NCPA - National Center for Policy Analysis

Union Contracts Reduce Productivity

February 16, 2015

At the Daily Signal, Heritage Foundation policy Analyst James Sherk and Mitchell Tu of the Young Leaders Program report on a new study: when companies unionize, wages fall.

The study comes from economist Brigham R. Fransden, who compared companies whose employees barely squeaked out a vote to unionize to those who narrowly voted not to unionize. What happened? The companies that unionized saw 2 percent to 4 percent wage drops compared to those who did not.

Why would wages fall, when unions try to raise wages? Sherk and Tu report that a number of workers -- often the most productive and most highly paid of the workforce -- left the company after unionization to work for non-union firms. As a result, losing the best workers pulled down average wages.

Because union contracts often set ceilings on pay and instead reward workers based on seniority, successful employees are better off leaving -- according to Sherk and Tu, they often see their pay fall under unionization and can't earn above the cap. (Union contracts generally require union permission in order to pay individuals above the union rate.)

With this in mind, a group of congressmen have recently introduced a bill -- the Rewarding Achievement and Incentivizing Successful Employees Act -- to allow union members to receive pay increases without getting permission from their unions. Sherk and Tu note that worker pay tends to rise by up to 10 percent with the introduction of merit-based pay systems.

Source: Mitchell Tu and James Sherk, "Should Workers Need a Union's Permission to Get a Raise?" Daily Signal, February 13, 2015. 

 

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