Study: Collective Bargaining Slows Economic Growth, Lowers Wages

Strong unions lead to decreased productivity

Fast-food workers strike for a higher minimum wage outside a Miami McDonald's / AP
July 29, 2014

Collective bargaining may not be the boon for workers that labor unions claim it is, according to a new study.

The Competitive Enterprise Institute (CEI), a free market think tank, found that states with higher rates of union presence and collective bargaining agreements in the public and private sector also suffer slower economic growth that leads to less opportunities and lower wages for workers.

"Collective bargaining has harmed economic well-being in America, severely inhibiting productivity and stunting wage increases, and this new CEI report demonstrates it," said Iain Murray, CEI vice president for strategy.

A high union presence correlates to economic "deadweight" that slows productivity growth and economic expansion across a state, according to the study authored by labor experts Lowell Gallaway and Jonathan Robe. The deadweight can harm workers throughout their careers with 15 percent earnings losses over a 50-year period.

"The presence of labor unions that operate as bargaining agents in the process of collective bargaining has the potential to seriously inhibit economic growth," the report says. "It is worth noting that these figures are minimal estimates of the deadweight losses produced by labor unions."

The report is based on a state-by-state comparison of unionization rates and economic growth over several decades. The study found that unionized industry stymied growth and harmed residents in local communities by distorting the local labor market. When collective bargaining agreements drive up wages in an industry, it prevents companies from expanding the workforce. The high unemployment rates allow companies to lower pay scales.

"Because unions increase wage rates through their monopoly power, the number of job opportunities in unionized industries and occupations will decrease, thus increasing the supply of labor in the nonunion sector," the study found. "This change drives down wages in those areas and increases the relative number of lower-wage jobs available to workers engaged in the job-search process."

The report also found that a lack of unionization does not produce a "race to the bottom" in wages. Increases in productivity spurred employment growth, which in turn led to higher pay growth, as companies were forced to offer competitive wages to attract workers. Policymakers, according to the study, should seek to create natural jobs growth, rather than inflate existing wages through coercive unionization and minimum wage hikes.

"Increases in productivity—not artificial increases in labor prices—are the key to economic growth," the report says. "The presence of labor unions that operate as bargaining agents in the process of collective bargaining has the potential to seriously inhibit economic growth."

The study on collective bargaining comes in the wake of a previous CEI report that found that population migration is about 10 percent higher in right to work states, which do not require compulsory unionization, than in coercive unionization states. Lower unionization, according to Murray, begets faster growth and more job opportunities that allow right to work states to expand.

"It is clear from the historical state-by-state rankings derived from econometric analysis that higher unionization rates led to a larger gap in forgone economic growth compared to states with a low union presence," Murray said.

Published under: Unions