Thursday, September 17, 2009

Unions and Wage Effects

I am trying to occasionally come back to some unfinished business, today's being another look at the economic effects of unionization. A while back when the Employee Free Choice Act was in the news I promised a series of posts on the effects of unionization. I started the endeavor but quickly lost the plot. So here is another look at some research (here and here) I recently came across that generally confirms the positive effect unions have on wage formation (meaning unions are successful in negotiating higher wages). What does this due to firms, well this paper suggests that it cuts into firm profitability but only the amount of the wage premium. In other words unions are able to negotiate a bigger slice of the pie.

So, again, the evidence seems to square with a overall general characterization of some real wage premiums from unionization and some small hit to overall firm performance. The overall welfare implications of this are therefore unclear.

I think a provocative question for the 21st century is: are unions as necessary in a world in which information is so readily available and switching costs relatively low? And if health care reforms happen that make employees less tied to their firms, will this erode the influence of unions even further and it this a good thing?

1 comment:

ericfruits said...

Here's another article:

R. Alison Felix and James R. Hines, Jr., "Corporate Taxes and Union Wages in the United States"