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Summer Rerun: Debunking the Notion that Unions Hurt Productivity

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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.

Notes
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.

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61 comments

  1. Voletti

    Neat analysis indeed.

    Now, if only we could have a similar analysis for public sector productivity and we all know the public sector is heavily but heavily unionized, the case would well and truly be made.

    From what I understand, most union-baiters (except for the politicians and their partisan lackeys) target the public sector unions, their gaming the system of retirements and pensions etc that leave the taxpayer on the hook for shortfalls and liabilities, something the private sector workforce does not do.

    1. dave

      Well, private sector unions do play the same games (see the auto industry), they just can’t get away with it as well because they go can’t go to the taxpayer.

        1. Glen

          The “union” bailout of GM pales in comparison to the “CEO” bailout of Wall St. And Wall St compensation contracts were “sacred”, the union contract was renegotiated in the Senate back rooms by Republican Senators.

          1. zanon

            banksters are more toxic element of public sector than unions. i agree.

            but UAW did get big bailout. And we shall see how much Obama writes to states to bail out state union worker. Public Work stimulus already very union/public centric.

    2. DownSouth

      Voletti,

      The strategy of the US economic elite is one of divide and rule—-pit public sector workers against private sector workers. The appeal is to envy, jealousy and resentment on the part of the have-nots towards the haves.

      But the workers that fall for this appeal are misguided, as Martin Luther King was well aware:

      The American racial revolution has been a revolution to “get in” rather than to overthrow. We want a share in the American economy, the housing market, the educational system and the social opportunities.
      –Martin Luther King, “Nonviolence, the only road to freedom,” Ebony, October 1966

      Instead of attacking the public sector workers for what they have, the private sector workers should be demanding the same thing.

      1. dave

        Except we can’t all have six figure retirement incomes and Cadillac health care plans with no deductibles or premiums.

        Only a few people can have such generous benefits, its not scalable to all of society.

    3. Hillary

      Epic Fail. Spoken like someone who was never been in a union and has no clue about how they work. Yet another “analyst” who uses a lot of other people’s charts, yet doesn’t get her hands dirty doing her own research out in the field. Sigh. What a shame.

      I’ve dealt with unions for many years, your article is so wrong on so many levels its actually shockingly naive.

      It would take too long for us that know to explain, so I guess you’ll have to read the many examples at Mish’s site.

    4. Vangel

      I take it that you have never been in a union and seen it protect unproductive workers who should have been fired for incompetence, theft, drug use, or general unreliability or make it impossible for the highly productive members to earn more than the negotiated wage rate. The analysis is pure nonsense that is without merit and suffers from survivorship bias. Most unproductive companies that were unionized have already moved their operations abroad. Those that invested heavily in productive capital have managed to stay afloat not because of the unions but because of their investments in that capital but are still on a downward slide. Perfect examples are GM, Chrysler and Ford. The first two only survived because of a government bailout while Ford required heavy concessions from the unions in order to make it.

      If your analysis were correct France, Spain, Italy, and Greece would be booming but they are bankrupt. Germany is still fine but its performance is the result of heavy investment in capital and the abilities of German workers, not the unions or the government bureaucrats that write the contracts.

  2. Progressive Ed

    Important essay. When we pass laws to “…facilitate unionization.” we need to also pass laws to outlaw public employee unions.
    We tried public employee unions (as has Europe). They don’t work.

  3. steveo

    Unions protect inefficiency and poor work habits.

    They fight against innovation and the newcomers that can launch sectors into a new age. They suck up resources, and corrupt the political process.

    Plus, Europe is screwed. They will be the first to drop hard.

      1. DownSouth

        lambert strether,

        In Econned, Yves fleshes out how the banksters were so well served by the decimation of the American worker.

        Greenspan, fully enamored of the sociopathic ranting of Ayn Rand, seems to have had one mission in life, and that was to help out his rich and powerful friends in the world of finance. The way to do this was to keep interest rates low. This not only produces and maintains a steep yield curve, but greatly drives up the value of financial assets, both which disproportionately enhance the income and wealth of the finance sector.

        But in order to keep interest rates low inflation had to be kept low, and this necessitated murdering labor. “The logic is that increasing unemployment will moderate pay pressures and also discourage businesses from giving employees pay increases in excess of productive gains,” Yves explains.

        Another tool in Greenspan’s rhetorical arsenal was the “productive gains” he conjured up. But as Yves goes on to point out, these were questionable, to say the least:

        Greenspan also took comfort from government data that showed that productivity was rising. Improving productivity means the economy can grow at a faster rate without stoking inflation. One rationalization for the willingness of foreigners to lend to and invest in the Untied States in the later 1990s was ostensibly our better prospects, particularly relative to Europe, where productivity gains seemed wanting.

        But Greenspan was using a faulty thermometer. Recent studies have cast doubt on our measure of service industry productivity, which is where the gains occurred, in particular financial services. Another recent study by Dean Baker and David Resnick concluded that U.S. productivity growth from 1995 to 2005 lagged the OECD (Organization for Economic Co-Operation and Development) average.

        Greenspan of course went well beyond his implicit subsidizing of the finance sector by maintaining low interest rates. As Yves goes on to point out, “Not only was Greenspan’s target rate too lax, but he also became ever more willing to come to the rescue of financial markets.”

    1. borkman

      So explain how Germany, with strong unions, runs rings around us and pretty much everyone in the world in manufacturing and exports?

      And why exactly is Europe “screwed”? It turns out that the data that suggested that US productivity was higher than Europe’s in the 1990s and 2000s was BS. The measure of increased efficiency for financial services was check processing, actually a teeny % of activity. When you adjust the data, the US is no better, maybe worse than Europe in productivity growth.

    2. Stelios Theoharidis

      For anyone interested in a detailed analysis I would suggest reading Peter A. Hall and David Soskice. Varieties of Capitalism. They suggest that it is the relationships between capital and labor that spells out the difference.

      Unions in the European and Asian countries have a more cooperative relationship with management. They also have more tie in to the management structure of large companies, particularly in the European countries. For that reason they generate a system in which incremental process and product quality development is fostered. The companies invest more in retooling and employee development. Employees are more likely to suggest process changes and to have vested interest in improving product quality.

      Whereas the combatitive system present in the USA does not lead to significant process and product quality development. The dominance of Asian and European automobiles in the quality area would support that notion. However, the flexibility present in the US, UK, style system allows for higher levels of innovation.

      Both are very important for the global economy. I think the former system provides for better outcomes for larger populations of individuals, eg higher standards of living for the middle and lower capital accumulation at the top. But, we do need to have both product and process quality improvement as well as innovation.

  4. michel

    Wonder how many people have dealt with a union? Either directly in management, or consulting?

    It varies from country to country in Europe. In Germany, union relations are generally positive. Holland also. The UK has been the leading example of negative relations. The slow collapse of British Leyland into Rover and finally death can be laid squarely at the feet of the unions. Utterly weird craft divisions, continual strikes, opposition to any quality improvement or productivity measures.

    In one UK industry which was privatized many years ago, you had union stances which had been tolerated and accepted under state ownership. The total lack of discipline meant that it was impossible to enforce safe working practices. Training schemes and promotions were decried as siphoning off the natural leadership of the working class. To those guys, bettering yourself, getting promoted, was being a traitor to your class.

    The same attitudes dog the UK state education system to this day and are one reason why learning anything in it is very commonly an obstacle course designed to impede the bright by a mixture of boredom and peer pressure.

    But as to productivity: the main aim of the UK unions was to prevent any work practice changes or any technology investments which would reduce the number of hours worked. Preferably overtime work. So we had, for instance, opposition to any remote diagnostics or maintenance. I knew of a case where the vendors had been specifically requested to remove this standard feature from their product offering, to avoid union opposition to including the product in the retail portfolio. The union’s aim was, in defiance of modern technological development, to ensure that equipment continued to fail at the same rate, and if that could not be managed, to ensure that every failure when it did occur required a site visit.

    The UK had the ridiculous practice of ‘work to rule’. This entailed the union mandating everyone to work in accordance with the agreed, written, work procedures. The effect of this was to bring any company to a crawling halt. Of course, the procedures had been negotiated with no intention of using them other than in this way. The cultural effect was profound: quality management is following process so that description of what we are doing corresponds to our practice. The persistence of large scale discrepancies in working practices between what people were doing and what they said they were supposed to be doing made quality management at any level almost impossible. Anyway, if you did discover a working practice that produced a quality problem, there was almost nothing you could do about it in any timescale that made any difference.

    The problem was partly that in many cases, union aims were, in addition to freezing the companies and industries in the state they were in back in 1955, purely political. On one assignment, a friend of mine recounted being assigned to brief the faculty of a union training institution on recent regulatory trends and developments in the EU. This institution trained members desirous of progressing in the union management structure in the history of the movement, its goals, objectives and tactics.

    It became apparent to her during the discussion that minds were not meeting, and at a certain point she recounted asking in genuine puzzlement what the union’s objectives were. “To bring socialism to Britain”, was the reply.

    Well, a genuine ‘Aha’ moment.

    The UK car industry of course, Leyland and its successor, Rover, steadily declined in market share, despite all kinds of favorable treatment by government, huge continued bailouts and subsidies, none of which prevented the endless series of strikes and works to rule, and demarcation disputes, and finally wnt bust. I think by the time it went bust, it had finally started coating the inside of its body panels. For most of the post war period they had been untreated steel, rusting as soon as the cars left the factory.

    1. Jack

      Please allow me to pile on from the perspective of an American with operations management experience in both service sector and manufacturing companies, union and non-union.
      First, I can’t believe Yves Smith even linked this article which makes the elementary mistake of confusing correlation for causation. The points that are made regarding benefits, average wages, inequality, and pensions are all facts, but that doesn’t mean that they are solely or even substantially due to the demise of unions in the US.
      As far as actually running an operation, there is no question that one can attain greater productivity without the work rules imposed in a union environment and without the overarching goal of union leadership to resist productivity gains with the short-sighted view that such gains reduce opportunities to increase their membership.
      I recall offering a plan to our union some years back that would have instituted a pay for quality and productivity plan that would have substantially increased the earning opportunities for the union’s members; we also committed to zero reduction in the number of jobs except for voluntary attrition (retirement and the employee quitting). The union flatly rejected the offer and went on strike. Guess what–during the strike, we staffed the operation with office employees and operations supervisors to complete critical orders and broke all production records!
      The union finally came back with its tail between its legs six weeks later (when the strike fund ran out, coincidentally) and accepted a contract that was nowhere near as good as the one the company initially offered.
      I have scores of other anecdotes, but won’t bore anyone who happens to read this.
      In summary, I think that industries can, generally, afford one of the three expensive union parameters–wages, benefits, and work rules–but certainly not all three!

  5. michel

    One point to add: you have to ask why the decline in membership. You have to get down to the detail on this. When Rover went bust, and as its workforce declined prior to that, that lowered union membership all right. Exactly what happened in the US? Was it people leaving the unions? And if so, why? Was it companies going bust? Was it plant moves to non-union parts of the US? And if so, why did unionism not move with the plants?

  6. purple

    why did unionism not move with the plants? (Right to work states.)

    Gutting unions probably does provide a one-time boost to the bottom line, but in short order it deteriorates the community and tax base , leading to an uneducated, economically stressed and unproductive workforce.

  7. Sauron

    I imagine unions work best in societies with a reasonable amount of trust. If the upper echelon, including management, is always trying to squeeze/screw over the workers, then a logical union response would be to become intractable, legalistic, uncooperative and rigid. Any change, rightly or wrongly, will be seen as a potential threat.

  8. rowlf

    I’ve been in the airline industry in the US for twenty five years and a supervisor at unionized and non-unionized companies. It is amazing how people cling to their stereotypes. I preferred the unionized workforces since they were more safety conscious, less likely to cut corners in procedures and I could lean on the the union representatives to address personnel problems before I needed to step in. I saw no difference in flexibility between the two workforces as far as getting work done. The unions tended to drive weak managers crazy, which may be why unions are so hated. Also at a unionized carrier my pay was better as a supervisor and I received more raises.

    One of my favorite quotes is from an older manager. He observed that it “was easier to get rid of an unproductive worker in a union shop.” Believe it or not, the unions do not want the troublemakers either, but are required to represent them.

  9. Tom

    It’s difficult to argue this pro/con on unions when there’s that “Bring Socialism to the ” statement in the middle of it all. Unions were originally about safety of the worker and sweatshop standards. Not a bad place to be. Even Libertarian Austrian economists can recognize this, if only a little bit.
    But the benefit of a union is quickly outweighed over time as the Union becomes an entity of self preservation, self promotion and this Socialism engine. UAW automotive shops are horribly inefficient and the Union ideology is viciously protectionist. It is no wonder that the Auto Industry has failed. And many individual union workers will admit the contribution to this from the Union.
    It might be beneficial to understand the scope of influence that a Union in Sweden has compared to the scope in the USA. Bear in mind that this influence needs to be considered as a political force and what the Union considers it’s responsibilities in terms of employee protection, benefits. Finally, how do these different unions accommodate the realities of a falling economy? I don’t believe demanding higher wages and employment guarantee is the answer, but this is the main clamor of the public unions.

  10. Piero

    Ugh. Correlation is not causation. Poor analysis. There are so many other variables to consider that don’t seem to be isolated away in those statistics as to make them not very meaningful at all.

    Another issue that isn’t dealt with in the piece that the poster Sauron above touches on is whether the relationship is adversarial. Unfortunately, the relevant U.S. laws presume that the management-union relationship will be completely adversarial and in some ways push the two sides toward that, which is unfortunate.

    As to the main thrust of the piece, I’ve never been part of a union myself but have a couple friends who have. If anything, their experiences were of their unions being positively opposed to increasing productivity. One told of the union guys all being seriously pissed off at him when he started. They told him he was working too hard and to cut it out or he would suffer unspecified problems.

  11. zanon

    Agree, this is stupid analysis bought hook line and sinker by yves.

    i work with union. one morning, member came in drunk, collapse on desk, and urine.

    we could not fire him because he showed up on time.

    problem with union is not primarily pay, it is work rule and unability to fire bad worker. in other country like germany it may be different, but in US this is the case and is obvious to anyone who actually looks at union with own eyes.

    1. Yves Smith Post author

      How many industries have you worked in? Your experience is strictly anecdotal.

      I went to HBS in 1981. It was not and has never been liberal (the rest of Harvard is commonly called “the Kremlin on the Charles” at the B-school). The students are also very outspoken, and classes are run as “sections” (~90 students, one prof, prof orchestrating discussion among students). Unlike now, when manufacturing is a very small part of the economy, there were a lot of students who had worked in supervisory or managerial positions in manufacturing companies).

      No one, not a single student, ever had a bad thing to say about unions. And there was no PC at the school about unions (and even if there had been, it would have been pretty hard to contain/suppress student views). Members of my family (conservative politically) have also been managers in union shops and they’ve never criticized unions either (I’ve recently asked around my family, they’ve confirmed my perceptions).

      1. zanon

        Yves:

        So, when presented with a fact, you throw back authority and second-hand anecdotes? You have never worked with unions (but you know people who have). I have worked with unions. I speak from personal experience. You repeat hearsay.

        I have also spent a great deal of time at very same Kremlin on charles so you can drop your attitude.

        Anyone with brain can look at union in US and it is very clear to them what happen. They work with union, it is even more clear. And some garbage study come up and you swallow it hook-line-and-sinker.

        It is like you lose 80 IQ points whenever something that panders to your ideological biases come up. Suppose there was another study, equally garbage, claiming that unions were terrible. Would you change your mind?

        There is clearly difference in work culture and union culture in different country. What works in place X may or may not work in place Y. It is so funny, same people who go on and on about how diversity is good throw it all overboard when blue-eyed gods of scandinavia do something they approve of over USA.

        1. Yves Smith Post author

          First, I have personal experience with unions, although I chose not to mention it since it was when I was young, so your charge is off base. Second, I was quite deliberately meeting anecdote with anecdote, and my group sample appears larger than your personal sample. It simply serves to illustrate that you can use anecdote to reach any conclusion. And the study cited does have data, and you have yet to effectively refute it.

          Third, no one less than the right-leaning Economist finds that unions can improve productivity, which appears to square the circle, per “Do Unions Increase Productivity?“:

          ….unions often offer resistance to new work processes that might increase efficiency, and not just ones that would decrease labour demand….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….it should put a drag on average productivity….

          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….

          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….

          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

      2. Divot

        Yves,

        Are you serious? I grew up and worked in heavy union areas. Worked in the Teamsters myself for several years when going to college, and then worked with other unions after I graduated. In two difference states.

        This is all first hand, with my own eyes, experience. Unions are inefficient, bloated, controlling, anti-technology, and anti-change, but the biggest thing, they are all about their payout. They will throw the JR members to the wolves if it means the old fat cats get to keep their jobs. So much for protecting all members!

        I will give you that they do worry more about safety, and they never break an SOP (unless it’s in the culture to do so), but most of the time that leads to the inefficiency.

        I know when I was working at a dumb truck driver making $37.50 per hour in the Union, I started to get addicted to the money. I almost quit college because I could make way more driving truck with little stress or physical work (late 90s). Maybe that’s a workers dream, but it sure did seem more like laziness to me.

        I find your comment to be way out there on the edge of credibility. Yes, my experience is not all encompassing, and you can call it an antecede, but I still know lots of union workers and they will all grin and tell you it’s true if you get a few beers in them.

  12. wmartin46

    Absenteeism in US Union environments is notoriously high. By some accounts, it was as high as 30% in the Auto Industry:

    http://www.businessandmedia.org/articles/2008/20081222161235.aspx

    In the early ’70s, I was working in the Steel Industry, and tasked to collect data about Union worker productivity that showed that over-staffing at the plant where I worked was about 30%.

    And then there were the notorious “Job Banks:

    http://www.manufacturing.net/UAW_GM_Job_Bank.aspx?terms=

    Wonder how one defends these, in terms of “increased worker productivity”.

  13. JIm the Skeptic

    In the 1970′s the local city government had a garbage collection department which was union.

    During a contract negotiation the union was adamant about getting a pay raise. The city was just as adamant that they could not afford that pay raise. And that the only way they could provide that raise would be to lay off some of the employees.

    A union official was quoted in the newspaper as saying that his concern was with the workers left collecting garbage and that laying off workers was not his concern.

    Eventually a contract was signed. Before the next contract the city contracted with a private company for the garbage collection.

    That and my life experience leaves me with the conclusion that government employees should NEVER be allowed to unionize for several simple reasons.

    Number one is that the union will not be negotiating with the people paying their wages, they will negotiate with unelected officials who may settle based on their own short term goals. The elected officials are placed in the position of rejecting their appointee’s recommendation which can not bring themselves to do. It will happen just enough over time to drive the tax payers crazy!

    Number two is that government provides vital services which can not be interrupted without causing terrible problems. That will pressure politicians to accept what they know is a bad deal but the kick the can down the road anyway. Let the next group of elected officials deal with it!

    Number three is that it is difficult to do a cost analysis on requested wage increases. In private industry the owner must turn a profit or shut the business down. That focuses the mind in a way that public officials never face.

    I was a state government employee during most of my working career. Most criticism of government employees is unwarranted but unionizing them should be anathema.

    If you don’t like your government job then just move on.

  14. Frank Ohsen

    “There is no reason to fear that higher rates of unionization will impede efficiency or labor productivity.”

    BWWWWWWWWWWWWWWWWWWWWWWWWWWWWWAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAHHHHHAAAAAHAHAHAHAHAHAHA……………………….!

    Ridiculous.

    The main reason why unions in Europe have shown ‘productivity gains’ greater than the U.S. is because the U.S. consumer has been buying up all their sheeit under our illustrious ponzinomics just as we did domestically under bloated GM unionized inefficiences and subsequent overcapacities to keep union workers feeding and retiring at the womb-to-tomb teat regardless of competitive shortfalls and disregard for quality improvements until it became too late to make up for the decades of greed, smugness, and I’ve Got Mine, So Screw You BS.

    Yves, have you had a chance to look into what public sector unions have done to the taxpayer much less the budget in CA? How about GREECE? That’s just for starters.

    Now the rooster has come home to roost and Euripe(sic) doesn’t have enough Americanos with enough dinero to fill their union teats (public and private) like they’re accustomed to.

    Gee. Cry me a friggin river. Welcome to the real frikkin world where all the rest of us non-unionized Joe Schmoes scrape our asses together to keep warm and keep a non-guaranteed roof over our heads with our non-guaranteed incomes. Yeah, if only we could pay dues to keep certain politicos in our back pocket so that we too could see ‘productivity gains’ up to union standards – peasants that we are.

    Productivity gains. BWWWWWAAAHAHAHAHAHAHAHAAAAAAAAHAHAHAHAAHAHAHA!

    That’s rich.

    If I come across anymore slanted and obviously biased one-sided reporting like this I’m gonna have to go back to reading the National Enquirer to get real in-depth analysis.

  15. Mannwich

    Unions merely hurt the corp execs’ ability to keep more of the productivity gains for themselves. That’s all this is about. That’s it. Occam’s Razor, folks. It’s about keeping more of the fruits of that labor for themselves, and it’s all going to come to a head someday.

    1. DownSouth

      Like you say, one of these days the American worker is going to peek behind the curtain and see that the Wizard of Oz is a phony, that all the elaborate showmanship of the Fed serves no other purpose than to take money out of the worker’s pocket and put it in the pocket of the banksters.

      As Yves wrote in Econned, “the Fed saw competition from foreign workers as a way to keep U.S. wages in check.”

      Later she writes: “The Fed had been overstimulating the domestic economy for a prolonged period, the effects masked by cheap imports [which hurt American labor] and the lack of labor bargaining power [which hurts American labor].

      And who benefited from the overstimulation of the domestic economy? You got it, the financiers. Low interest rates mean a steep yield curve and high asset prices, both which disproportionately enhance the earnings and wealth of the banksters.

      1. Mannwich

        Exactly, DownSouth. For the Fed and others in the banking elite, we only have real inflation when wages go up. Otherwise, just ignore all of the asset bubbles they created that screw over anyone who can’t get in on the game (namely the middle class). Hey, but they can just dole out more easy credit for the serfs to bury themselves in debt to make up for the lack of salary increases. What a perfect arrangement. That’s worked out just fine. Oh wait, it hasn’t? It has for the elites. The middle class? Who cares abou them (us)? They will care someday though.

        This is a disease whereby the sociopathic class, the big corporate execs, are all in an arms race to keep up with each other so that they have something to brag about at “charity” benefit parties to their friends. Shit, 3 yachts and 10 homes ain’t enough for them to be content. So benevolent of them to be involved in those charities, isn’t it? Therefore, they take more of the productivity gains for themselves, create smoke and mirrors to fake productivity gains (Wall Street), and take that money as well, while workers are told to go pound sand and be lucky you have a job. This is not going to end well someday. We are careening down a path to really dire result.

        1. Mannwich

          So until corporate executives willingly take less of those “gains” (yeah, right, I’m sure they’ll do that) for the betterment of their communities and country, we will continue careening down this path. Some day some exogenous force will bring this all to a grinding halt. Until then, party on corporate execs.

          1. zanon

            Corporate elite are not only people pushing for cheap labor to come to US, hurting wages.

            When arizona try to make “illegal” mean illegal, it was not corporate elite who shut them down.

            In San Francisco, of course, they ban concept of “illegal” by being sanctuary city but somehow this is not implementing Federal law.

  16. Jim Bradley

    I really dislike continued analysis of a dynamic situation with the implied assumption that “things stay the same”. Clearly union characteristics change and are different from entity to entity; unions can be good or bad depending on the circumstances.

    This is the problem with “social” analysis … the FIRST step is to prove constancy of characteristics, THEN to go on and use the evidence.

  17. Jim the Skeptic

    I am dead set against unionizing government employees for reasons which I have already stated.

    But unions are not to blame for most of American auto companies’ problems.

    Check out this link:
    http://www.thisamericanlife.org/radio-archives/episode/403/nummi

    Then select “Stream Episode”. Listen to all of it.

    Any honest assessment would have concluded that the Toyota/GM joint venture at Fremont was doomed to failure since it used workers who GM regarded as their worst!

    The second part goes on to try to explain why GM could not translate the Fremont success into their own production plants.

    I heard about this years ago and it was an eye opener. The best explanation is that American managers were somewhat incompetent in all fields and at all levels. When screw up’s happened they lashed out at line workers. Workers became defensive and the result was war.

    How much of GM’s problems are due to the financial types getting control of corporate in 1958?

  18. sgt_doom

    All that need be said:

    The offshore deep-drilling oil rig, (Deepwater Horizon), was a NON-UNION rig. (Eleven fatalities.)

    The recent Massey mine explosion took place at a NON-UNION mine. (Twenty-nine fatalities.)

    Any questions?

    1. wmartin46

      Historical Mine Disasters (Union and Non-Union):
      http://www.cdc.gov/niosh/mining/statistics/disasters.htm

      Sago Mine Disaster (2006)–United Mine Workers Of America:
      http://en.wikipedia.org/wiki/Sago_Mine_disaster

      Plane Crashes For United Airlines and United Express since 1970 (Union):
      http://www.cdc.gov/niosh/mining/statistics/disasters.htm

      Picking two industrial accidents that happened on non-union sites, and trying to make a case out of that to somehow suggest that accidents don’t happen on Union sites (or that there is a lower accident rate on Union sites) is simply intellectually dishonest.

  19. Mark

    Hmmm. My experience as a small businessman doing trade shows in different cities is that whenever you have to deal with a union, the costs are larger, you typically have to slip the foreman a $20 to get your goods in the convention center (or wait 7 hours for the service that they are paid good union wages for. If you are seen carrying anything in a wheeled device (designed to protect union jobs, but it also includes rolling suitcases), you have to pay to have a teamster carry it. I am married to a union member, but they clearly have a negative impact on productivity in my book.

    1. zanon

      Please, do not confused Yves with truth or facts or common sense.

      We stop coming to NYC for our conference because we had to hire union electrician to plug in electric fan to cool our booth. $80 an hour, 1 hour minimum.

      These people were making over $1000 an hour. Yves would say of course it was their incredible productivity, especially if she can find an economist to run a regression that says so, and some family members around dinner table who nod in assent!

      This is problem with looking at numbers with brain off. Economist say “$1000/hr is very produtive employee”

      1. borkman

        A measley $80 expense and you ditch a conference? Bullshit. Either you don’t have a viable business, or the conference wasn’t that useful and you are using it as an excuse.

        Conferences facilities and hotels have inflated fees for services. They charge what the market will bear. But you get bent out of shape when a union plays that game. Ever had an electrician come to your home? Same deal, minimum charge leads to de facto higher hourly rate.

        And you attack Yves for making certain types of arguments when you have used the same strategies.

  20. Peter T

    American union rules do hamper productivity: You are not allowed to carry this, you are not allowed to do that. German and Swedish unions, on the other hand, see themselves more in a partnership with the companies to enhance productivity and to increase the pie, from which they then demand larger pieces, naturally. They have their own economist who read the companies books to demand their fair share in wages while not endangering the companies’ survival.

    1. zanon

      Yes, union culture in other country seems to be quite different and I can see it playing positive role.

  21. rowlf

    Maybe it’s all about leadership on either side of the table…

    Keeping various powers in balance is important too.

  22. Costard

    Hardly a strong argument.

    Correlation is not causation. A study that spans only 25 years – and a very unusual 25 years – can establish little. The authors fail to take into consideration labor laws in this country such as the minimum wage, which effectively negate many of the gains to be derived from non-unionized employees. The post-Carter years have been anything but “laissez faire”, although certain pundits might make the claim in order to grind their axe.

    Europe has an abnormally large public sector, and I find the notion that one can measure the productivity of bureaucrats pretty humorous. I wonder if Mr. Eisenbrey has ever had to contend with public services in Europe, such as transportation or mail.

    And of course one can’t merely assume that private sector unions in the U.S. and Europe are the same, because the effectiveness of unions is largely a factor of the regulatory environment. It is entirely possible that (private) European unions do not enjoy the protected status that they do in this country.

    No mention at all of the dominant service industry in western europe, and oil in northern europe. Compared to the US these are entirely different economies; all comparisons of derivative numbers like productivity are specious. For instance, tourism is a very “productive” industry, in that it generates a great deal of revenue on the back of relatively little labor. Oil production is, again, very productive.

    And then, last but not least – and only last because I’m growing tired of poking holes in a bucket with no bottom – there is the fact that, in this country at least, the greatest costs of unionization are passed on to the tax payer. Companies that should have strangled under pension obligations are still, in a word, producing. Given the socialistic tendencies of Europe, I would be surprised if this wasn’t happening overseas on a larger scale, given their heavy union presence.

  23. CJS

    I agree with some of the specific criticisms on correlation and also on the importance of breaking down the numbers further by industry, but I have a fundamental question. Just going from the post and not the papers, which I haven’t read, but wouldn’t it be important to look at the starting levels of productivity, and not just the percentage growth rates?

  24. michel

    The real political issue with unions is not this. The issue is that the unionized workforce is a minority of the workforce. So the unions do extract rents from the economy, but the question is, from who in that economy do they extract them?

    From everyone, but what you have is a sort of flat rate national sales tax, and that is regressive, and falls most acutely on the poor.

    The way to understand the union situation is by reading Mancur Olson. Olson makes the point that over time in a stable environment special interest groups arise and consolidate power. They use this power to extract rents. Now, the key point is the boundaries on their motivation. It is in their interest to impose costs on society as a whole many times greater, even hundreds of times greater, than the benefits they receive, as long as those benefits are positive. This they do.

    And so it was that the UK, because of its desire to keep British Leyland and Rover going, on account of union pressure, engaged in a variety of under the table deals, kept car and truck prices 50-100 percent higher than European ones. Exported Rover cars to Germany, below cost.

    The whole country paid for this. Paid enormously more than the amount by which the union benefited – and the union of course anyway frittered away its rents in silly strikes and demarcation disputes.

    I have experience with unions in the UK, Europe and the US. In New York, I knew of cases where the union member was paid several times the technician’s rate to watch him install electronic equipment. In the UK, we had the Rover case, we also had the experience of privatization, where the first thing management did when freed from the dead hand of the state was to install productivity improving technology and discipline, and to improve safety practices. And to raise the work rate.

    Yes, its anecdotal. But it covers enough territory and enough companies that the conclusion seems persuasive, it matters where you are talking about, and which union. And in the UK at least, and in New York City, unions are and were a machine for extracting rents. In the UK, the beneficiaries of this extraction were a tiny minority of the country, the extraction imposed huge costs, disproportionately on the poor, and the recipients frittered them away in the industrial equivalent of the SDS ‘days of rage’.

  25. daddy warbucks

    Come to ANY union run city to start a little ‘gig’ (could be just about any enterprise really). Unless you try to do it ‘under the table’ you will need an electrician to plug in your whatever and turn it on, DO NOT pick up that piece of wood FOR ANY REASON, you must have a union carpenter do it, if the plug needs unplugging first, the electrician must be there before the wood is moved, etc., etc.
    I’ve been in the business for 30 years dealing with this nonsense. You want to really get pissed off google PLA agreements. Unions and politicians playing each other have destroyed our economy.

  26. Mac

    Who claimed unions would bring down productivity per employed worker? I think few serious economists would consider that a major issue.

    The problem with unions is instead this:

    By increasing the cost of labor, a number of “low productivity workers” become more expensive to hire than the value they are able to add, and consequently the become unemployed. As low productivity workers don’t get jobs, the productivity *per employed worker* can only increase with unions.

    Of course, the hidden side effect of unions is that total *production* decreases, since more workers – in particular the low productivity workers – become unemployed due to the higher costs of labor. (Although they might have been below average productive – they still produced something)

  27. bb

    an argument full of logical fallacies.

    “Productivity is output per unit of labor.”

    WRONG! this is what you think reported productivity is. in fact, reported productivity is unit of output per unit of wage hour, no adjustment applied for idle time. how otherwise would you explain that during a prolonged period of absent investments in technology and industrial revolution, U.S. productivity surged during the crisis of 2008-2009? people just became more productive out of the blue? no, the slack time embedded in the ‘good times’ work week decreased per employed worker.

    2nd and most striking folly: GDP increases despite heavy unionization in EU, therefore unions do not negatively impact productivity. so if we pay for something more than it is worth, we create higher GDP, therefore our labor is more productive because it creates more ‘value’? an accounting trick: book the profits now, defer the costs for later on. union labor guarantees higher price tag, therefore it needlessly inflates GDP beyond what it otherwise would be. when you finance those overpriced services with debt, you initially negate the negative effect of higher prices due to a sort of vendor financing. in the long run it brings definite ruin, use as a reference Greece.

    unions are mobs, government employees unions are legalized mafia. when a contractor wants to do business with the gov’t, it has to bid and offer best price, when you are paying taxes, you cannot bargain with the gov’t. unions on the other side can bargain for pay increases and offer you worse price by not allowing replacement of higher paid staff with non unionized cheaper labor. i am not a constitution expert, but collective bargaining with the government looks like a breach of the right of equality and could be as well reason to fire any government official who signs such bargaining deals for breach of fiduciary duty and maybe pursued under RICO.

  28. Skippy

    Corruption is rife in all vertical structures Boo Hoo, so history tells us (government/unions/banking), whats a human too do…sue the engineer of the playing field…that would be a good start…its called accountability…ah but that is so passe…heads in a basket is soooo old school…what will pacify the mob tomorrow…return of equity?

  29. Ted Slack

    In the ’80s, I installed some computers in a racetrack near Detroit. I then asked the site foreman to have electricians connect the power. Hearing my request, the foreman paused for a few seconds, and then asked if I would like the entire site shut down.

    Apparently, what I had thought to be a part of my job was considered that of several others by the union.

    That my employer had been expected to spend a thousand bucks for work which I did for about $10 became obvious to me.

    Work will eventually flee this situation.
    It has done so.

  30. Tony Inoti

    http://globaleconomicanalysis.blogspot.com/

    http://globaleconomicanalysis.blogspot (DOT) com/

    NJ teachers union President in Medford stated she ‘did not want to pay into health insurance because it would cost her more (she makes 100+k) then a teacher making 50k’ but then goes on to say she wants her 4.5% pay raise paid on her 100k as well as those for her 50k teachers. So she wants more in pay raises but feels it unfair to pay more for her health insurance?

    Naturally liberals and union lackeys on the town council there went against the vote of the public and authorized a tax increase to pay for what was voted down.

    Yes unions are good. What a joke. Just keep paying ur dues so the unions bosses can sit back and enjoy their ‘jobs’.

    The U.S. is a huge pyramid scheme and almost came tumbling down and if things don’t change soon it inevitably will.

  31. Dan

    Yves –

    I believe your conclusion is correct, that unions are a boost to productivity.

    The reason is that unions give employers a very strong incentive to mechanize and automate, so they won’t have to hire so many costly and headache-inducing union workers.

    This is dramatically seen especially in the auto industry where the number of workers has shrunk precipitously and measured productivity has soared with the replacement of people with machines.

    So yes, Yves, you may be totally right. Unions cause employers to invest in productivity-boosting machines so that they will need fewer union workers.

    I think the reason private-sector union membership has plunged most of all is the existence of unions drives automation of their jobs.

    Since we don’t assign productivity numbers to machines, those productivity numbers go to the people operating them.

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