Union Issues

Unions and Productivity

For decades, economists have tried to measure the impact on productivity and profits when a firm is unionized.

For example, in a controversial 1978 study economists Charles Brown and James Medoff claimed that union shops were 20 percent more productive than nonunion ones.

But economist Barry Hirsch came up with some different answers in a 1991 study he performed for the W.E. Upjohn Institute:

  • On average, union shops have a market value 20 percent lower than non-union companies, according to Hirsch.

  • Their rate of return on capital is 15 percent lower and they have an average of 13 percent less investment capital.

  • And unionized firms spend 15 percent to 20 percent less on research and development.

Hirsch found that productivity growth was lower at firms with no unions than it was at those with low union coverage. But the growth rate was lower still at firms with a high degree of unionization, and they had the most negative effect on productivity at growing, high tech companies.

Hirsch contends that any higher productivity at union firms would not be big enough to offset higher labor costs. Also, unions are more likely to form at companies where productivity is lower to start with.

Source: Perspective, "Union-omics," Investor's Business Daily, August 28, 1997.

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