Union productivity effects The impact of collective bargaining on productivity has been afrequent subject of debate. The question remains: do unions increaseproductivity and if they do will the increased productivity offset thegreater compensation unionized employees receive? In Trade Unions and Productivity: Some New Evidence on an OldIssue, Richard B. Freeman and James L. Medoff use the “productionfunction’ technique to study the relationship between unionism andproductivity. They add a new variable: the fraction of the work forcethat is unionized. The authors of this National Bureau of EconomicResearch working paper use the tool in an attempt to adjust fordifferences in employees’ skills and the amount of capital peremployee.
Their findings indicate a positive correlation in manysectors, particularly manufacturing and construction, between unionizedworkplaces and high productivity. But, this positive effect does notalways hold true, particularly over time. For example, in theunderground bituminous coal industry, mines with a union were notablyless productive than nonunion mines in 1975, but looking back, in 1965,the unionized mines were more productive. It is the authors’ viewthat this change was due in large part to a deterioration of industrialrelations. During the early 1980’s, as the union began tostabilize, productivity has again increased. The authors argue that the coal industry is the exception ratherthan the rule, mainly because of the relative lack of competition withinthe industry. Coal can be mined only in certain places, therebyseverely limiting the number of competitors. Therefore, even whenhigher labor costs per unit of output exist, the industry survives.
Incontrast, in a competitive product market only the unions which canoffset wage gains with higher productivity will survive, the authorsassert. Also, the union productivity effect seems to be greatest whenmarkets are the most competitive. Thus, lower productivity underunionism is prevalent under the opposite situation. In another section, the authors turn from the level of productivityto productivity growth.
They find that there is essentially no linkbetween productivity growth and unionization. The evidence gathered bythe authors indicates that unions do not hinder firms from adopting newtechnology, nor do unions take other steps to retard productivitygrowth. The authors conclude that even though the productivity effect ofunions is generally positive, on average, it will not outweigh thegreater capital intensity and labor costs which are also couple withunionism. A higher rate of return on capital is not guaranteed byhigher labor productivity.–