303
Special Topic 10
Do Labor Unions Increase the Wages of Workers?
OUTLINE
I. Union Membership as a Share of the Workforce
A. Union Membership Trend
1. Since the mid-1950s, union membership has declined.
2. It declined slowly as a share of the labor force during 1955 1970.
3. It has fallen more rapidly during the last couple of decades.
a. In 2012, union members comprised only 11 percent of non-farm employment.
B. Causes of Union Decline
1. Employment growth has been in sectors where unions have been weak.
a. Small firms.
C. Unionization by Sector
D. Unionization by State
II. How Do Unions Influence Wages?
A. Restrict the supply of competitive inputs, including nonunion workers.
B. Apply bargaining power enforced by a strike or threat of one.
C. Increase the demand for the labor service of union members.
III. What Gives a Union Strength?
A. If a union is to be strong, the demand for union labor must be inelastic.
1. This will enable the union to obtain large wage increases while suffering only
modest reductions in employment
B. Determinants of Elasticity
1. Demand for union labor will be more inelastic when:
a. There is an absence of good substitutes for the services of union employees.
IV. Wages of Union and Nonunion Employees
A. Unions and Wages
1. Studies suggest that the wage premium of union members relative to similar non-
union workers increased during the 1970s.
304 Special Topic 10/Do Labor Unions Increase the Wages of Workers?
2. Since the late 1970s, union-nonunion private-sector wage differential has been in
the 20 percent and 28 percent range.
B. Profits and Employment
1. If unions increase the wages of unionized firms above the competitive market
V. Impact of Unions on the Wages of All Workers
A.
1. Unions increase the wages of their members but not for all workers.
OBJECTIVES
In this application, we analyze the way in which unions affect wages, employment, and working
conditions. Unions can increase the earnings of their members in three basic ways: (a) by restricting
the supply of competitive resources, including nonunion labor; (b) by increasing the demand for
union labor, most notably by applying political pressure; and (c) through bargaining power and the
threat of a strike. Each of these three methods is reviewed in the text.
IMPORTANT POINTS AND TEACHING SUGGESTIONS
1. Note that union membership increased between 1930 and 1950. However, measured as a share
of the labor force, union membership peaked out in the mid-1950s. As a proportion of non-
farm employment, union membership declined from 33 percent in 1955 to 11 percent in 2012
(see Exhibit 1).
2. Point out that work stoppages are usually costly to both striking employees and to employers.
Thus, a strike (or the threat of one) does give both management and labor an incentive to reach
an agreement.
3. Exhibit 4 illustrates two general strategies utilized by unions to increase the wages of their
members. As Exhibit 4 illustrates, while supply restrictions and bargaining power may be
utilized to increase the wages of union members, both will also lead to a decline in the
employment of labor.
306 Special Topic 10/Do Labor Unions Increase the Wages of Workers?
4. Policies that increase the demand for union labor will lead to an increase in both wages and
employment. Tariff restrictions and the Davis Bacon Act provide examples of policies that
have been utilized to expand the demand for union labor.
5. Competition from products supplied by nonunion labor often limits the market power of a labor
union. The recent experience of the United Auto Workers and the Teamsters illustrates this
point.
HINTS FOR ANSWERING CRITICAL ANALYSIS QUESTIONS
2. Unions will be able to increase the wages of its members when the demand for union labor
must be inelastic. This will enable the union to obtain large wage increases while suffering