Do Unions Raise Wages?

Do unions raise wages for workers as a whole? If not, can unions raise the wages of some workers? The answer is, well, it depends. Unions have the ability to restrict the supply of labor to a job, which can increase wages for some workers. However, unions can also lower wages. For example, work stoppages and strikes supported by unions can slow down economic growth, lowering real wages. To illustrate this, we take a look at what happened to Great Britain’s economy during the 1970’s union strikes.
It’s important to note that unions are not just about wages — they can be helpful in protecting workers from arbitrary abuses and maintaining positive workplace relationships.
Finally, we ask — are there differences between professional associations and unions? How are they similar? Watch to learn more about how unions affect the economy.
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- [Alex] In this lecture,
we're going to be looking

at the question,
"Do unions raise wages?"

For workers as a whole,
the answer appears to be, "No."

Just to give a bit of evidence --
for example, the United States

and Switzerland
are two major economies

with low unionization rates:
11% and 18%, respectively.

In many European countries
other than Switzerland,

unionization rates vary
between 30% and 80%, much higher.

Yet despite these wide variations,
the United States and Switzerland

have equally higher -- higher wages

than these other
unionized countries.

Even if unions can't raise wages
for workers as a whole,

we might be interested to know
whether unions can raise the wages

of some workers.

And here the answer
appears to be "Yes."

Unionized electricians for example,
typically have wages

that are 10%
to 15% higher than similar

non-unionized electricians.

But how do unions raise wages?

Let's look at our model
of the labor market

to understand this.

Here's our model
of the labor market

with demand and supply as usual.

Unions can raise wages in some jobs
by reducing the supply of labor

to that job.

In other words,
a union can act like a cartel.

Just as OPEC raises the price
of oil by reducing

the supply of oil,
a union can raise the wages

of electricians by restricting
or reducing

the supply of electricians.

Unions, however,
can also lower wages.

Let's take a look at that.

Unions can lower wages in two ways.

First, unions raise the wages
of electricians

by reducing the number
of workers who can get jobs

as electricians.

Those workers
don't disappear, however.

They seek work in other sectors
of the economy,

pushing wages
in those other sectors down.

Second, some national unions
can become so powerful

that they can shut down
entire industries

and severely reduce
the efficiency of an economy.

In Great Britain in the 1970s,
for example, the British train

and trucking unions shut down
large parts of the economy

leading to mass shortages.

When the garbage collectors
went on strike,

garbage piled up in central London.

Tourists were not impressed
with the rats.

Even the gravediggers
went on strike

with unpleasant consequences.

Voters, upset with the chaos,
elected Margaret Thatcher in 1979

and Thatcher greatly restricted
the power of these national unions.

So unions can increase
or decrease wages.

The increase is immediately evident
in union contracts.

The decrease is longer term
and harder to see.

First, unionized sectors
have fewer workers

pushing workers into other sectors.

There are higher real prices
to consumers,

makes industries less competitive,
and work stoppages and strikes

can slow an entire economy down.

The bottom line is that unions
can raise the wages

of certain classes
of workers, but unions

are not the fundamental reason
why wages are high

in wealthy countries.

Keep in mind by the way,
that unions

are not just about wages.

Unions can be useful
in protecting workers

from arbitrary abuses
and they can help in maintaining

good employer relationships.

One final point: when thinking
about unions, we often think

about someone like this,

a blue-collared
construction worker.

Well, what about this guy,
a physician?

Do these two people
look similar to you?

They should.

Both are represented by unions.

Professional associations,

like the American
Medical Association,

are really unions that represent
white-collar workers,

and as with the electricians union,
they try to raise the wages

of their members
by restricting supply.

The AMA, for example,
keeps a tight lid on the number

of new medical schools.

It lobbies to make it difficult
for foreign doctors to work

in the United States,
and it tries to prevent competition

from substitutes for physicians,
like nurse practitioners.

The AMA argues
that these restrictions

increase safety
and benefit consumers.

Maybe. But you should always be
a little bit skeptical

when someone claims
that their high wages

are in your benefit.

Okay that's it for unions.

Next, we'll turn to the issue
of discrimination

in the workplace.

- [Narrator] If you want
to test yourself,

click "Practice questions."

Or if you're ready to move on,
just click, "Next video."

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