Ezra says no, citing Kathy G. The problem is that, as her own commenters point out, the empirical research doesn't quite says what she says it says. If you do a simply analysis of firms and compare productivity, you may see no productivity shock in the average. The problem is, firm unionization is not a double-blind random experiment. There's a serious composition problem: the firms that unionize are likely to be the firms that are more productive, because they are more profitable and have more surplus to be captured by the union. Failing plants don't unionize. So if you look at unionized plants/firms/industries and see no productivity difference between them and their unionized counterparts, then probably the unions are actually exerting significant drag.
The other problem is that what positive effects we can posit unions having on productivity only work at the firm level, not the economy level. For example, as Ezra says, if you pay people better, you may get better workers. This is actually kind of dubious, since the union's other main job is preventing you from firing the old workers. But say it's true. Those workers do not actually vanish into the void. Jobs must be found for them elsewhere. Meanwhile, the better workers you do have have come from another firm, which now has fewer excellent workers.
There's also the possibility that by paying workers better, you make them more worried about keeping their jobs, and therefore ensure that they will work harder. Again, it's hard to see how this wouldn't be dwarfed by the union's seniority preferences, featherbedding, and job security measures, but say it's true. This only works as long as there are a substantial number of non-union jobs that don't pay as well, into which the unionized workers fear being forced.
There are other, more nebulous effects that have been posited, such as the psychological benefits of job security, but there isn't a terrific amount of empirical evidence for these. And the German experience belies the notion that "cooperative management" actually makes plant operations productive enough to compete with non-union shops; German companies are relocating east as fast as their hot little feet can carry them.
So even if you argue that unionization won't cost productivity at the level of the individual firm, once you get up to the industry or economy level, a policy of encouraging broad unionization will still reduce overall productivity.
You're a long way from establishing your critical point, focusing only on the downsides of unionism to productivity. What about the downsides of focusing only on the next quarter's return? Any individual corporation would be best served by a return to servitude (company towns, anyone?). The system as a whole may well be better served by having a systematic counterweight to maximizing short-term profits.
Just curious. Are you paid on a piece-work basis or do you draw a salary? Given what you do here, shouldn't you be paid on a piecework basis?
As you think about that, remember that there are other values in this world than maximizing short-term productivity, like treating people with dignity. Who knows, maybe the people who get paid a little more can actually afford to buy the products that the economy generates.
I love these evidence free debunkings--they're great fun to watch, and they don't tax my brain! EWW TAXES!
"There's also the possibility that by paying workers better, you make them more worried about keeping their jobs, and therefore ensure that they will work harder."
I think that this effect is strongest when coupled with a credible risk of losing your job if you under-perform. If you have near-perfect job security then the concern of losing a great salary is hardly a motivator. On the other hand, it is an old (and very good) trick to pay just a bit more then the competition to motivate workers to stick around.
Of course, this includes all elements of the job and this often turns into bad working conditions (which are a form of negative compensation) so nothing is perfect.
Rickm: You are certainly free to disagree with evidence, but to argue that Megan's argument here is evidence-free seems odd. She makes a simple claim which is capable of debate: the relevant literature fails to adequately address the endogeneity of unionization. (OK, I stated it in nerd-scon speak, but that's the the claim.) That is certainly capable of disproof and it is an empirical claim.
Her other points are just that: a listing of effects whose quantitative iompact you'd want to assess, and whose failure to be addressed in an econometric design should leave you troubled. I'm not sure what you;re asking for -- I don't think it's her job to produce an adequate study.
My long-held suspicions have finally been confirmed. Megan has a thing for German feet.
It is my experience that Unions don't have a great influence on productivity. But keep in mind that it probably matters what union we are discussing. I'm sure an electrical union has much less ability to keep unproductive workers as, say, the UAW. I've heard many a UAW horror story. But I've also heard of good workers being spared firing because someone was "out to get them". Like I said, productivity comparisions might be a wash because of the disparity between unions. Heck, there are quite a few white collars workers that end up being UAW...how do you measure their productivity?
Start off with 'productivity' as you did and instantly the 'skilled worker' is front-and-center, as you demonstrate. Our friend Mr/Ms Skilled Worker might have come from another company, as you say. Which would be bad for the companies in the industry/market cause that makes getting the services of all those Skilled Workers into a zero-sum game.
Oh wait, if there were a Union in your company fewer Skilled Workers would be leaving for your competitors cause they have seniority issues and stuff. Incentives to stay with you.
But those Skilled Workers can be such A$$(*^s when contracts are negociated. They cost us more than our YachtClub memberships!!! We need many more Skilled Workers then we could dilute their influence.
Oh wait, if there is a good union in your company they'd have a system to elevate 'laborers' to 'master craftsman' or whatever craft-vocabulary your industry uses.
Oh yeah. Skilled Workers, profitable companies, middle class America. That was a great idea. Wonder what happened to it?
There's another factor that might muck things up a bit. If unionization makes creating jobs more of a hassle for employers (grievances, harder to fire the new employee if it doesn't work out, etc.), then unionization might push up productivity because marginally valuable jobs will tend not to be created.
http://ideas.repec.org/a/tpr/qjecon/v119y2004i4p1383-1441.html
Take a quick look at the abstract, maybe it could help your argument.
Freddiemac: Unions may well protect good employees as well as bad ones, but you're completely missing Megan's point, which is that the impacts are felt at the industry level.
In particular, good employees are the ones who can easily find jobs at other (saner) employers if a vindictive manager fires them. That will lower productivity at their original employer and raise it at the new employer, but it won't have any impact to speak of at the industry level. Union protects, in this example, aren't hurting but they're not helping either.
On the other hand, bad employees will have a problem finding a new job. They really are helped by union protections, but the result of such protection is lower productivity at the first firm(*), without offsetting higher productivity elsewhere.
(*) Well, actually, after a certain point the firm is going to say screw it, declare bankruptcy, fire everyone, and replace them with robots and/or outsourced labor. This does wonders for labor productivity, but is probably not what people have in mind when they discuss productivity increases from unionization.
Whenever I come here I seem to be treated to some poor imitators of George Carlin. Anyway to the topic at hand. You'll have to excuse the poor writing I'm extremely tired and in a very far corner of the world.
I'm bias with unions, my father was always around more when he worked union construction. But I can point to a significant downside to a specific union that I think can be extrapolated and applied to other unions.
The UAW in its efforts to secure better pay or (where the real money is)incentives has handicapped GM and Ford. Think about it... in their drive to supply health care for their workers they tied the company to paying for retirees health care. The basic structure for this occuring through a series of deals in the sixties and seventies, when GM and Ford faced little outside competition. At the time everything looked good. The complaints they had were the kind of complaints success brings (we can do better, crying foul about paying workers more than ever before, etc.). Then the 80's hit bringing the first serious foreign intrusion into the US domestic market (if anybody points to Renault or worse Rolls Royce... I mean its RENAULT!! the VW bug is the only serious exception) the cries and havoc caused by cheap cars reached fever pitch with Reagan's protectionist policy of import tax (cleverly countered). Yes the union weighed down GM and Ford, but it wasn't what it became until the nineties. If it started in the sixties and we're now in the nineties what just started happening: retirement. Now instead of a load off you have a load on. With all those generous retirement packages and deals now GM and Ford are paying too much.
From healthcare to pensions, retirement eats away at capital. Unions should have thought and now think about it in these terms. Especially healthcare, pensions are relatively easy to project, projecting the healthcare costs of a large population of disparate lifestyles is in no way easy going. In the sixties the smart move would have been increasing pay even more. Shifting costs to the individual is ultimately how failing businesses have to alleviate costs. Unions don't like it because it becomes someone elses problem, typically theirs. The continued path will only grind GM and Ford down faster.
This lesson I believe is something that can be applied to other unions. Pay your workers more now, set up contracts with insurance companies, use the corporation but do not depend on them. Set up investment opportunities, hire your own personal financial advisors if you want. This way you keep who you are responsible to happy (the dues paying member) and protecting what will keep your union afloat (the particular industry).
A final note in a too long post. The Coup de Grace for Ford and GM is not unions. It was their extremely foolish decision to focus on SUV's from I'd say 1992-2005. Forsaking other vehicle types because the profit margins were tighter, I lay full blame upon boards of people that can't tell the difference between bread & butter, and wine & caviar. SUV's are a Niche market, predominantly in one geographic area. Compact cars are a broad market on every continent. They ought to have known better.
Apropos of nothing, I suppose, a single anecdote. My dad was a commercial airline pilot from the late 50's to the late 80's. Ergo he was in the union. However, he got so fed up with the way the union protected poor performers that he ultimately quit the union, even in the face of ominous threats from the union about him becoming an outsider. Eventually quite a few other pilots quit.
He worked at Eastern, which had notoriously bad service - provided by the same bad apples he thought should be fired. Ultimately Eastern went bankrupt, driven there in part because the unions refused to take a pay cut. All that seniority didn't help much when they had to go find new jobs at other carriers that already had a pecking order.
I dunno if this is representative of anything. But, outside professional sports, airline pilots are surely among the most well-compensated union members in the country. And you obviously don't want to hire substandard people for such a position. So why did the union fight for them?
Cody,
You state "In particular, good employees are the ones who can easily find jobs at other (saner) employers if a vindictive manager fires them."
Do you have any evidence of this? I see no logical reason why an employee who is terminated for bogus reasons will have any easier time finding new work than an employee terminated for legitimate reasons.
Your argument seems to hinge on some pretty specious assumptions rather than any evidence.
If unions affect productivity of the industry whole, isn't that something easy to indentify and quantify? For example, of the American auto makers, Chrysler has the lowest % of union workers, and have for many years. Shouldn't they be the most productive? Shouldn't you be able to see comparative industries unionized and non-unionized and see productivity comparisions, such as auto mechanic and plumber?
Derek Scruggs,
Good question! I have seen quite a few cases of unions going to bat for the bad apples in my time, both first and second hand. As one of my consultant friends liked to say, "Unions are the death of American industry".
If unions decrease productivity that means they increase carbon output and cause global warming and the end of civilization.
If unions enhanced productivity wouldn't manufactures be begging them to unionize their plants?
Isn't the best empirical evidence provided by foreign manufacturing firms who open shop in the US?
Is anyone aware of any cases where firms sought out unions, rather than avoided or put up wiht them when forced to?
Anecdote not data: but when FMC and Lockheed shrank/closed in the Bay Area in the late eighties there were suddenly lots of skilled welders, machinists, and sheet-metal workers coming on the market right when high tech manufacturing was booming in Silicon Valley, nobody wanted them though. Their work ethic was almost universally non-existent. They were used to cushy jobs where no one expected any more than the bare minimum and could not handle the pace of the high tech world where insane amounts of overtime with almost no notice was the norm.
Oh yea, Lockheed and FMC were union shops.
But I've also heard of good workers being spared firing because someone was "out to get them".
I know that "unions protect their members from being terminated by vindictive management" is an oft-stated advantage of unions but, while I've never worked in a union shop, I've never seen anyone terminated for a bogus reason even without union protection. How often is this reason really meaningful?
I'm not saying it doesn't ever happen (I've worked for some crappy bosses, I'm sure it has), but in general my experience is that any worker who would receive value from union-provided job protection is a worker you don't want to have around. Good employees are hard to find, they're simply not going to be run out of the company for no reason or the company is not long for the world.
And the German experience belies the notion that "cooperative management" actually makes plant operations productive enough to compete with non-union shops; German companies are relocating east as fast as their hot little feet can carry them.
You´re sure about that?
Then why did the German machine building companies alone add 50.000 jobs in Germany in 2007?
Industry Returns as Economic Engine
(That´s a 5% growth year over year according to VDMA. VDMA=Non-profit organization, representing the local machinery and industrial equipment manufacturers in Germany.)
And why can I read articles like this:
Burned by Offshoring, Mid-Sized Firms Return Production to Germany
Mind you I´m not saying that outsourcing isn´t a factor.
But huge trade surpluses and being the world leader in exporting merchandise goods the last 5 years in a row seems to indicate that our "busy little hands" and not only our "hot little feet" are pretty busy. :)
Your entire premise is questionable. It is based on the concept of a good worker. I think I understand what you mean, but I doubt that it has much to do with productivity.
Productivity is driven by the tools the firm provides the worker and the way the firm organizes the work flow. It has little to do with the ability of the individual employee.
For example, the US plants of Japanese auto plants have better productivity then the auto plants of the US auto firms. Give me one bit of evidence that this stems from the difference in the quality of the individual workers. It is due to the better management of the Japanese firm and the fact that the Japanese owned plants are much younger.
Your entire argument is a red herring that has little or nothing to do with what really drives productivity.
I expect you to respond to this argument by bring up the issue of education and productivity. But the dominant way that education works through productivity is through the firm hiring engineers and other experts to devise better tools and organizations for the individual factory floor worker, not be improving the quality of the individual machine operator.
Show me a single academic study demonstrating that productivity stems from the difference in the quality of individual firms and/or industry's employees.
Spencer you are partially right, no doubt.
But I remember it being a huge issue when 20 jobs got replaced by computers in some Cali port.
When increasing productivity through machinery means losing people, unions strongly dislike that. Therefore the craptacular state of GM factories productivity wise probably was caused in part by the UAW.
At the end of the day I see it this way:
Foreign car companies start non-union factories in America. They make all kinds of money.
American companies off shore because the only way to escape the clutches of the UAW is to gtfo the country. They are bleeding all kinds of money because of deep seated problems that have been festering since before I was born.
That's not all the unions fault. Management is the major problem. But the unions at least helped the problems fester by resisting change at every turn.
The other problem is that what positive effects we can posit unions having on productivity only work at the firm level, not the economy level. For example, as Ezra says, if you pay people better, you may get better workers.
This argument implies that unions have to force employers to act in their own best interests. Seems unlikely to be often true.
It seems more sensible to reverse the causality and say that if workers are more expensive or harder to hire or deal with, employers will try to economise on workers, resulting in fewer, more productive employees, and more unemployed.
Anyone know why this is a good thing?
SG,
You say "I've never seen anyone terminated for a bogus reason even without union protection. How often is this reason really meaningful?"
I don't know how often this happens. That seems like it would be very hard to quantify. The UAW's employee relations are probably not public information. I personally know of one situation where a friend's father was going to be fired for punching out early. Turns out that another co-worker was grabbing his time card and punching it. He was cleared because there are video cameras on the floor and you could clearly see that he was at his station and not punched out.
I've also seen this sort of crazy employee/manager relationship firsthand, in both union and non-union places. I guess I have to ask how much real world work experience do you have? You seem rather naive to me, no offense.
You can tell who has worked in a union environment and who hasn't. Klein clearly has no clue. The Marxist he cites is beyond clueless. The studies she cites are looking at the wrong things, looking at things under unusual constraints, or outright union propaganda. In fact, the only people I know who love unions are union leaders and people who have never worked in a unionized environment.
Having worked in both kinds of environments, I have nothing good to say about unionization. Even the best thing you can say about them, that they lock in slightly higher wages or benefits, ends up hurting (a) the lower productivity workers the company can no longer afford, and (b) the higher productivity workers who end up losing their jobs when their company can no longer compete.
The people I know who used to work for a unionized company tend to be the most anti-union people around. A candy-ass like Klein would never survive in a unionized environment.
Anecdotes are not data, as someone said, so this is not an argument, more an aside.
I worked in union shops to make tuition money during college. As the temp college kid, I paid union dues to have my job. During those jobs, the union "regulars" leaned against the machines and did jack, while me and a few other guys in a similar "temp" role worked to the point of exhaustion for 9 hour shifts.
The management on the shop floor treated me better and paid more attention to my safety than the union regulars ever did. They were a bunch of immoral, lazy hogs enjoying an easy life via union protection. Firing all of the regulars and replacing them with more temps would have cost the organization not one iota productivity. (Is productivity measured in iotas...?)
I did not feel similar contempt for rent-seeking coworkers until I finished law school and encountered partners in law firms. I realized I was once again in a guild system, where seniority and politics counted at least as much as talent and effort.
The Coup de Grace for Ford and GM is not unions. It was their extremely foolish decision to focus on SUV's from I'd say 1992-2005. Forsaking other vehicle types because the profit margins were tighter, I lay full blame upon boards of people that can't tell the difference between bread & butter, and wine & caviar. SUV's are a Niche market, predominantly in one geographic area. Compact cars are a broad market on every continent. They ought to have known better.
Ford released the Explorer in 1990 and the market went crazy over it. Oil flirted with levels below $10/barrel in the late 1990s and the market went even crazier. Moreover, SUVs were classifiable as trucks and gave the automakers a way around the myopic fiat of CAFE regulations. The segment was such a goldmine that even most of the major foreign marques operating in the US got in on the act -- including Porsche(!).
The American automakers have the resources and knowledge to build good passenger cars. The Australian and European markets bear numerous examples. The problem is that their North American operations are mired in the decades-old fruits of combined management failure and union deadwood, with CAFE and evasion thereof nipping at the heels. Consequently, the only vehicle they can make that generates enough margin to circumvent all these problems outside of bankruptcy court is a gas-guzzling truck/SUV. Since Americans also wanted them and were trading in smaller cars hand-over-fist to get them, any US automaker that had focused on smaller passenger cars during the 90s would not have been engaging in smart business policy; they would have been shutting themselves out of the market.
Gas at $4/gallon seems to be forcing a sea-change in perspectives, and now that gas-guzzling SUVs are falling out of favor, the old problems at the automakers are re-emerging. But these existed before and after fifteen years of wildfire SUV sales. The SUVs were just a convenient (and now, as we see, temporary) bandaid for a slow hemmorage.
freddiemac:
I've been working for 20+ years in environments from startups to multinational corporations. My experience has been that management is typically reluctant to fire people - even those who deserve it. Even in at-will employment states, firing people has typically been a fairly drawn out process that involved establishing a paper trail.
Now I have seen bad managers drive good employees to quit, but I haven't seen good employees fired without cause. The closest I've seen is layoffs where good employees were laid off while other (IMO) less valuable employees kept their jobs, but even there the people being laid off weren't really being singled out.
Which is not to say there aren't ever injustices but my gut feel is that job protections are more likely to protect the incompetent than they would protect the competent. However, I recognize that my personal experience isn't the be-all, end-all on this topic which is why I asked the question.
I agree it would be hard to get any kind of data on this (and almost no employee is going to say "I deserved to be fired"), but would you at least concede that it is possible for job protections to have the effect of protecting incompetent employees?
"So if you look at unionized plants/firms/industries and see no productivity difference between them and their unionized counterparts, then probably the unions are actually exerting significant drag."
Occam's Razor would suggest that if you see no productivity different between union and non-union firms, then there probably is no difference and no drag from being unionized either. Nor is it true that unions go for the more profitable workplaces; how would one explain the unionization of non-profit workplaces if that was the case?
But the point of unionization is not to increase productivity; the point is to increase the compensation and job security of workers. And, when they're not sandbagged by American labor law, they're pretty successful at doing that.
Union effects on productivity in in public education.
Empirically, the selection-bias issue that Megan is making so much of has been found to be pretty minor. See the discussion in Bennett & Kaufman's "What do Unions Do?: a Twenty-year Perspective" on this subject.
"but would you at least concede that it is possible for job protections to have the effect of protecting incompetent employees?"
Certainly.
if you pay people better, you may get better workers.
Even on a national scale this can be true. If machinists are getting $80k a year, then a lot of young people are going to consider doing the training to become a machinist, compared to if they are earning $30k/year.
Of course you then have to ask, "What were those young people going to do instead?" And if the answer is "Law School" or "Politics" then becoming machinists is clearly a win-win decision.
Partisans of labour unions like Kathy G should be looking for evidence that unions *boost* productivity -- not that they do not lower it. Given that one of the chief effects of unions is to increase wages; for unions to have a neutral impact on a firm they should be *increasing* labour productivity. This is clearly not supported by either a> the bulk of economic literature or b> casual empiricism.
That doesn't seem to follow, Schmidt. The unions are under no obligation to increase the size of the pie (and why would they be, as opposed to the people who actually manage the company?) Their function is to grab as large a slice of the pre-existing pie for themselves as possible. _That's_ just good old econ 101, looking out for #1, and why anyone would object to this I haven't the faintest notion. So if unions are getting a larger cut and productivity is the same, maybe that cut is coming out of executive salaries, eh? Cetaris Paribus, of course.
No, the literature shows that it does not "come out of executive salaries". Even Ms G concedes that unionised firms are: 1> less profitable 2> have lower r&d 3> and have lower employment growth than their non-unionised counterparts.
"Occam's Razor would suggest that if you see no productivity different between union and non-union firms, then there probably is no difference and no drag from being unionized either."
Sometimes such a simplistic application of Occam's razor is a dull instrument. An example. It is well known (see Yule 1926) that two long time series that are both increasing often display what is known as spurious correlation. An example is cumulative rainfall in the Amazon Basin and cumulative car production in Detroit. Occam's razor -- or, rather, your application of it -- would lead you to accept this relationship as meaningful.