Business/Finance

Are unions good for business?

Are unions good for business?
WRITTEN BY
05/18/21
vs

Amna (Yes)

Unions are a saving grace for businesses in many ways. Trade and labor unions are beneficial to companies from an employee and external stakeholders' and investors' perspective. A labor union's most prominent duty is the financial protection of workers under all circumstances, including changes in operations or fiscal downfall. But unions don't merely work to secure the worker's interests; they also support businesses facing bankruptcy. For instance, a financially struggling pipe manufacturer in Wisconsin was bought by its unionized workforce and is now a thriving business.

Unions are suitable for both the national and local economy as they foster a competitive environment for businesses in terms of employees with the highest productivity and best skills. This competition leads to innovation and an improvement in the quality of jobs offered. Employees are also more motivated when given better incentives. Henry Ford found in 1914 that paying employees double the auto industry's prevailing wage reduced turnover, allowing him to increase profits significantly. 

Additionally, unions also promote a healthy, effective workplace with better communication. All problems get discussed and solved via collective bargaining before they can cause any fiscal damage to the organization. Thus, businesses don't have to recruit and train new workers, which is an expensive process. Workers under the protection of unions are also less likely to quit, which decreases the rate of staff turnover.  

Unions also protect workers and businesses from discriminatory practices regarding hiring, firings, and promotions, making companies legally secure and less liable to any expensive lawsuits. 


Bill (No)

Unions are bad for business for several reasons, perhaps most importantly because they make companies less competitive. By using their power to strike, unions can effectively shut down a business if an agreement with management over contract negotiations can't be reached. And contract details often include regularly scheduled pay raises regardless of whether the business is thriving or not. By mandating higher wages despite the current business climate, unions force a company to spend capital that may be needed in other areas like research and development, facilities maintenance, or marketing in order to remain competitive in the marketplace.

In addition to negotiating higher wages and benefits, unions often seek to protect workers from layoffs by requiring companies to maintain minimum staffing levels and enforcing a seniority-based advancement policy. This makes it difficult for companies to adjust to changes in the economic environment by reducing their flexibility to replace workers with obsolete or declining skill sets. Moreover, companies are less able to reward and retain top performers at the expense of low-performing and complacent workers with more time on the job. This short-sighted principle can lead to lower productivity and higher turnover, as top performers may decide to join a competitor's company that offers a pay structure based on merit, including performance-based bonuses, etc. This, of course, leaves union shop companies with an overpaid, lower-skilled, and less productive workforce.

Unions have largely outlived their usefulness in the 21st-century economy, with only 6.3% of the private sector workforce belonging to them, representing a steady decline from 1955 when one in three workers did. Business will not mourn the passing of unions. 

Fact Box

  • The term “strike,” which is a “collective refusal by employees to work under the conditions required by employers,” has roots dating back to the 18th century when English sailors who were unhappy about a wage cut “expressed their anger by taking down, or striking, the sails on ships in the port of London.” 
  • The countries with the highest trade union membership are Iceland, Sweden, and Belgium.
  • One of the largest unions in America is the National Education Association of the United States (NEA), which represents public school employees and has over 3 million members.
  • A 2020 Gallup Poll revealed that 65% of Americans approve of labor unions.
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