Labor Unions and Collective Bargaining

Union membership grew rapidly during the 1935-55 period. In 1955, approximately one out of three nonfarm workers in the United States belonged to a union. During the last three decades, union membership has waned. In 1984, only one in six nonfarm workers were union members. 

The strike is a major source of union power. A strike can cause the employer to lose sales while incurring continuing fixed cost. The threat of a strike, particularly when inventories are low, is an inducement for the employer to consent to the union's terms.

A strike is also costly to employees. Strike funds are usually inadequate to deal with a prolonged strike. The loss of just a few paychecks can impose extreme hardship on most families. The potential cost of a strike to both union and management provides each with an incentive to bargain seriously to avoid a work stoppage.

Agreement on most collective bargaining contracts is reached without a work stoppage. Since World War 11, the number of work hours lost due to strikes is less than three tenths of the total work time-and the proportion of work time lost due to strikes has been declining. 

There are three basic methods a union can use to increase the wages of its members: (a) restrict the supply of competitive inputs, including nonunion workers; (b) apply bargaining power enforced by a strike or threat of one; and (c) increase the demand for the labor service of union members.

When there are a large number of employees competing for labor services, each employer will have to pay the market wage rate to keep employees from shifting to higher-wage alternatives. However, when monopsony is present, the single purchaser of labor may be able to profit by restricting employment and paying a wage rate that is less than the marginal revenue generated by the labor. Under these circumstances, a wage floor established by a union can result in both higher wages and increased employment.

If a union is going to increase the wages of its members without experiencing a significant reduction in employment, the demand for union labor must be inelastic. The strength of a union is enhanced if (a) there is an absence of good substitutes for this service, (b) the demand for the good it produces is highly inelastic, (c) the union labor input is a small share of the total cost of production, and/or (d) the supply of any available substitute is highly inelastic. An absence of these conditions weakens the power of the union.

Studies suggest that the earnings of union members exceed those of similar nonunion members by between 10 and 25 percent. Research using data from the 7Os tends to place the differential closer to the higher figure. The most powerful unions have been able to obtain even larger wage gains for their members. Some weaker unions, unable to restrict the supply of nonunion workers (or products made by them), have had little impact on wages. Most of the real wage increases of union workers have probably been obtained at the expense of nonunion workers and consumers.

There is no indication that unions have significantly increased the share of national income going to labor in general. The real wages of workers are a reflection of their productivity rather than the result of union action or power. There is little reason to believe that unions enhance worker productivity- they may even retard it.

An increase in the wages of union members will either reduce expenditures on goods produced by nonunion labor or increase the supply of nonunion labor. In either case, the secondary effects of higher union wages will tend to reduce prices in the nonunion sector. Thus, there is no reason to believe that unions cause sustained increases in the general price level (inflation).

Unions in the United States have helped defend employees against a sense of powerlessness, unimportance, alienation, and insecurity, and against arbitrary behavior by management. The union movement is primarily responsible for our system of "industrial jurisprudence." Many think these nonpecuniary factors are far more important than the impact of unions on wages.