nine times that of the poorest 10%[18] – up from seven times 25 years ago.

The trade-off of lower profits and reduced managerial autonomy, with managers forced to work harder as they negotiate and compromise with unions, should be considered a cost-effective price to pay relative to the long-term costs of rising inequality.

So Alfred Marshall, a founder of neoclassical economics, had a point when he said in 1890 that trade unions “benefited[19] the nation as well as themselves”.

References

  1. ^ here (theconversation.com)
  2. ^ George Reisman (mises.org)
  3. ^ disagree (www.americanprogress.org)
  4. ^ Harley Shaiken and David Madland (www.americanprogress.org)
  5. ^ surveyed the global evidence (www.routledge.com)
  6. ^ turning inputs into outputs (www.businessdictionary.com)
  7. ^ a handful of studies (theconversation.com)
  8. ^ labour market institutions (www.nber.org)
  9. ^ Union corruption (theconversation.com)
  10. ^ reducing turnover (psycnet.apa.org)
  11. ^ lower skilled (books.google.com.au)
  12. ^ pay norms (journals.sagepub.com)
  13. ^ bad (theconversation.com)
  14. ^ participation (www.jstor.org)
  15. ^ engagement (www.jstor.org)
  16. ^ rich to oppose (www.cambridge.org)
  17. ^ wealth redistribution (www.cambridge.org)
  18. ^ nine times that of the poorest 10% (www.oecd.org)
  19. ^ benefited (www.routledge.com)

Authors: Chris Doucouliagos, Professor of Economics, Department of Economics, Deakin Business School and Alfred Deakin Institute for Citizenship and Globalisation, Deakin University

Read more http://theconversation.com/unions-do-hurt-profits-but-not-productivity-and-they-remain-a-bulwark-against-a-widening-wealth-gap-107139

Business Daily Media Business Development

Bahrain Property Show 2018: How does it reflect the real estate market development in Bahrain

It is no secret that the Arabian Peninsula and the Gulf Cooperation Council (GCC) countries are currently going through a lot of pivotal changes. Such changes do not include economic or po...

News Company - avatar News Company

Di Jones real estate recognises high achievers

Di Jones celebrated its outstanding performers on Saturday (24 February 2018) evening at the Di Jones Real Estate Annual Awards.                               The black-tie Gala Dinner s...

Helen Hull - avatar Helen Hull

Five Reasons Melbourne Rules

If you are traveling in Australia and have left Melbourne off your destination list, then you are going to want to reconsider. Many people consider Melbourne to the best city in the world...

News Feature Team - avatar News Feature Team

Making Friends During Your Campsite Stay

Part of the excitement of vacation is meeting people who you would never otherwise encounter. Staying at a campsite isn’t just about taking in nature. It’s also about sharing the beauty of n...

News Feature Team - avatar News Feature Team

Have More Fun On Your Business Trips

Whether you are a traveling salesman or someone who finds themselves on the road more than in their office you probably are grateful for any tips you can get especially if they involve havin...

News Feature Team - avatar News Feature Team

Traditions of Rural Bali at Villa Sabana

A Privileged Insight into the Traditions of Rural Bali at Villa Sabana  Situated in the traditional village of Pererenan near Canggu, Villa Sabana is peacefully secluded in a semi-rural...

Linda Lim - avatar Linda Lim

Business Daily Media Business Reports

Di Jones real estate recognises high achievers

Di Jones celebrated its outstanding performers on Saturday (24 February 2018) evening at the Di Jones Real Estate Annual Awards.                               The bla...

Helen Hull - avatar Helen Hull

Eclipse Travel Expands Operations to New Zealand

Eclipse Travel, specialists in key adventure destinations such as Antarctica, the Arctic, Africa and Latin America, have announced today their expansion of operations to ...

Yvonne Kong - avatar Yvonne Kong

How medical professionals can benefit from an overall wealth management solution

As a health care professional, you have made it your life's work to focus on the care and health of the general public. While this kind of work can be extremely rewarding...

News Feature Team - avatar News Feature Team

Why Pinterest Should Be Part of Your Marketing Strategy

Pinterest is a growing social media platform that can deliver significant traffic to your website and new followers to your brand. With it’s steady growth and outrageous ...

Greg Nunan - avatar Greg Nunan

The top reasons why gyms fail

Steve Grant is a Business Coach and Founder of GymHub.com.au   Every month thousands of new trainers walk out of their 6-month course with the qualifications needed ...

Steve Grant - avatar Steve Grant

WHITE LABEL NOBA’s Winter 2016 season: Earth + Country

Taking cues from the warm winter colours of tobacco and caramel, and combining them with the strength of navy and the embracing lightness of whites and creams; and then...

Kath Rose - avatar Kath Rose

Former Etihad boss brings substantial event insight to PMY Group Board

Paul Sergeant PMY Group, the architects of the digital insurgency occurring at major venues across Australia and New Zealand, are delighted to welcome 35 year even...

Annie Konieczny - avatar Annie Konieczny

More training for coffee making than property sales: REINSW

Sydney 9 May 2016. An overhaul of education and training standards for the real estate profession must take place to help prevent illegal activities, according to the Rea...

Helen Hull - avatar Helen Hull