Unions harm workers more than they help. And they seek a bigger slice of the economic pie, even while shrinking the pie through productivity loss
Labour Day is a day, as its name suggests, to celebrate labour. This is entirely appropriate – labour is a necessary input for the production of goods and services on which our standards of living rely.
We make a mistake, however, when the celebration is of labour unions instead of the workers who supply the labour.
The conventional wisdom is that unions benefit workers by ensuring they’re paid and treated fairly, and by lobbying government for employment regulations that protect workers.
But do unions really help workers?
Newfoundland and Labrador is the most heavily unionized province in the country, but has by far the highest unemployment rate and weakest labour market.
More broadly, the Canadian experience has been that lower- and middle-class incomes were relatively stagnant under high levels of unionization from around 1976 to 1996. But around the mid-1990s, the country experienced significant declines in unionization and government spending; at the same time, workers’ incomes began to steadily grow.
Unions and their allies might correctly argue that this data doesn’t prove that unions are ineffective in helping workers and in increasing incomes. It’s true that unionization does benefit some workers, at least in the short term.
However, on net, unionization is harmful to workers, especially in the long run.
The purpose of labour unions is to increase the compensation of unionized workers, but unions also make those workers less productive by negotiating compensation based on seniority instead of productivity. Unions try to grab a bigger slice of the economic pie, even while shrinking the pie through productivity loss. This means the benefits that accrue to unionized workers are offset by a larger economic loss to everybody else, producing a net loss.
In the public sector, the inflated wages of unionized workers are a heavy burden to taxpayers. An analysis of 2011 National Household Survey data by economist Ted Mallett found that Newfoundland and Labrador’s provincial employees received compensation 22 per cent higher than comparable private-sector workers.
The result is a significant redistribution of income from taxpayers to public employees that produces a net economic loss. The higher tax rates needed to fund this redistribution discourage economic activity, a problem made larger by Newfoundland and Labrador having more provincial and local government workers, relative to total employment, than any other province.
In the private sector, unions are able to raise wages for unionized workers even while decreasing their productivity by lobbying government to restrict the supply of labour, benefiting privileged union workers at the expense of the most disadvantaged members of the labour force.
Consider Unifor, the country’s largest private-sector union, during the Newfoundland and Labrador election campaign several months ago. Unifor advocated for restricting the labour supply through a sharp minimum wage hike and stricter labour laws that would make it more expensive for firms to hire workers.
The effect, though not the stated intention, would be to protect Unifor workers from competition by impeding lower-skilled workers from competing for jobs by offering to work for lower wages or fewer benefits.
In a more transparent effort to block other workers from competing for jobs, Unifor also advocated for bans on replacement workers during lockouts and bans on contract re-tendering.
Clearly, Unifor cares about preserving union privilege but not actually helping disadvantaged workers.
On Labour Day, then, celebrate the achievements of workers – but don’t celebrate the unions. They harm workers more than they help.
By Matthew Lau
Matthew Lau is an economics writer with the Atlantic Institute for Market Studies.