Labor Unions in the United States – How They Work, Pros & Cons
When you read news stories about the middle class in America, you often see terms such as “squeezed” or “declining.” As a 2017 study by the National Bureau of Economic Research points out, average lifetime earnings for U.S. workers have been stagnant for decades, even as the cost of a middle-class lifestyle has risen sharply.
Politicians on both sides of the aisle deplore this trend, blaming it on everything from tax policy to immigration. But there’s one piece of the picture that they tend to overlook: the decline of labor unions.
According to the Center for American Progress (CAP), a left-leaning think tank, 28.3% of all American workers were members of unions in 1967. By 2012, that number had fallen to 11.3%. And the percentage of income going to the American middle class — that is, the three-fifths of households in the middle of the income scale — fell right along with it, from 52.4% to 45.7%.
For voters who want to “make America great again,” it’s worth considering what role labor unions have played in America’s past greatness and what role they could play in its future. Here’s a closer look at what labor unions do and what advantages — and disadvantages — they can have for workers and the economy as a whole.
At its core, a labor union is simply a group of workers who band together to negotiate with business owners over pay and working conditions. Unions can represent workers in a particular field or workers across different fields who do similar kinds of work. Unions also play a role in politics, pushing for policies that improve the lives of all workers in the country.
Here’s an example of how a union works. Suppose you’re a factory worker who’s unhappy with your job. You’re on your feet for hours at a time in a building that’s too hot in summer and too cold in winter, and you’re barely earning a living wage. But when you complain to your boss about the working conditions, he simply says that if you don’t like it, you can quit.
If you can’t afford to do that, you’re pretty much out of options. Because you’re only one person, you don’t have much leverage to bargain with the boss. After all, he has plenty of other workers, so the threat of losing you isn’t a big deal to him.
But suppose you get all the workers at the factory to go to the boss as a group and demand better wages and working conditions. You announce that if you don’t get what you want, you’ll go on strike — that is, you’ll all stop working at once, grinding production to a halt. Now the tables are turned; it’s the workers who have the upper hand in the negotiation.
This is a very simple example of collective bargaining, which is the main function of a union. In collective bargaining, union leaders, speaking on behalf of workers, sit down with the owners of a business to work out a contract for all of the workers in the business. They can negotiate over matters such as wages, working hours, vacation time, or even the nature of the job itself.
This kind of bargaining isn’t the same as haggling over prices at a store or a car dealership. In labor negotiations, both parties are aiming for the same result: a deal that will keep the workers happy while allowing the business to survive and prosper. Usually, collective bargaining is an ongoing process, with union and management leaders sitting down together on a regular basis to fine-tune the deal and make sure it still works for everyone.
In addition to bargaining with employers directly, unions hold considerable sway in politics. They back candidates for office and also lobby for specific laws they hope will improve conditions for workers. Unions often support policies such as:
American workers formed unions as early as the late 1700s. For instance, printers in New York City unionized in 1778, and carpenters in Philadelphia fought together for a 10-hour workday in 1791. However, most of these early unions were short-lived, breaking up once they’d achieved their goals.
Labor unions pushed for bigger things after the Civil War, with mixed results. Their first successful involvement in politics came in 1868 when a coalition of skilled and unskilled workers and farmers called the National Labor Union succeeded in convincing Congress to establish an eight-hour workday for federal employees. In the 1890s, both the Pullman Railroad workers and the United Mine workers went on strike for higher pay and better working conditions, but the government broke up both strikes. In 1881, workers from several national and local unions banded together to form the Federation of Organized Trades and Labor Unions, which later became the American Federation of Labor (AFL).
The power of labor unions grew during the 20th century when Congress established the Department of Labor (DOL) and passed several worker-friendly laws. The Clayton Antitrust Act protected workers’ right to go on strike, while the Fair Labor Standards Act established the federal minimum wage, rules for overtime pay, and restrictions on child labor. During the Great Depression, unions became a key part of the New Deal Coalition, which supported President Roosevelt’s policies.
The union movement hit its peak after World War II. Unions in several different industries held successful strikes, and organized labor became a major force in the economy. By 1954, nearly 35% of all American workers were union members. In 1955, the AFL merged with the Congress of Industrial Organizations (CIO) to form the AFL-CIO, the longest-lived and most powerful trade union in U.S. history. However, at the height of their power, some unions — notably, the Teamsters Union, which represents truck drivers — were plagued by corruption and ties to organized crime.
Unions remained a strong force in the economy during the 1960s and 1970s, but their power was gradually declining. Cheap imports weakened U.S. manufacturing, and many factories either moved to Southern states where unions were weaker or moved overseas.
At the same time, businesses jumped into the political arena, spending vast sums to fight against laws that would strengthen unions. Unions lost much of their influence with the Democratic party, and Republicans turned against them entirely. In 1981, President Ronald Reagan, who had once been a union president himself, broke a strike by PATCO, the air traffic controllers’ union, undermining the power of the union movement as a whole.
Today, according to the Bureau of Labor Statistics (BLS), less than 11% of all American workers and less than 7% of private-sector workers are members of unions. Many of the largest U.S. companies are actively hostile to unions and go to extreme lengths to stop their workers from joining one. For instance, The Atlantic reported in 2015 that Walmart, the nation’s biggest private employer, had fired and disciplined workers who attempted to organize and even closed down stores where workers had joined or formed unions.
Although unions have lost much of their influence in the United States, that isn’t true in all parts of the world. A 2017 fact sheet from the International Labour Office (ILO) shows that union membership varies widely from country to country, from as low as 1% to 2% of workers in Ethiopia and the Philippines to over 90% in Belgium, France, and Austria. Worldwide, union membership has declined slightly since the global financial crisis of 2008, but it’s still higher in most countries than it is in the United States.
Workers in countries with higher rates of union membership enjoy several benefits that American workers don’t. These include:
In the United States, big businesses have a lot of power. They control a large share of the nation’s money, and their wealth gives them a substantial influence in politics.
Unions can serve as a counterbalance to the power of big business. They make it possible for workers to carry some weight in the economy and have a voice in the political process, something they couldn’t easily do on their own. That has obvious benefits for workers, but it can also improve the economy as a whole.
Belonging to a union can make workers’ lives better in several ways, some more obvious than others. These include:
Union members typically earn more than workers who don’t belong to unions. According to the BLS, American workers who are members of unions earned a median weekly wage of $1,041 in 2017. The median wage for non-union workers was $829, only 80% as high.
This difference could be partly because union members are more likely to hold skilled jobs that pay better. However, a 2011 BLS report shows that union workers within specific fields also tend to earn more — sometimes substantially more — than non-union workers.
In addition to higher wages, union workers tend to enjoy better benefits. The BLS reported in 2017 that 94% of all union workers had access to employer-sponsored health insurance plans and retirement plans, such as a 401k or 403b. For non-union workers, only 67% had access to a health plan and only 66% had access to a retirement plan.
Also, 86% of union workers had access to life insurance plans at work, while only 55% of non-union workers did. Union workers also paid less out of pocket for health insurance — only 13% of the cost of their own health care premiums and 20% of the cost to cover their families, with their employers covering the rest. Non-union workers, by contrast, had to pay 21% of the cost for themselves and 35% of the cost for their families.
Back in the 1800s, before the rise of unions, working conditions in the U.S. were typically harsh. Even in good times, it was common for workers to put in 12 hours a day on the job, with no weekends, holidays, or paid sick leave. Child labor was common, and factories were often unsafe. Unions helped put an end to these abuses, both by collective bargaining and by pushing for stronger laws to protect workers. Today, unions continue to fight to stop Congress from weakening existing labor laws.
Workers who don’t belong to a union are usually hired “at will,” which means they can be fired at any time for any reason. There are some exceptions — for instance, an employer can’t fire a worker on the basis of race, religion, or age — but in general, workers have no protection against being fired without warning.
Union workers, on the other hand, can only be fired “for cause” — that is, because they aren’t doing a satisfactory job. Moreover, an employee who’s fired has the right to challenge the decision and hear the reasons for it. Aside from the obvious perk of making their jobs more secure, this arrangement makes workers more willing to speak up about problems they see in the workplace, such as safety issues. A non-union worker who discovers a problem might be afraid to complain out of fear that the boss will simply fire them.
The benefits of being in a union aren’t just for workers; they also extend to workers’ children. A 2015 CAP study looked at the earnings of people between the ages of 26 and 37 whose parents did not go to college. It found that if at least one of their parents was a member of a union, they earned about 18% more than the children of non-union parents, even if the children weren’t union members themselves.
That holds true even if you control for other factors, such as education, race, and location. Children of union members also stayed in school an average of half a year longer and reported slightly better levels of overall health.
Stronger unions offer benefits not just for their workers, but for society as a whole. Having more workers in unions can lead to:
Unions typically push for policies that give a boost to domestic industries. One example is the auto industry in Germany, a country that has much higher rates of union membership than the United States. Germany’s auto industry is highly productive and highly profitable, even though auto workers there are paid nearly twice as much as those in the United States, according to the Utility Workers Union of America (UWUA).
Unions can improve worker productivity in a variety of ways. For one, unions themselves can provide training to workers, making them more productive. The UWUA also argues that when labor costs are high, businesses are more likely to invest in training and equipment so they can get more value out of each worker.
Finally, The Economist suggests that unions sometimes “forc[e] less competent workers out of the labour market, because they are not worth union pay.” However, this only occurs in fields where the pay is high and the pool of workers is limited. In other areas, unions can actually harm productivity, as discussed below.
Unions can raise income levels not just for their members, but for all of the workers in a region. A 2016 study by the Economic Policy Institute (EPI), a pro-labor think tank, shows that as unions in America have declined, wages have stagnated for non-union workers, especially for men who don’t have a college degree. The study estimated that if union membership had remained at its 1979 levels through 2013, men in this group would have earned about 8% more than they did that year.
Because unions push wages up, fewer people need to depend on government aid programs, such as Medicaid, SNAP (food stamps), and subsidized housing. And unemployed people aren’t the only ones who rely on these programs; many of their beneficiaries are workers in low-wage jobs.
In 2014, Americans for Tax Fairness, a group that favors a progressive tax system, calculated that Walmart, one of the staunchest opponents of unions, was costing the Federal Government around $6.2 billion per year in public assistance for its workers.
Unions strengthen the middle class in two ways. First, by keeping wages up, they help more people maintain a middle-class lifestyle. Second, they support programs that help middle-class families prosper, such as Social Security and the Affordable Care Act. According to a 2016 CAP report, the share of all workers who belong to the middle class has fallen by 11.2% since 1984, and the decline in unions is responsible for about half of this drop.
Here in the United States, income inequality has risen sharply since the 1950s as union membership has dropped. According to a 2017 EPI report, in 1965, a typical CEO earned 20 times as much as the average worker; by 2016, CEO pay had risen to more than 270 times the average worker’s pay. By contrast, in countries where unions have remained strong, income distribution is much more even.
According to the 2015 IMF report, unions help smooth out income distribution in two ways: by increasing the share of a company’s profit that goes to the workers, and by supporting political policies that tax the rich to aid the poor.
As the IMF notes in its 2015 report, countries with a more even distribution of income also tend to have stronger, more sustainable economic growth. Our country’s history also supports this view. The 1940s and 1950s, when the union movement was at its peak, were periods of very low income inequality and very strong economic growth.
Areas with high rates of union membership also tend to have stronger communities. Unions drive up wages, putting more money into the local economy. Higher wages also add up to higher tax revenues, giving these communities more money to spend on facilities such as public schools and libraries. Finally, unions can take part in local and state politics, working to secure funding for public services such as schools and health care.
Although unions can have obvious benefits for workers and society, some people believe these benefits come at too high a cost.
In theory, unions give workers a voice to balance out the power of big business, but critics argue that unions can tip the balance too far in the other direction. Opponents hold that unions can drive up pay and benefits to unsustainable levels, making it hard for businesses to survive. Plus, they argue, union workers’ gains often come at the expense of taxpayers, consumers, and other workers.
Although union membership has some obvious perks for workers, it has its costs as well. These include:
Unions charge dues to their members to cover their costs, such as the salaries of union leaders and wages paid out to workers during a strike. Dues can be either a fixed amount or a sliding fee with lower-income workers paying a smaller share of their income than higher earners.
According to the Fiscal Times, union dues typically eat up between 2% and 4% of a worker’s paycheck. However, because union workers earn about 20% more on average, they still come out ahead.
When you’re in a union, you’re bound by the decisions that union makes, even if you don’t agree with them. Under rules set by the DOL, all union workers get to vote for their union leaders, but if those leaders reach a decision they don’t like, they still have to go along with it.
Union dues are supposed to be spent on union activities. However, unions sometimes misdirect this money toward uses that don’t really benefit workers. Vincent Vernuccio of the right-leaning Competitive Enterprise Institute reports that many large unions spend their money on six-figure salaries for union leaders and multimillion-dollar headquarters.
Unions also sometimes spend their members’ dues on political campaigns — in some cases, without telling the workers about it. That effectively forces workers to spend their money on backing a candidate they may not even support. A 1988 Supreme Court case, Communications Workers of America v. Beck, allows union members to get a refund for any part of their dues spent on politics. The 2018 case Janus v. AFCSME went even further, ruling that unions are inherently political and public-sector workers can never be required to pay for membership in one.
Unions can often create tension between workers and their employers, causing them to see each other as adversaries. A 2011 Gallup-Healthways survey found that union workers score lower than non-union workers on the Work Environment Index, a measure of satisfaction and trust in the workplace.
Although both groups of workers were about equally satisfied with their jobs, union workers were more likely to say that their supervisors act like bosses rather than partners. They were also less likely to say that their supervisors always create a trusting and open environment at work.
Most unions have rules that favor senior workers — that is, the ones who have been with a company the longest. If there are layoffs, the employer must let go of the newest employees and keep the most senior ones. In some cases, senior workers also get top preference for promotions or other open jobs.
The advantage of seniority is that it’s an objective standard, making it harder for employers to favor certain workers for no good reason. However, it also makes it harder for younger workers to get ahead. No matter how talented or productive you are, you can still be laid off first just because you’re newer or be passed over for promotion in favor of a long-term employee.
Opponents of unions argue that even if unions are good for their workers, they cause more harm than good to the economy as a whole. Problems unions can create include:
Unions tend to drive up the cost of labor for businesses in their area. According to the BLS, it cost businesses an average of $46.50 per hour in wages and benefits to pay union workers in 2014, as opposed to just $29.83 per hour for non-union workers. Unions can also increase the cost of non-union labor by pushing for higher minimum wages. That makes it much more expensive for businesses to operate, especially small businesses with narrow profit margins.
When labor costs are high, it’s harder for companies to stay in business and for new businesses to start. That, in turn, can lead to higher unemployment in an area.
It’s not clear just how big of an impact unions have on the employment rate. When the OECD Employment Outlook 2006 looked at 17 studies on how unions affect employment, it found that three of the studies showed that having more unions in an area significantly drove up overall unemployment. However, nine studies found that unionization either had no significant effect on employment rates or had a mixed effect, improving employment for some groups but lowering it for others.
Higher wages aren’t the only cost businesses have to pay when their workers unionize. They may also need to hire extra staff members to negotiate with the union, settle grievances, or handle the collection and payment of union dues. When Adams Nash Haskell & Sheridan (ANHS), an anti-union consulting firm, looked at the budgets of a company that runs 30 factories, half of them unionized and half not, it found that administrative costs for the unionized plants were about 30% higher.
When employers have to pay more for labor and other costs, they often make up for the lost profit by increasing the prices of the goods and services they sell. Unions can also drive up prices by pushing for trade restrictions, such as limits on cheap imported goods. That means that powerful unions can raise the cost of living, wiping out at least part of the benefit of higher wages.
Most union members in the U.S. today work for the public sector — in other words, the government and other services paid for with tax dollars, such as schools. When the leaders of these public-sector unions demand high wages or lavish benefits for their workers, the money to pay for them comes out of the taxpayers’ pockets. This can lead to budget problems in their town or state, forcing the government to choose between raising taxes, cutting other government services, or piling up debt.
The strict seniority rules set by most unions can make it harder for businesses to fire workers who do their jobs poorly or promote those who do their jobs well. This is a particular problem for schools, where promising young teachers earn lower wages and are more likely to be laid off than senior teachers whose students aren’t doing as well.
Although individual union workers are often more productive than non-union workers, unions can actually cut productivity for a business as a whole. For one thing, union negotiators often engage in “featherbedding,” or forcing employers to hire more workers for a job than they really need to get it done. Also, unions often resist new equipment and processes that could improve efficiency because they fear these will result in fewer jobs.
Backing pro-worker political candidates and policies is part of what unions are meant to do. However, some people think that the biggest unions hold too much sway in the political arena.
In some states, union endorsements can make or break a candidate, especially in a Democratic party primary. Because of this, some candidates pander to the unions, changing their positions to earn those endorsements rather than focusing on the voters as a whole.
Another problem is that public-worker unions sometimes play a big part in electing the very officials who will have to negotiate with them over their salaries and benefits. A leader who was elected with the help of a union will be more likely to put its needs first rather than looking at the big picture.
Finally, unions sometimes push for policies that benefit their industry at the expense of society as a whole. For instance, a union of California corrections officers has lobbied heavily for policies that have vastly increased the number of Californians in prison, as reported in Ordinary Times.
The most serious charge against unions is that some of them are involved in crime, including violence against non-union workers. For instance, Philadelphia magazine reported on a series of incidents in 2012 in which two Philadelphia developers hired both union and non-union workers for a project. The developers experienced repeated threats and vandalism from union workers, and some non-union workers were physically attacked.
According to the anti-union Center for Union Facts, there have been more than 9,000 cases of violence and intimidation by unions since 1975. The group also claims that since 2001, there have been more than 2,000 indictments against unions for racketeering, or fraudulent business dealings.
For workers, union membership is a pretty good deal. It has its downsides, but they’re usually outweighed by the higher pay and other perks that come with union membership.
What’s less clear is whether having more people in unions is a good thing or a bad thing for society as a whole. Both the benefits and the drawbacks can be significant, so it comes down to a question of priorities. For instance, individual cities and states have to decide whether they care more about having more jobs or better-paying jobs, or whether cushy benefits packages for public workers will put a bigger strain on their budgets than underpaid people relying on government benefits.
Of course, the ideal outcome for everyone would be to keep the benefits of unions while minimizing their drawbacks. Changing the way unions work could remove, or at least mitigate, some of their most serious problems. Unions could make these changes on their own, or the DOL could intervene to impose them. Either way, they would help make unions more viable in the long term.
Rather than always giving top priority to senior workers, unions could develop formulas that make seniority just one of the factors in decisions about pay, benefits, hiring, and firing. For instance, in the case of teachers, priority could be based on a combination of seniority and student performance. That would help the best teachers rise to the top while still protecting those who have served the longest.
Changing the rules would also make it easier to fire workers who are truly incompetent. In 2009, the Los Angeles Times explained that it was virtually impossible to fire a public school teacher in California, even one who mocked a suicidal eighth-grader in front of the class. Similarly, The Atlantic wrote in 2012 about how union rules protected a police officer who had blasted pepper spray into a crowd of peaceful student protestors.
Protecting grossly incompetent or even criminal workers makes unions look bad. Changing the rules that protect these workers could be a smart move for unions, greatly improving their public image.
Unions need to learn to be realistic about their demands when negotiating. Michele Masterfano of the Huffington Post cites the example of Philadelphia’s teacher’s union, which in 2013 refused to consider requiring teachers to pay a single dollar toward their health care plan, even as the city was already running a serious budget deficit.
In the long run, unrealistic demands like this only end up hurting workers. If cities or states have to pay for a plush benefits package for all their workers, they often respond by cutting workers until there’s hardly anyone left to enjoy those lavish benefits. A 2011 Vanity Fair story illustrates how this happened in San Jose, Calif., where ever-increasing pay and pension costs led the city to cut its public workforce — including firefighters and police — by thousands of people, even as the city’s population increased.
3. Be More Transparent
One of the strongest objections people have to unions is the way they use, or misuse, their money, often in ways they don’t disclose to members. For instance, a 2018 story by NJ Advance Media highlights several potential misuses of funds by the New Jersey Education Association (NJEA). For one, a political action committee backed by the NJEA spent roughly $5.7 million on elections in 2017, most of which came out of members’ union dues. Also, the executive director of the NJEA earned $1.2 million in pay and benefits in 2015, even though his official salary — the amount disclosed to union members — was about $340,000.
In order to end abuses like these, unions need to be open with their members about how their dues are being spent. This would give workers a chance to vote for new leaders if they don’t approve. In particular, unions need to be candid about the use of dues for political ends so workers can exercise their Beck rights — that is, the right to a refund of union dues used for political purposes — if they so choose.
It isn’t possible to fix all of the problems with unions just by changing their policies. For instance, there will always be a tradeoff between paying workers more and keeping costs low for businesses. However, many of the problems with unions that people object to the most can likely be fixed without having to get rid of unions completely.
Unions may be reluctant to change their ways, but in the long run, it’s in their interest to do so. Union membership is still falling, and 28 states already have “right to work” laws that prohibit workers from ever being required to join a union. Moreover, in the wake of the 2018 Janus decision, members of public-sector unions, which account for most of the union members in the country, can opt out of paying union dues in every state in the country.
If unions want to survive, they need to convince the public that they do more good than harm — for workers, for taxpayers, and for the economy. If they can’t do this, they’ll likely continue to fade away until they disappear completely, and all of their benefits — including higher incomes, lower poverty, and a stronger middle class — will disappear with them.
Do you approve or disapprove of labor unions? Why or why not?
Amy Livingston is a freelance writer who can actually answer yes to the question, “And from that you make a living?” She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.
Labor Unions in the United States – How They Work, Pros & Cons
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