Labor Union

Labor Unions Help or Hurt The Economy?

There is no doubt that labor union has left trace on economy. It has quite significant force to shape the environments of business and political industries. However, do their mark impact these field positive or negatively? Do labor unions help or hurt the economy? Find the answers by reading the explanation below.

Do Labor Unions Help or Hurt The Economy Based on Their Work?

Various labor unions in different countries have varying amounts of members and impacting depth to the economy. In some countries, this type of union is discouraged or even entirely banned, while in the others, union is getting promoted in the industries where it isn’t typically incorporated.

There are two primary influences that the labor unions hold in their power, which are to increase demand and restrict supply of labor. Unions aim to negotiate wages that worth for employee by employer by common bargaining, which made them being compared to cartels by several economist.

Employee’s wage that unions are asking for are based on equilibrium wage chart, right in the curves’ intersection between labor supply and demand, but employers may lower their demanded hours. Higher wage is linked to fewer jobs at a dollar rate, that’s why the primary focus of unions is to make demand for labor increased besides coming to terms with higher wages.

There are several different methods that used by unions to achieve these goals. The most common methods used are including:

  1. Encouraging the increase of minimum wage. Increasing minimum wage means raising the labor cost of workers with low skills. It reduces wage rate gap between workers with high skills and low skills.
  2. Upgrading workers’ marginal productivity, which typically performed by skill training.
  3. Supporting regulations and limitations of imported goods by using tariffs and quotas, this results in higher demand of domestic products, thus affecting the demand of domestic labor.
  4. Negotiating firmer rules about immigration. It restricts labor supply’s growth. However, this method has similar effect of raising minimum wage that makes wage of workers with low skills increased thus makes workers with high skills are more demanded.

Labor unions sit at rather unique position under the law. Through one perspective, they have immunity to antitrust law that makes them work like monopoly. They can manage or control a good amount of influence upon labor supply in certain industry of company, so they may limit depressed wage rate of workers from non-union. It is possible due to the particular protection level of activities according to the legal guidelines.

Whether labor unions help or hurt the economy, the answer depends heavily on whom you’re asking to. Obviously, they themselves claim (and actually do) help to raise workers’ wage rate, developing healthier and fairer working environments, and set incentives through job training.

However, some economy critics oppose these statements by arguing that wage adjustments are created due to productivity shifts and tight labor market. If labor demand grows slower than its supply, then as maintained by law of supply and demand, there will be an abundance of employees in stock, therefore depressing the wage rate.

There is a possibility that unions are capable of preventing eliminated jobs for employers by giving strike or walkout threat – that affects production, but it doesn’t always certainly work. Like other productions factors, labor is a factored cost by employers when they produce goods and services. Paying higher rate compared to the competitors means that employers have to hurt the products’ price that may affect buying decisions from consumers.

Raised wage rate due to labor union’s demand might affect non-union workers as well, who aren’t benefitted by a representation to the employers. A government certified labor union is seen as workers’ representative, no matter if the worker is a part of the union or not. In addition, it is an employment condition that labor unions are able to draw dues from the paychecks of employees without the need of consent beforehand.

So the answer of whether labor unions help or hurt the economy is still up to debate, including the question if they are being the main culprit of decreasing labor demand. They do encourage higher wage rates, but it doesn’t necessarily translate to employers employing less workers. Some economy industries are declining naturally due to the heavy economy shift in bigger level.

Author: Amreza Bagas
An Extraordinary businessman who loves to share business experience in some words.