Unions considered helpful (economically)

A paper in Industrial Relations A Journal of Economy and Society performs a meta-analysis of a wide range of studies the impact of trade unions on productivity and finds a complex puzzle.

Studies of countries with strong unions show a solid correlation between unions and high productivity. But studies of workplaces with unions show almost no impact on productivity (either no impact or a slightly negative or positive impact, depending on the country). But an excellent analysis from Stumbling and Mumbling unravels the paradox:

You might wonder how the cross-country evidence shows a positive correlation whereas the cross-workplace evidence generally doesn't. Here's a theory. People will always want better pay and conditions. This is simply because they are human. If they can't achieve these through unions they will try to get them through the ballot box, in the form of legislation.

In this sense, as Philippe Aghion and colleagues show, there can be good and bad equilibria; a good equilibrium in which there are strong unions and little legislation, and a bad one in which there are weak unions and much regulation.

The UK fits their story. Whereas in the 70s businessmen complained about unions, they now whine about minimum wage laws and red tape.

But here's the thing. Regulation is a bad substitute for unions. Regulation is inflexible. Whereas collective bargaining – when done intelligently – can respond to different local conditions.

Unions & productivity [Stumbling and Mumbling]

(via Tim Harford)

(Image: WinnipegGeneralStrike, Wikimedia/Public Domain)