Labor Unions

Essay submitted by Unknown

Since the foundation of the American Federation of Labor(AFL) in 1886, most unions in

the United States have displayed a pragmatic out look, largely compatible with that of

business. The general purpose of unions has been to protect and advance the well

being of workers, while that of business has been to promote the interests of

stockholders. Higher wages and higher profits are compatible over the long run in a

growing economy. Conflict does arise, however, from the fact that in the short run

higher wages for workers imply lower profits for shareholders. Power, too, is a matter of

dispute. In the absence of unions, managers have a monopoly of power over their

employees. With unions on the scene, that power must be shared.

The standard economic analysis of what gave a particular union the power to raise the

pay and benefits of its members was propounded by the eminent English economist

Alfred Marshall toward the end of the 19th century. Marshall theorized that the

strength of a union depended upon four factors. First, demand for the product should

be inelastic, so that there is little, if any, decline in sales in response to price

increases. Second, labor costs should be a small portion of the total costs of

production, so that a rather large increase in wages would generate only a small

increase in the price of the product. Third, the supply of factors that can be used as

substitutes for union labor, such as nonunion labor or labor-saving machinery, should be

inelastic, so that their price rises substantially as more units are employed. Fourth, the

ability of these factors to substitute for union labor should be highly limited; it would be

hard to substitute for workers with very high skil! ls or skills that are highly specific to a

single employer.

Numerous studies have been made to estimate the extent to which unions in the United

States have raised the wages of their members above what they would otherwise have

been. These studies show substantial differences in the effectiveness of different

unions, and that is in the spirit of Marshall's analysis. Substantial variation has also

been found in the effectiveness of unions over the course of business cycles. On the

average, unions have raised the wages of their members as compared to nonmembers

by about 15 percent, somewhat more during periods of depression and somewhat less

during periods of prosperity. Empirical studies have also indicated that the productivity

of union workers has been higher than that of nonunion workers, largely because union

workers have tended to have more capital goods at their disposal than nonunion

workers. These studies also indicate that unionized workers have had lower turnover

rates. This has lowered the costs of recruitment and trainin! g to employers. These

cost savi ngs have materially diminished the wage disadvantage experienced by the

employers of unionized labor.

Some participants in and observers of the U.S. labor movement have viewed unions as

institutions with the potential to establish industrial democracy and socialism. Others

have viewed unions as highly conservative institutions returning to workers the status

lost in the transition from village societies to urban anonymity. In reality, their role has

been more modest. In the early 1980's they enrolled in their ranks only one of five

members of the labor force, down from one of four in the 1950's and 1960's. These

workers had a somewhat greater say in their work lives and in the halls of Congress and

state legislatures. They received somewhat greater pay and were more productive.

They sometimes followed the political calls of their leaders and sometimes did not.