What Do Unions Do?A 20th Anniversary Retrospective

Bruce E. Kaufman

Andrew Young School of Policy Studies

Georgia State University

Atlanta GA

Table of Contents1. Introduction. The Editors

2. Theory of Union Behavior and Outcomes. Bruce Kaufman, Georgia State University

3. What Unions Do: Insights from History Bruce Kaufman, Georgia State University

4. Wage Differentials and Structure David Blanchflower, Darmouth College, Alex Bryson, LSE

5. Wage/Income Inequality David Card, University of California-Berkley, Thomas Lemieux and W. Craig Riddell, University of British

Columbia

6. Non-Wage Forms of Compensation John Budd, University of Minnesota

7. Productivity and Firm Performance Barry Hirsch, Trinity University

8. Union Voice John Addison, University of South Carolina

9. Management and HR Practices Anil Verma, University of Toronto

Table of Contents – contd.10. Conflict and Dispute Resolution

David Lewin, UCLA11. Behavioral Effects

Tove Hammer, Cornell university12. Macroeconomic Performance

Dan Mitchell, UCLA13. The Public Sector

Morley Gunderson, University of Toronto14. International Dimensions

John Pencavel, Stanford University15. Worker Demand for Unions & Union Decline

Robert Flanagan, Stanford University16. Workforce Governance, Workers rights, Union Democracy

Samuel Estreicher, New York University17. Political Action

John Delaney, Michigan State, Marrick Masters, University of Pittsburgh

Three Dimensions of WDUD

• Theory

• Empirical Evidence

• Policy Implications

WDUD: The Bottom Line

• Negative Monopoly Wage Face and Positive Collective Voice Face

• “The empirical evidence showed that the positive effects of the CV face outweighed any negative effects of the MW face on the social balance sheet” (R.F. 1992)

• “The policy implication was that the nation should consider new initiatives in labor relations to arrest and reverse the decline in union representation in the private sector.”

Theory: Critique

• What is New Here?• The Webbs

MW face: “trade unions show no backwardness in getting the highest wage possible”

CV face: industrial democracy

• Commons:MW: goal of unions is wealth redistribution,

aggrandizement, protection

CV face: constitutional government in industry

Four Problems with F-M model

• Assumption of Competitive Labor Markets• CV is too Narrowly Constructed• CV and MW are not separable• Ignores the Political Dimension of Union

Voice

Implication: Monopoly Effect can be positive and Voice Effect can be negative

Empirical Evidence

• Wage effectPrivate Sector: still high but modest decline

21% (1975) to 17% (2000)

Public Sector: slight increase and convergence 13.5% to 14.5%

Benefit effect

• 20%-30% higher in union firms

Inequality Effect

• Unions reduce wage inequality among men (3 countries)

• Unions increase wage inequality among women

• A portion of growing inequality is due to union decline

Firm Performance effect

• Union effect on productivity level is about zero• Union effect on productivity growth is also about

zero• Profit effect is negative (some capture of

monopoly rents, also a tax on K)• Union effect is negative on capital investment

and R&D• Negative effect on employment growth but not

firm failure

Behavior effect

• Union workers have much lower turnover rate. (But what is optimal?)

• Union workers also have significantly lower job satisfaction

• Voice effect depends on quality/structure of relationship

Management Resistance

• Mgt. Resistance explains part of the fall-off in organizing success, but a portion of this is endogenous (related to high union W and more market competition)

• Evidence indicates declining worker demand for unions

• Major source of density decline is attrition of union firms/jobs

• Biggest culprit: decentralized bargaining structure

Revised Picture• Economic Function: Unions are labor market cartel that

raise W just like OPEC raises P. Naturally, in a decentralized bargaining system union firms shrink and management tries to avoid them.

• Unions also exist to provide protection against competitive forces (e.g., sweatshops).

• The question is: does the union drive for “more” serve the social interest?

• The Webbs, Commons, and Sen. Wagner said Yes, but conditions have changed. Instead of unequal bargaining power and economic recovery from depression, the key issue is supply-side growth and jobs.

• F-M miss this historical shift. Their economic model is actually anti-union.

Governance/Voice Function• Unions also use bargaining power to change

internal firm governance.• Shield workers from management authority

• Gain democratic due process provisions (grievance system).

• Make life easier in the shop (restrictive rules, the effort bargain)

• Talk back to management without fear (the scumbag effect)

Governance/Voice Function cont.

• Also give workers a political voice in the polity• The union voice effect is often negative because

(1) it is embedded in a politicized/adversarial relationship

(2) it is simply an extension of bargaining to the firm’s rule-making/administration function.

• At its worst, “anarcho-pluralism.”• F-M omit adversarial and bargaining effects of

voice

Microeconomic vs. Macroeconomic Effects

• Even if unions have a positive voice effect at the firm level, this is overwhelmed by their negative effect on macroeconomic performance.

• Substantial union density, full employment, and price stability are not mutually compatible unless (1) incomes policy or (2) Scandinavian corporatism. The result is inflation creep, higher unemployment, and stop-go fiscal.monetary policy.

• F-M ignore the macro effect of unions• The “winter of discontent” anyone?

Policy Implications

• The F-M policy proposal is:

Increase density through labor law reform

Lower MW effect and increase CV effect

Major culprit: management who sabotages what is in the social interest

Critique• The #1 purpose of unions is to protect people and to

promote the class interests of labor.Q1: do workers still need protection from markets and employers?

Q2: are trade unions the best way to provide this protection?

Q3: can unions survive in a competitive, global, decentralized system?

Q4: does Labor as a class still need collective representation in the economy and polity?

F-M do not broach Q1,2 & 4 and only modestly consider Q3. Instead, they try to justify unions on efficiency grounds and a vague appeal to voice. This is very weak and doomed to fail in the current environment. Blair’s third way does not need a strong labor movement.

Speaking of a Third Way…..• The Big Question : is there a better way to

achieve F_M’s goals than trade unions?• If we are looking for more CV and less MW

effect then maybe other institutions may accomplish the F-M goal more efficiently and with less negative side effects than unions.

• What about a works council?• What about fostering more nonunion employee

representation/involvement?• Wouldn’t this option close the

representation/participation gap? Why do Freeman and Dunlop Commission oppose relaxing Section 8a2 of the NLRA?

A Closing Irony• Freeman and Rogers (1999) note that:

– 1. Many American workers want more voice.– 2. A Majority prefer a system that is non-adversarial– 3. Only 10% prefer getting more voice through

additional lawsWhat do we observe:? In America more nonunion voice

is blocked by the NLRA, unions are declining, and so the trend over the last 30 years in more law, Just what people say they do not want!

What is the solution? More unions? But fewer people want unions and they are increasingly not survivable. So, the bottom line is that we are left with law, nonunion forms of voice, and macroeconomic full employment policy. If F-M and F-R really want to solve the voice gap, alternative nonunion systems look like a promising place to start.