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

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Do labour unions advance or hinder the economic performance of firms and the competitiveness of the economy? The answer to this question has significant implications for public policy and the design of labour law. Specifically, the answer to this question provides us with a rationale for either strengthening or weakening labour legislation governing bargaining rights and the organizing of unions. To answer this question, Professor Barry T. Hirsch surveys the evidence from research into the effects of unionization on productivity, profitability, investment, and employment growth.

Professor Hirsch surveys the literature on unionization and economic performance - mostly from the United States but also from Canada, Japan, and Britain - and concludes that, on balance, the effects of unions upon productivity and productivity growth are small; they do not offset the cost increase resulting from higher union wages. The evidence presented in his paper clearly indicates that unionization leads to lower profitability. Indeed, whether one studies the impact of unions on profitability at the level of the industry, the firm, or the line of business, unionized firms have profits that are 10 percent to 20 percent lower than the profits of non-union firms. Further, the evidence from Britain also suggests that closed-shop unions have a stronger negative impact on profitability.

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