What Do Unions Do?

4 hours ago

Unions act as collective bargaining entities that can increase workers' wages, with estimates suggesting a wage premium of around 7% for unionized employees, though effects vary.
The union wage premium is influenced by factors like rent extraction from employers and higher productivity in unionized firms, but productivity gains may not benefit consumers due to increased markups.
Methodological challenges in studying unions include endogeneity issues, such as non-random unionization decisions, requiring advanced techniques like regression discontinuity or AKM decomposition to estimate effects.
Unions compress wages, particularly capping earnings for highly skilled workers, and may redistribute income among workers, though this is a smaller component than rent extraction from firms.
Unionization can negatively impact firms, leading to reduced employment, lower productivity, higher likelihood of exit, and decreased innovation, as seen in close election studies and broader evidence.
Public sector unions are criticized for lacking a clear economic rationale, as governments do not operate like profit-maximizing firms, and their effects may not align with efficient redistribution.
Unions can have positive effects in some contexts, such as negotiating reduced hours to avoid layoffs during downturns, potentially lowering turnover costs compared to non-unionized settings.

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