Are Unions More Productive

Given Higher Wages?

 Outline
• Do Unions earn more?
• Do Unions produce more?
– Economic Approach
– Intuitive Approach
– Empirical Approach
• If union workers are paid, then they
should also be more productive
 Do they earn more?

• Daniel Mitchell (1980) est.  67%

• Estimate based on observations of 60 to
77 industries (manufacturing and non-
manufacturing)
• differentiating union and non-wage wages
and benefits within these sectors
 Do they earn more?
• Ruby Fichtaunbaum (2006) est. 18.84%
(male) & 17.87% (female)
• Estimation based on OLS regression
model
ln wij = Xijβ + δjunion + εij

• Observation based across different labour

segments
 Do they earn more?
• Gregg Lewis (1963) est. 10%

• Freeman and Medoff (1984) est.  20%

• Barry Hirsch (2004) est. 15%

.: Unions do earn higher wages, although

observations vary on level of estimate
2 key theories to keep in mind
• Efficiency Theory: The higher the wage,
the more productive

• Human Capital Theory: The more one

invests into themselves, the more
productive
 Economic Approach
• Using Cobb-Douglas fn
Y = AKαLβ , where β = 1 – α

Y/L = nY/nL = (nAKαLβ) / nL

• size of the labour force (n) can be substituted for

human capital
• rather then average output per worker based on
labour size; average output is on effectiveness
of worker
 Intuitive Approach
• Union more productive because…
– Higher level of job satisfaction
– Voice is heard through collective
– Stable employment
– Firms may only higher high skilled worker
 Intuitive Approach
• Unions less productive because…
– Restricted work practices
– Adverse affect due to industrial action
– Less investment by firms
– Less trust in management
 Empirical Approach
• Results are mixed
• Abbas Valadkhani (2003) found that a
10% increase in wages lead to 1.7%
increase in productivity
• Allison Booth (2005) observed unions in
Britain and found a –ve affect, although
they did have a greater affect in early ’80’s
(50 -60%) where union presence was high
 Empirical Approach
• David Fairris (2006) observed a positive
relationship with wage and productivity
(21,21  15, 12), although productivity
gap was never as high as wage gap

• Clark found a 6 – 8% productivity gap in

productivity by unions in cement industry
between ’53 and ‘76
 Conclusion
• Although wage gap is consistently
observable, productivity gap is not
• Just like any other worker, Unions too can
have their good and bad years
• Each observer has their own form of
collecting and analyzing data