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How Labor Unions Hurt the Economy

Updated on November 29, 2010

“The nastiest, hottest, most god-awful job I ever had was working in the foundry, and I got out of that place as fast as I could…”

My father’s experience of working in the scorching heat and grit that was the foundry for an auto parts manufacturer wasn’t the most glamorous of jobs, but it does give a sense of respect for the hard working Americans of the past and those who carry on today.

The country was much different just 30 years ago; before we had stepped out of the Industrial Age and into the Information Age. Working conditions were more harsh, people worked long hours performing manual, repetitive tasks, and concerns for health and safety weren’t as evident as they are today. These factors within the work environment called for a middleman, or some type of agent to look after the livelihood of the everyday worker. This role has traditionally been filled by the factions of labor unions in the United States for the past few centuries.

The labor unions did benefit workers by increasing the minimum wage time in again, and they also bargained with otherwise stubborn employers on the behalf of the workers, which was after all, what they were meant to do.

In today’s modern society several factors have changed, unions are more of an economic hindrance than a beneficial big brother. The typical working conditions have improved dramatically, business competition is fiercer than ever, and technological innovation is continually evolving. Unions sought their highest level of activity in the 1950’s, however, today it is less than nine percent. There is one factor that stands between businesses employers and union agents that has not changed, and that factor is the economic forces of supply and demand in the labor market.

Labor supply must equal labor demand; hence the equilibrium wage created within the labor market shouldn’t be artificially inflated by means of union negotiation. That means if someone makes $10 per hour, there are supply and demand factors already in place that have determined that wage, such as the level of education and skills deemed necessary for the job. In this case, supply could be the number of people able and qualified to do the job, if there are many the wage will be low. If the job itself is in high demand, then the pay will be higher than one that is in low demand. Seems like common sense, right? For union members bargaining for higher wages, this concept is nonexistent.

When labor unions negotiate higher wages, it may be considered a victory for the employees, but what really happens when money is redistributed through raises and promotions? The money distributed as a pay increase comes from a company’s contribution margin. This is the cash a company has left over after its expenses are paid from its gross revenue. Let’s take a look with real numbers. If a company makes a total of $100M, it may pay $90M in expenses like salaries, wages, taxes, etc. This leaves the company with $10M profit margin, which is typically reinvested in projects to grow the company or partially paid out in the form of dividends if the company is publicly traded. This typically leads to stores raising the price of their goods to keep up with the extra “costs” associated with being unionized. The money given for raises to benefit the few almost always comes from the pockets of the consumers.

A union representative might argue that the company should give the money it spends on projects back to its workers in the form of a raise. New projects in R&D lead to more innovative products and keep a company on the edge of the competition; such was the lesson learned by Detroit auto manufacturers. The UAW coaxed the Detroit auto manufacturers into giving profits to be used toward their R&D investments to the UAW members in the form of raises. The resulting action was Detroit lagging far behind the competition in the “green movement” towards more fuel efficient cars, which may have been designed using the money that was given to unions. This led to several UAW workers losing their jobs, defeating one of the union’s primary objectives.

People simply don’t need representatives in today’s work place. Although labor unions hold a place in America’s history, they are not necessary for the future success of our country. The economic forces of the market place should be free to determine the proper pay for work to be done. Unions cap wages, they do not recognize the achievements of individuals, they ignore skill level, reduce capital for businesses, and raise prices for consumers. These union externalities counteract with the values embedded in the American Dream. The people of this country are hard-working, free spirited, and ingenuous and should be praised for their efforts, not withheld from their full potential by a union contract.

Do you think American unions help or hinder our country's growth?

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    • Marcelo Guadiana profile image

      Marcelo Guadiana 

      21 months ago

    • Ilona Elliott profile image

      Ilona Elliott 

      3 years ago

      Your comment was: Government is good?

    • JON EWALL profile image

      JON EWALL 

      3 years ago from usa

      Ilona Elliot

      What gave you the idea that we don't need government. Can you further explain;

    • Ilona Elliott profile image

      Ilona Elliott 

      3 years ago

      Are you suggesting that we don't need Government now?

    • JON EWALL profile image

      JON EWALL 

      3 years ago from usa

      /13/14 President Barak Obama’s Economic Stimulus

    • JON EWALL profile image

      JON EWALL 

      3 years ago from usa


      Unions are good? government is good?

      Obama’s General Motors { GM } Tarp Bailout- The Untold Details

      9/7/15 Battle Over Union Relevance Wages On This Labor Day

      6/30/14 Supreme Court deals blow to SEIU

      2011Wisconsin Governor

      President’s action groups , the DNC funded and organized the protesters

      2011 President Barak Obama where are the jobs?

      More can be said on both sides of labor

    • Ilona Elliott profile image

      Ilona Elliott 

      3 years ago

      Stump you couldn't be more wrong about the Boeing comments. Boeing is the bully. They insisted on huge tax breaks to keep work here in the Seattle area, made promises to the state and the union workers about it, and have already back pedaled after getting what they wanted and are still sending jobs out of the area. Boeing was a great company that made the best aircraft around until the 787, which was basically outsourced from the skilled workforce here in the Seattle area that had grown up around the industry based here, and sent work to Russia, China, Italy and other countries. The aircraft has been a joke. Rework and Re-engineering that jet has cost the company dearly. Parts supplied by off shore manufacturers were junk. Engineering done off shore was problematic. Instead of engineering and manufacturing the jet in the US in a supply system that had worked since the Second WW, they outsourced it all and then tried to assemble it here. It did not work. And as far as SC Boeing operations--they have been problematic also. The workers are not skilled or capable to work to aircraft tolerances. What do you want for $15 an hour? Rocket Scientists? Not gonna happen. Boeing has gone from a company that had some of the most skilled aerospace workers in the world to a huge joke. They typically have management that know absolutely nothing about the manufacturing process and the rigorous standards required to build to industry and government standards, trying to reprocess engineering/manufacturing and bypass critical safety tolerances, and have turned the company into a shell of what it was. As for the Union being out of control, my husband belonged to it for 30 years. He made good money and good benefits no doubt, but my two brothers who are techies in non union corps have always made better money and had much better benefits. As Unions have been forced out of existence, the standard of living has gone steadily down, and that is not coincidental.

    • JON EWALL profile image

      JON EWALL 

      6 years ago from usa

      Greg 2

      There is a difference between the private sector and the public sector unions. check this out for comparison.

      The average public employee in Wisconsin makes $ 51,000 plus benefits of $21,000 , that’s total of $73, 000. $ 73,000 is 20% higher than a similar employee in the private sector. The Democrats are for the middle class, really. Looks like the middle class is being ripped off, for a long time I presume.

      financial assistance to employers and UNIONS to help them maintain coverage for early retirees age 55 and older who are not yet eligible for Medicare.

    • profile image


      6 years ago

      I agree that labor unions these days are way out of control. The reason why everything is made in China and other countries is because someone is being paid 30 dollars an hour to pull a lever repeatedly all day while technicians and skilled labor have to fight just to keep a liveable wage. Labor unions have their place in this country, but have become so corrupt they are actually hurting our economy by artificially forcing prices up so companies can't remain competitive in the market. Its bad enough businesses small and large are taxed at least 40 times higher in the US than in other countries, but for someone to demand 100k a year just to drive a garbage truck, its ridiculous. Labor unions got greedy and are the direct cause of the disaster that has become Detroit.

      True, if unions never existed, we'd all be making kibbles for our hard work. I'm not disputing that. I'm not saying that Unions shouldn't exist. I'm saying that they are corrupt, greedy, extortionists that have gotten way out of control.

    • profile image

      Life in Blue 

      6 years ago

      A cute idea, market self-regulation, but let's remember who decides these wages: businessmen. And what do businessmen want, most of all in this world? To keep their investments profitable.

      First off, let's take a look at this chart compiled from data in the 2000s on unionization versus the export-import rate of different countries.

      See the correlation? Trends would infer that highly unionized nations such as Austria, Denmark, Germany, and Sweden have far more positive economic growth and export rates than lowly unionized nations such as the United States and the United Kingdom.

      Even if a worker is deemed "qualified" for a higher pay or supply is well enough to "support a raise" or some other hogwash, the managers and leaders of the company still decide the wages. Without a union to keep watch over these wages, a company could easily say an industrial engineer who previously made $100,000 must take a 70% pay cut, you know, to stay competitive and whatever.

      This engineer, who once made at least $100,000 working for a multi-billion dollar company, now makes a mere $30,000. With such a wage cut, he can no longer afford his nice townhouse in Hyde Park, Chicago (an affluent are) and instead moves into a duplex in Back of the Yards (a poorer and more crime-ridden area).

      But how could the company do this to the man? He was a loyal employee of 20 years, a company man! Sure, he protested, he tried to sue; however, he just couldn't raise enough money as one individual alone. If only there was a group of people who could raise enough money to sue such a large and well financed corporation. Oh, wait, those are unions.

      Americans have been anti-union since at least the 1980s, when the Great Lord and Prophet Ronald Reagan (PRAISE BE TO HIS HOLY NAME, MAY WEALTH FOREVER TRICKLE DOWN TO THE LOWER-UPPER CLASS) who was largely influenced by corporate lobbyists and Merrill Lynch advisor Don Regan (eery, I know) who at one point in a televised address can be seen CLEARLY telling the president what to say. Ronald Reagan was a washed-up actor and corporate commercial poster boy who was chosen as a figurehead of a New Right Movement, which thoroughly whitewashed and raped the classic Republican Party.

      The fact that unions kill jobs and hurt economic growth for the NATION is simply not true. Unions only hurt economic growth into the pockets of the EMPLOYERS who would cut wages to Third World deplorable numbers if they could.

      Furthermore, without unions in place, the federal government would have to use even more money to oversee labor and manufacturing in the country. Federal oversight would surely hurt our competition as over-nannying manufacturing helps no one. The fact is, the union system generally works, and when there are bad fruit in the bunch they can be pulled, but the whole garden shouldn't be burned to the ground. Do we really want to go back to an America with 7 cent an hour wages, locked factory doors, and constant suffering and death? Certainly not.

    • profile image


      6 years ago

      Not everyone Mark, just people who didn't go to college.

    • profile image


      6 years ago

      If it wasn't for unions, everyone would be making 2 bucks an hour, working 72 hours a week with no benefits.Whoever wrote this is out of touch.

    • JON EWALL profile image

      JON EWALL 

      7 years ago from usa

      Stump Parrish

      Remember the mottos of the past, ‘’look for the union label’’, ‘’made in the USA’’ and buy American’’. Now it’s ‘’made in china’’, ‘’made in mexico’’,made in India’’.I could go on and on, where and what forced those jobs out of the country?

      Unions fight for a working wage, living wage and other fringe benefits. As you can see today they demand more than a living wage more than the worker who pays ( indirectly to the government for them to pay the union members ).Is that right and fair, not really.

      The government wants their cut out of the program ( taxes ).US companies have the highest tax rates in the world ( lower taxes is an advantage for foreign countries )

      Government regulations increase the cost of production in the US ( another disadvantage )

      Lastly the consumer buys a lower priced product ( in some instances a better built product ).Market competition controls the prices in a capitalistic economy.

      Today the world is smaller, the US can’t compete with other countries who have less regulation and cheaper labor.

      Are UNIONS THE ANSWER to the problems we face in our country today?

    • Stump Parrish profile image

      Stump Parrish 

      7 years ago from Don't have a clue, I'm lost.

      South Carolina is a a right to work state. At what point to you draw the line when it comes to a union's control over the country. A union in the state of Washington (could be wrong about the state, didn't check)Decided it had the power to make all decisions concerning The general operations of the Boeing Corporation. They feel they have the right to decide when and where a corporation can expand. The union simply felt it was due a share of any and all of Boeings operations. The plant should be built in SC and the union should make it's case for representing the workers in this state.

      When the unions were created they served a need in this country. Today they simply serve themselves.

      On the other side of this issue is the control over this country that is being handed the day to day operating decisions on how the entire country is being run. Worker's rights are being taken away and our government, at least on the right have agreed to this. I guess the unions have simply followed the lead of our elected officials and decided what ever the want is the American way. What is best for this country maens absolutely nothing to an elected official. We vote them in and force them to try and exist on $3,700 a week with full benefits. How can any self respecting senator live on such a measly sum of money? The lobbyists working with and for the corporate interests have the nessasary funds to supply our elected officials with the lifestyle they quickly decide they deserve. Fully vested in their retirement plan after 8 years they are free to begin working as a lobbyist if and when they choose to. Cheney is one of the worst examples of what is acceptable behavior in DC today. An employee of halliburton becomes vice pres and awards his company billions of dollars in no bid contracts. The company does such shoddy work that our soldiers were often bathed in fresh feces from th leaking floor above them. A large portion of the work done had to be destroyed and rebuilt. Cheney left office and is now reaping his rewards for raping this country. The majority of Republican voters still approve of his criminal behavior and seek to bring it back.

      The unions are out of control, the corporations who own the country are out of control and our elected officials are beyond control. I'm just about out of food and that's my problem according to most. The only union style representation the average American gets is from the Democratic Party. No wonder the repubs hate 'em so much. They are fighting for the same thing the unions fight for. Unfortunately they also have their hand in the cookie jar.

    • GNelson profile image


      7 years ago from Florida

      Employees need representation more than ever. From safety and health to harassment and discrimination it goes on and on. I have seen employees work all week and owe the company money. I have seen them forced to work extra hours when they are sick. There are some very good companys to work for but that is not true of all of them. You have been lucky.

    • JON EWALL profile image

      JON EWALL 

      7 years ago from usa

      C. Whitaker

      ''A union representative might argue that the company should give the money it spends on projects back to its workers in the form of a raise.''

      Here's a true story

      I called an electrical contractor (union ) for a bid on a project, he said ‘’I gotta tell you that I am no longer a union contractor’’. I asked why??

      For many years when he had a good year he would give his employees a bonus, $1000 + or -,to show his appreciation to the workers. The union came in and audited his books. They told him that he owed the union $25,000 for unpaid benefits. Their position was that the bonus money was overtime money concealed in bonuses.

      I am not sure if he ever paid the money, fighting them needs a labor lawyer to settle the claim. The above episode made him decide to not renew his union agreements. He wasn’t the only one that I knew that the unions were attempting to extort.

      More stories to be continued.

      IF THE EMPLOYER GAVE MORE MONEY IN RAISES,the unions would get more money too in fringe payments.

    • profile image


      7 years ago from UNITES STATES OF AMERICA

      Very good article....Your last paragraph says it all. If the unions would just focus on problems in terms of the enforcement of labor laws only and stopped ignoring

      ACHIEVEMENT OF INDIVIDUALS, SKILL LEVEL, HIGH PERFORMANCE RATINGS then they would become a working partner in today's economy.

      I will have an article in the near future elaborating.


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