I n t h I s c h a p t e r y o u w I l L

O n P a y d a y,
U n i o n J o b s S t a c k U p V e r y W e l l
B
Y
D
AVID
C
AY
J
OHNSTON
With the teamsters’ success in their
two-week strike against United Parcel
Service, and with the A.F.L.-C.I.O. train-
ing thousands of union organizers in a
drive to reverse a quarter-century of de-
clining membership, millions of workers
will be asked over the next few years
whether they want a union to represent
them.
It is a complicated question, the an-
swer to which rests on a jumble of deter-
minations: Do you favor collective action
or individual initiative? Do you trust the
union’s leaders? Do you want somebody
else speaking for you in dealings with
your employer? Do you think you will be
dismissed if you sign a union card—or
that the company will send your job over-
seas if a union is organized?
But in one regard, the choice is sim-
ple—and it is not the choice that most
workers have made during the labor
movement’s recent decades in the eco-
nomic wilderness.
From a pocketbook perspective,
workers are absolutely better off joining
a union. Economists across the political
spectrum agree. Turning a nonunion job
into a union job very likely will have a big-
ger effect on lifetime finances than all the
advice employees will ever read about in-
vesting their 401(k) plans, buying a
home or otherwise making more of what
they earn.
Here is how the equation works,
said Prof. Richard B. Freeman of Harvard
University: “For an existing worker in a
firm, if you can carry out an organizing
drive, it is all to your benefit. If there are
going to be losers, they are people who
might have gotten a job in the future, the
shareholders whose profits will go down,
the managers because there will be less
profit to distribute to them in pay and,
maybe, consumers will pay a little more
for the product. But as a worker, it is aw-
fully hard to see why you wouldn’t want a
union.”
Overall, union workers are paid
about 20 percent more than nonunion
workers, and their fringe benefits are
typically worth two to four times as
much, economists with a wide array of
views have found. The financial advan-
tage is even greater for workers with lit-
tle formal education and training and for
women, blacks, and Hispanic workers.
Moreover, 85 percent of union
members have health insurance, com-
pared with 57 percent of nonunion
workers, said Barry Bluestone, a labor-
friendly economics professor at the Uni-
versity of Massachusetts.
The conclusion draws no argument
even from Prof. Leo Troy of Rutgers Uni-
versity, who is widely known in academic
circles and among union leaders for his
hostility to organized labor. “From a
standpoint of wages and fringe bene-
fits,” Professor Troy said, “the answer is
yes, you are better off in a union.”
His objections to unions concern
how they reduce profits for owners and
distort investment decisions in ways that
slow the overall growth of the econ-
omy—not how they affect workers who
bargain collectively. Professor Troy
points out that he belongs to a union
himself—the American Association of
University Professors.
Donald R. Deere, an economist at
the Bush School of Government and
Public Service at Texas A & M University,
studied the wage differential for compa-
rable union and nonunion workers be-
tween 1974 and 1996, a period when
union membership fell to 15 percent of
American workers from 22 percent.
In every educational and age cate-
gory that he studied, Professor Deere
found that union members increased
their wage advantage over nonunion
workers during those years. Last year,
he estimates, unionized workers with
less than a high school education earned
22 percent more than their nonunion
counterparts. The differential declined as
education levels rose, reaching 10 per-
cent for college graduates.
“It makes sense to belong to a
union,” Professor Deere said, “so long
as you don’t lose your job in the long
term.”
Source: 
The New York Times,
Money & Business
Section, August 31, 1997, p. 1.
I N T H E N E W S
Should You Join a Union?

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5 9 6
PA R T N I N E
T H E R E A L E C O N O M Y I N T H E L O N G R U N
Advocates of unions contend that unions are a necessary antidote to the mar-
ket power of the firms that hire workers. The extreme case of this market power is
the “company town,” where a single firm does most of the hiring in a geographic
region. In a company town, if workers do not accept the wages and working con-
ditions that the firm offers, they have little choice but to move or stop working. In
the absence of a union, therefore, the firm could use its market power to pay lower
wages and offer worse working conditions than would prevail if it had to com-
pete with other firms for the same workers. In this case, a union may balance the
firm’s market power and protect the workers from being at the mercy of the firm
owners.
Advocates of unions also claim that unions are important for helping firms re-
spond efficiently to workers’ concerns. Whenever a worker takes a job, the worker
and the firm must agree on many attributes of the job in addition to the wage:
hours of work, overtime, vacations, sick leave, health benefits, promotion sched-
ules, job security, and so on. By representing workers’ views on these issues,
unions allow firms to provide the right mix of job attributes. Even if unions have
the adverse effect of pushing wages above the equilibrium level and causing un-
employment, they have the benefit of helping firms keep a happy and productive
workforce.
In the end, there is no consensus among economists about whether unions are
good or bad for the economy. Like many institutions, their influence is probably
beneficial in some circumstances and adverse in others.
Q U I C K Q U I Z :
How does a union in the auto industry affect wages and
employment at General Motors and Ford? How does it affect wages and
employment in other industries?
T H E T H E O R Y O F E F F I C I E N C Y WA G E S
A fourth reason why economies always experience some unemployment—in ad-
dition to job search, minimum-wage laws, and unions—is suggested by the theory
of