Unionization and Economic Performance: Evidence on Productivity, Profits, Investment, and Growth

The effect of labor unions on economic performance is a crucial factor in evaluating public policy toward union organizing and bargaining rights. This paper evaluates theory and evidence on the relationship of unionization with respect to productivity, profitability, investment, and employment growth. The clear pattern that emerges from the research literature, primarily for the U.S. but also elsewhere, is that unions do not on average increase productivity and that collective bargaining is associated with lower profitability, decreased investment in physical capital and research and development (R&D), and lower rates of employment and sales growth. As long as unionized companies operate in a competitive environment, poor economic performance implies a continuing decline in membership, absent changes in labor law favorable toward union organizing. Yet deleterious union effects on performance tend to undermine rather than buttress the case for labor law reforms that increase union strength. Policies that enhance competition in product and factor markets promote economic growth and limit the costs associated with unionism, yet do little to facilitate the exercise of collective voice and employee participation in the workplace.