This post first appeared on June 23, 2007
A neat little analysis by Ross Eisenbrey at the Economic Policy Institute may be difficult for union foes to explain away. It shows the proportion of workers covered by collective bargaining agreements in major European countries and the US and then shows productivity growth country by country in the same group 1979-2005. Despite being the only nation in the bunch with low union representation, US productivity growth is merely middle-of-the-pack.
Now one can quibble slightly with Eisenbrey’s presentation. Rather than showing 2005 union representation, it would have been cleaner to show the average over the 1979-2005 period (for example, during this time frame, US union membership dropped from 27% to 12% today. It makes for a better comparison and in no way changes the outcome).
In fact, the dirty secret of this exercise is that, were GDP of the US computed on the same basis as in European countries included in this comparison, the US would almost certainly show lower productivity gains than any other nation in this group. The reason is that, in 1980, the US started adjusting its GDP figures to allow for the fact that computer and communications technology were becoming more powerful (i.e., even though buyers were paying less, they were getting considerably more utility). No other country makes these so-called adjustments, using a hedonic price index. And the cumulative distortion is massive. In 2005, economist/investment advisor Michael Shedlock contacted the Bureau of Economic Advisers and they supplied some dated information on hedonics (including a spreadsheet). He found that hedonic adjustment to GDP was 2.257 TRILLION dollars, or 22% of then-current GDP.
Productivity is output per unit of labor. To determine productivity of an entire economy, the numerator in the calculation is generally GDP. So if we are alone among our peers in having an inflated GDP, that says were it computed on a comparable basis, our lower GDP would also result in lower productivity growth. And since Shedlock’s work indicated that our GDP is wildly overstated, so too is our productivity growth.
Maybe more unions are just the thing we need……
From the Economic Policy Institute:
Unionization in the United States has declined since the late 1970s, when 27% of U.S. workers were covered by union contracts, to today, when only about 12% are covered. This has had substantial adverse effects on inequality, the wages of typical workers, and pension and health benefit coverage.
By contrast, most of the major continental European countries have maintained strong unions, and most of their employees are covered by collectively bargained contracts, ranging from 68% in Germany to over 90% in Belgium, France, and Sweden (see the first chart below).
There is a common myth that unions hurt productivity, supposedly because they impose work rules that make their employers less efficient. The evidence from industrial relations studies does not support this myth. A broad study of the economics literature found “a positive association [of unions on productivity] is established for the United States in general and for U.S. manufacturing” in particular (Doucouliagos and Laroche 2003, 1).1 And as the second chart below reveals, international comparisons suggest that high productivity and very high union density are entirely compatible.
The dramatic drop in unionization in the United States from 1979 to 2005 did not lead to faster productivity growth than in the seven largest European countries with union density greater than 60%. In fact, those countries’ average annual labor productivity growth of 1.7% equaled productivity growth in the United States. Output per hour worked is higher in the Netherlands, France, and Belgium,2 where more than 80% of employees have union contracts (compared to the United States’ 12% unionization).3
If Congress is concerned about protecting middle-class incomes, it should pass measures to facilitate union organizing and collective bargaining coverage, including the Employee Free Choice Act. There is no reason to fear that higher rates of unionization will impede efficiency or labor productivity.
1. Doucouliagos, Christos, and Patrice Laroche. “What do unions do to productivity? A meta-analysis.” Industrial Relations. Vol. 42, No. 4 (2003). Cited in Shaiken, Harley, “Unions, the Economy, and Employee Free Choice,” Economic Policy Institute (2007).
2. OECD estimates of labour productivity for 2005 (September 2006).
3. Mishel, Bernstein, and Allegretto, The State of Working America 2006/2007, Table 8.5, p.332, Economic Policy Institute 2007.