Study Finds Unions Make Companies More Productive

Most companies are anti-union for bad reasons: they argue that unions are actually anti-worker, corrupt, and put unnecessary barriers between workers and management. The argument you have likely heard the most if you’ve ever worked in an anti-union company (like Amazon or Walmart) is that unions actually hurt productivity and wages. That’s actually the opposite of what a recently published study found.

A study on the effects of union density (union employees as a percentage of the total number of employees) published last week found that tax subsidies for Norwegian unions led to "substantial increases" in firm productivity and wages, increases that grew even larger the more productive a firm was or the more bargaining power a union had.

Researchers established a correlation between union density, wages, and productivity by first looking at how tax subsidies affect union membership. Using data collected by the Norwegian Tax Authorities and Social Services, the study examines the whole Norwegian population of workers, workplaces, and firms from 2001 to 2012. To calculate productivity, researchers relied on Statistics Norway’s Capital Data Base which provides data on value-added per worker and firm revenues, along with other production inputs, investments, and prices. In Norway, union membership fees are a tax-deductible allowance, meaning the size of the tax subsidy can affect demand for union membership and thus union density. From 2001 to 2012, the subsidy has increased over 400 percent while the average membership fee rose 150 percent, meaning the subsidy grew from 7 percent to 21 percent of the union membership fee by 2012.

From here, researchers established correlations between the tax subsidy, the price and probability of union membership, union density, and the average wages paid by firms and productivity. They found that the higher the subsidy rate, the higher the rate of unionization and thus union density. The higher the union density, the higher the firm’s productivity, and the higher its workers’ wages. The study also found that not only does the subsidy rate "clearly” influence the unionization rate, but if it was kept at 2001 levels, union membership would have dropped 3 percent while firm productivity would have been 6 percentage points lower by 2012.

As for why tax-subsidized union density increases productivity, the researchers highlight a few potential reasons. One is simply that unions provide a "voice" for workers that results in longer tenures, better feedback mechanisms, and incentivizes firms to invest more in workers and their workplaces with local bargaining units able to efficiently direct those resources.

Another may be that tax subsidies have a greater effect on union demand at small firms with some unionization than at larger firms with either significant or no unionization. As a result, the tax subsidies may help push unionization efforts over the threshold necessary to demand a trade union agreement in Norway (10 to 25 percent). Such agreements can have a “profound influence” on a firm's policies and organization of work in ways that improve productivity.

This may also be why tax-subsidized union density increases wages: researchers suggest that higher union density means greater ability to bargain over wages and this effect is most observable in high-productivity firms.

These effects may not be generalizable to other countries. Different countries have different institutions and relationships between unions, firms, employment law, and its enforcement. The United States has tax subsidies for union membership fees, but with notable exceptions. In fact, U.S. tax code gives employers, not employees, more room to deduct the costs of unionization—employers can write-off expenses spent hiring lawyers, consultants, and other third parties to fight against or negotiate with unions.

To make matters worse, few countries have as broken an employment law system as the United States where workers are actively misclassified, usually as independent contractors or “gig workers” as part of a war on labor by capital seeking not only to skimp on labor costs but decisively shift power dynamics in favor of firms and their investors.