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Using a variety of statistical techniques, we conclude that labor unions have reduced U.S. output by significant amounts - trillions of dollars over time. Additionally, the employment-population ratio and the unemployment rate have been adversely affected by the presence of unions. From the very beginning, unionization materially lowered employment in the auto and steel industries, and union militancy in coal mining has contributed importantly to largely eliminating employment in this once large industry. While some individual workers have profited from unions, the aggregate economic impact is strongly negative.
I. Labor Unions and Their Effects
Workers who join labor unions expect an improvement in their utility, typically manifested in the form of higher wages and benefits. Indeed, there is a substantial literature that suggests that, other things equal, unionized workers do receive higher rates of compensation than their nonunion counterparts (Lewis, 1963, 1985). At the same time, however, it is possible that unions have longer-term detrimental effects on the economy as a whole and, arguably, therefore, unionized workers. Labor unions may promote practices that reduce hours worked or productivity growth (from union rules, reduced capital formation, barriers to resource mobility, etc). A number of studies observe a negative relationship between the incidence of union membership and economic performance (Vedder and Gallaway, 1986; Pantuosco et al., 2001). On the other hand, proponents of the concept of efficiency wages and others might argue that the positive effect of unionization on worker morale might raise productivity and possibly economic growth (Krueger and Summers, 1988; Katz, 1986; Altenburg and Straub, 1998).
Of course, the impact of unions on the aggregate performance of the economy would depend in part on their relative importance in labor markets and that has changed dramatically over time. To roughly summarize the 20th century experience, during the first one-third of the century, union membership tended to be small (usually 10 percent or less of employment), in the middle third of the century it tended to be much larger (reaching one-third or so of the labor force), and in the last third of the century the "market share" of labor unions in the private sector was falling rather steadily, by century's end approaching the levels of the earlier part of the century. Thus if unions on...