Labor unions can have both positive and negative economic effects. Positively, unions may improve efficiency by functioning as a collective voice for workers, reducing turnover, and enhancing security. They can also stimulate managerial efficiency and investment in technology. However, unions can also reduce profits and slow economic growth by bargaining for higher wages. They can distort the wage structure and cause misallocation of labor. Strikes can decrease aggregate output. Overall, the evidence on unions' impact on productivity is inconclusive, though they are found to decrease firm value by influencing investment and other financial decisions.

1. Economic Effects Of Unions
• Presented By : Mr. Saif Ur Rahman
•
BS Economics(6th) Roll Number#156

2. Outline:
• Introduction
• Brief facts
• How does labor unions effect labor market
• Positive view of labor unions
• Negative view of labor unions
• Comments
• Conclusion

3. Introduction:
• As we know that labour union is an organization of workers that negotiate with employers
over wages and working conditions. They seek to observe the change in balance of power
between employers and workers and resolve the problems within organization collectively.
Therefore, the negotiations between unions and firms are known as collective bargaining.
First unions often impose work-rules that reduce efficiency within the firm. Second, strikes
can reduce the aggregate output of the economy.
• Unionization on American university campuses is reaching an all-time high. In the 1970s and
1980s, the fastest-growing section of the labour movement consisted of professionals and
other white-collar employees. For much of this period, the leading organizer was the
professoriate. In fact, by 1995, approximately 40% of full-time faculty in the United States
were represented by labour unions.

4. Brief facts:
• By the fall of 2000, graduate employees in 23 universities had voted to unionize, and in at least 19 other universities,
graduate employees were in the process of organizing.
• Throughout the 1990s, membership in graduate student unions tripled to include almost 40,000 teaching and research
assistants. By 2006, there were more than 40 universities with recognized graduate student unions. The proliferation of
academic literature addressing the impact of academic unionization has expanded greatly in the last 5 years, particularly in
response to ‘‘flip-flopping’’ decisions from the U.S. National Labour Relations Board concerning the legality of graduate
student unions.
• . The national rate of graduate student unionization is 41%, with the highest rates of unionization in British Columbia and
Ontario (where unionization originated); followed by Nova Scotia and Saskatchewan .Over half of the country’s faculty
members are unionized.
• In fact, 44 of the 50 Independent and non-vocational universities belonging to the Association of Universities and Colleges
of Canada must negotiate terms of employment with faculty representatives Between 1976 and 2000, 28 faculty strikes
occurred on Canadian campuses The duration of these strike actions ranged from several days to as long as four months.

5. How does labor unions effect labor market:
• The union wage differential distorts the wage structure, causing a misallocation of labor between union and
non-unions firms and industries. For example, employers in the union industry may have anticipated the
strike and worked their labor force overtime to accumulate inventories to supply customers during the strike
period. This means that the overall loss of work time, production, profits, and wages is less than the work
time loss figures suggest. Similarly, other non-union producers in an industry may have increased their output
to offset the loss of production by firms engaged in a strike. Other economists believe that unions make a
positive contribution to productivity and efficiency. Their arguments include Investment and Technological
Progress Union wage increases may fast the substitution of capital for labor and speed up the search for cost-
reducing (productivity-increasing) technologies.
• Unions’ alliances with political parties have also provided avenues into the policy-making process, whether
through candidate recruitment, party platforms, lobbying and contributions, or explicit policy bargains. In
authoritarian contexts, independent unions become inherently political, since direct collective bargaining and
striking also challenge state control.
• Finally, strikes can reduce the aggregate output of the economy.

6. Positive views of labor unions:
• Unions may improve efficiency by (1) functioning as a collective voice
mechanism for resolving worker grievances, (2) reducing worker turnover,
(3) enhancing worker security and thereby creating an environment favorable to
on the-job training, and (4) stimulating managerial efficiency through the shock
effect.
• Unions vary in organizational attributes and institutional environments in ways that
affect their bargaining and strike behaviour as well as political stances. They vary in
the weight they place on political activity relative to industrial relations and the
extent to which they engage and make Sectorial differences affect both member
demographics and unions’ tools and incentives as they make demands.

7. Negative views of labor unions:
• Unions may reduce the firm and industry profitability by bargaining for higher
wages. The profit level may fall. Consequently, this may exert retarding effect on
investment and economic growth.
• With varying levels of effectiveness and durability, unions’ political activities appear
to generate policies tending to equalize the distribution of income. There is
tremendous heterogeneity across individual unions, sectors, states, countries, and
time periods.
• Similarly, other non-union producers in an industry may have increased their output
to offset the loss of production by firms engaged in a strike.

8. …
• Finally, the union wage differential distorts the wage structure, causing a
misallocation of labor between union and non-unions firms and industries.
For example, employers in the union industry may have anticipated the strike
and worked their labor force overtime to accumulate inventories to supply
customers during the strike period. This means that the overall loss of work
time, production, profits, and wages is less than the work time loss figures
suggest.

9. Comments:
• The economists arguments include Investment and Technological Progress Union
wage increases may fast the substitution of capital for labor and speed up the
search for cost-reducing (productivity-increasing) technologies.
• The relationship between unionization and redistribution presents a prima
facie case those unions influence politics in ways that lead to reduced
economic disparities. This is not a new realization labour unions have long
been viewed as one of the few vehicles through which working- and lower-
class citizens can wield some degree of political power.

10. Conclusion:
• It is found that in hypothesis, that firms in more-unionized industries exhibit
a statistically and economically higher implied cost of equity. The effect
holds after we control for a host of industry- and firm-level characteristics
and is stronger when unions face a more favourable bargaining environment.
• The results cannot be attributed to an industry life-cycle effect or omitted
industry characteristics, and their direction and magnitude are unlikely to be
biased due to potential endogeneity issues.

11. …
• Finally, it is possible that unions may increase productivity (empirical
evidence in this regard is largely inconclusive), it has been shown that unions
decrease firm value by distorting investment, R&D spending, and capital
structure choices.

12. Any Question is more appreciated?
THANK YOU SO MUCH!