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Positive Labor UnionizationResearch Paper

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Labor Unions Positive

Labor Unions

Labor unions once played a significant role in the U.S. economy with a peak of over a third of the workforce being associated with a union in the 1950s. However, since the unionization peak there has been a slow and steady decline in the proportion of union members. This decline also corresponds to a period of steady economic growth in which the U.S. economy has become the dominant economic force in the world. Although there are many factors that have contributed to the growth of the U.S. economy, the de-unionization of the workforce and trade liberalization are among some of the top factors that have benefited economic activity.

Despite these benefits to the overall economy, these benefits have not been equally shared among the society at large. In fact, some of the economic progress has accumulated into wealth for only a small fraction of the country's top income earners. The lower and middle classes have seen little to no improvements in their financial position and many workers have actually seen decreases in their effective wages. This has led to an unstainable level of inequality in the United States and labor unions represent one solution to mitigating these problems. The power of collective bargaining could help address inequality and wealth redistribution with help from legislative measure that could make it harder for domestic organizations to outsource labor to overseas markets.

Unionization Background

Labor unions once represented a significant share of the U.S. labor force, peaking at almost 35% of workers in 1954 however this percentage has declined steadily to less than twelve percent (Vachon & Wallace, 2013). The period in which unionization was at its peak is also known as the golden age of the American middle class by some. There are factors that constituted the demise of the labor union however that include: (1) globalization and labor market transformation have crosscutting but, on balance, negative effects on union density; (2) there are both similarities and differences in determinants of private and public sector unionism; and (3) business cycle and labor market structure variables are weak, but political climate variables are strong determinants of union density.

Between 1974 and 2007, there were 101 fewer labor organizations so that, notwithstanding the drop in union membership, the average size of U.S. unions rose: the number of members per union grew from 114,000 in 1974 to 180,000 in 2007 and the changes in the size distribution are linked to the growth of a few very large unions (Pencavel, 2014). The smaller unions though have been largely squeezed out by larger organizations that have more power than the small unions. There are many different ways in which small unions can be targeted through the private and public sectors.

The private sector has worked diligently to squeeze out the unions because it can reduce their expenses by cutting the costs and administrative burdens of human resources. One of the ways that a private sector can squeeze out unions is through the use of acquisition and mergers. One study analyzed wage and employment outcomes of over 4,000 public firms that were acquired between 1981 and 2002 by using establishment-level data from the U.S. Census Bureau and found that target establishments exhibited a net contraction in wages and employment, relative to comparable establishments after takeovers by another firm (Li, 2012).

Furthermore, targets' in a takeover in establishments in more unionized industries experienced worse wage and employment outcomes after the takeover and these adverse effects are exacerbated when the establishment is located in a state with Government has also targeted unionization and right-to-work laws in some states limit the union's bargaining environment. Thus the unions have come under attack from a variety of sources which have contributed to the state of union decline since mergers, takeovers, and governmental involvement have dismantled the power of unions on an incremental basis.

There are many different methods of accounting for the factors of union power in an organization one factor that commonly is not considered is the density of the union members. Collective bargaining in Germany takes place at either industry or firm level, and bargaining coverage is much higher than union density. The share of a firm's employees covered can vary between 0% and 100%, suggesting that researchers should distinguish union density, coverage at the firm level, and coverage at the individual level (Fitzenberger, Kohn, & Lembcke, 2013). The smaller unions typically have less negotiating power because they have lower union densities that make them easier to target. This has led some researchers to attempt to develop indicators of union well-being that blends two dimensions of unionism: the relative union-nonunion wage differential and union density (the fraction of workers who are union members) (Pencavel, 2009).

Perceptions of Unionization

Some research finds that managers' accounting choices are affected by contracts that are either explicitly or implicitly tied to the firm's accounting numbers and one type of contract with implicit ties to a firm's profitability is a collective bargaining agreement that is negotiated between a firm's management and its unionized employees (Bova, 2013). Specifically, evidence suggests that negotiated wages in a unionized setting are an increasing function of a firm's prior profitability finds no evidence of earnings manipulation through a variety of measures. Therefore even though there is often a perception of a corrupting influence of the union, there has been little evidence to verify this.

One study used a longitudinal analysis of employment in 510 Canadian firms over the period 1980 to 1985 provides evidence that union firms in both the manufacturing and nonmanufacturing sectors experienced substantially slower employment growth than comparable nonunion firms (Long, 1993). Controlling for industry sector, firm size, and firm age, the author finds that within the manufacturing sector, union firms grew 3.7% more slowly per year than nonunion firms, and within the nonmanufacturing sector, union firms grew 3.9% more slowly than nonunion firms. This would suggest that unionization can also have a detrimental effect on employment growth in general however it does not consider the important implications that outsourcing labor has had on the labor market which could also explain these results.

The ideological framework that has been developed economists has tried to convince people that unions have a negative effect on profitability and economic growth on the whole for decades. The positions of Freeman and Medoff for example were developed based on maximizing the forces of the competitive market and the collective bargaining techniques that unions' employ were thought to skew these markets (Wachter & Estlund, 2012). These views were also given credibility in the 1980s due to the fact that the nonunionized sectors of the economy were growing rapidly while the union was in decline. Their view was that the core economic belief inherent in unions is that it is a distortionary monopolizing force that hinders economic benefit on a macro scale; although they do admit that there are benefits to welfare and externalities on a more micro scale (Bennett & Kaufman, 2011). However, the welfare and externalities such as inequality are arguably more important than overall economic progress; at least to the vast majority of Americans.

Furthermore, it is also interesting to note that in the absence of unions the private sector has developed mechanisms internally to deal with workers' rights. One research study on a telephone survey of 1,000 U.S. workers to explore whether alternative, nonunion forms of representation are filling the gap left by union decline; whether this matters to authority relations at work; and whether these first two points help to explain union decline and found that that nonunion associations do not appear to be filling the gap, but that management-established, nonunion representation systems are one-and-a-half times as widespread as is union representation and are evaluated somewhat more favorably by workers (Godard, 2013).

Both unions and management- established systems bear positive associations with authority relations at work before controlling for management practices, but these are substantially weakened once management practices -- especially "bureaucratic" practices -- are entered (Godard, 2013). However, this analysis uses a sample that has not dealt with a functioning union to support them and cannot effectively compare the differences. Even the most vocal anti-union supporters such as Friedman still admit that the unions have a positive impact on workers welfare. Given the growing inequality in the United States, the absence of strong unions has left the American vulnerable to corporate power and what has resulted is a growing trend of inequality that can only be mitigated through the reintroduction of efficient and effective workers unions that can harness their power of collective bargaining.

Works Cited

Bennett, B., & Kaufman, B. (2011). What do Unions Do? A Twenty-Year Perspective. Transaction Publishers.

Bova, F. (2013). Labor Unions and Management's Incentive to Signal a Negative Outlook. Contemporary Accounting Research, 14-41.

Fitzenberger, B., Kohn, K., & Lembcke, A. (2013). Union Density and Varieties of Coverage: The Anatomy of Union Wage Effects in Germany. Industrial & Labor Relations Review, 169-197.

Godard, J. (2013). Labor Unions, Alternate Forms of… [END OF PREVIEW]

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