Unions Fail To Measure Up In A Time Of Economic Crisis

By reducing business profits, unionization ultimately makes workers worse off, diminishing employment and wages

A recent story in The Monitor – a magazine published by the left-wing, union-friendly think-tank Canadian Centre for Policy Alternatives – provides an important lesson in basic economics. The headline triumphantly proclaims: “Gig workers win the right to unionize.”

The end result was unfortunate for the workers, however. An editor’s note at the top of the story noted that just a couple months after winning the right to unionize, the workers lost their jobs. Their employer, Foodora, shut down its Canadian operations because it concluded that it couldn’t compete in the Canadian market.

The company denied that the push to unionize was behind its decision to exit the Canadian market. It cited competitive pressures as the reason.

But as the Financial Post reported, Ontario Federation of Labour president Patty Coates nevertheless suggested that Foodora’s decision amounted to “union busting.”

Given that the company shut down just as food delivery is increasingly relied on by consumers and restaurants as a result of the government-imposed lockdowns, it’s difficult not to draw a connection between the drive for unionization and Foodora’s decision to close its Canadian operations.

Even if unionization wasn’t directly responsible for the company’s closure, it surely contributed to its inability to compete. After all, the usual story told by union activists is that unionization is beneficial because the higher wages for workers will simply be paid for out of the profits of wealthy corporations – in other words, the union makes the business less competitive.

The basic economic truth ignored by union activists is that businesses that don’t expect to be profitable tend not to expand, or increase hiring or invest more in capital that would make workers more productive. By reducing business profits, unionization ultimately makes workers worse off, diminishing employment and total wages across the economy.

In order for wages to increase and working conditions to improve in the long run, the businesses paying the higher wages or providing the better working conditions must receive some compensating benefit in the form of increased worker productivity.

Unfortunately, unionization doesn’t increase worker productivity – it usually reduces it by weakening the link between compensation and productive output. The effects of unionization, in the long run, are to reduce workers’ incomes and make them worse off.

Notably, the case of Foodora is not representative of all attempts by workers to unionize. In some cases, unions benefit some workers by raising wages. However, because unions reduce the productivity of workers, any gains they achieve for their members is invariably more than offset by a greater loss to everyone else in the economy.

For example, extremely powerful unions have secured very attractive compensation packages for public school teachers. But these gains to public sector teachers is more than offset by a greater economic loss to everyone else, including taxpayers and aspiring teachers who can’t find placements in the public schools.

The economic damage from lower worker productivity and higher costs to employers brought about by unionization are undesirable even in the best of times.

Today, with skyrocketing unemployment, cratering incomes, businesses struggling to survive and governments running massive deficits, unions have become more unaffordable than ever.

By Matthew Lau

Matthew Lau is a research associate with the Frontier Centre for Public Policy.

TROY MEDIA