The Effect of Unions on the Economic Situation of Employees and Employers

Term Paper, 2019

8 Pages, Grade: 94.0



A union is an entity that ensures employees are subjected to conducive work environments through responding to complaints related to rates of payment, labor disputes, work safety, and hours of employment. The goal of ensuring the terms and conditions of the workforce are enhanced and maintained is attained through having a collective bargain, which refers to a process through which unions negotiate with employers the terms of employment on behalf of their members1. Major categories of unions include public sector unions such as freighters and doctors; Craft Unions such as united brotherhood of carpenters; and industrial unions such as industrial workers of the world. All employees have a constitutional right to join a union without being restricted or discriminated based on race, gender, religion, and sexual orientation. In the United States, labor unions are supported by the majority and protected constitutionally2. From this preliminary, it is quite clear that unions affect workers positively and poses a negative impact to firms or employers through forcing them to meet the set wage standards, which tend to be higher.

Effects of unions on Economic situation of workers

Unions advocate for the well-being of its members. At some point, employees feel powerless or unheard in the workplace. Joining a labor union imply that the workers want to bargain for their rights as a team- this is what is inferred to as a collective bargain3. There are many advantages that employees gain from bargaining collectively. In regard to the economic situation of employees, it is not a surprise that unions increase the wages of unionized workers. Walters and Mishel pursued a study on how unions help workers. The findings indicated that unions capitalize on the collective bargain to raise employee wages by up to 20%. In the same context, unions ensure that compensation and benefits are increased by up to 28%4. Apparently, it emerges that workers who are members of labor unions realize 15% higher earnings as compared to non-unionized employees- this provides a clear definition and meaning of the union wage premium phenomenon5.

Employees enjoy wage premium of between 10% to 20%. The figures were confirmed after being validated by three different studies performed at different time. Gregg Lewis performed two assessments in 1963 and 1986 on whether or not, labor unions increased inequality in earnings among similar workers. Also, Freeman and Madoff engaged in a classic analysis on what unions do. The three investigations concluded that workers who were members of unions earned higher than non-union employees6. Low-skilled and middle-skilled workers tend to be the greatest beneficiaries of wage premiums in a bid to reduce wage disparity. From Freeman’s point of view, unions work hard to establish a standardization in wages by reducing differentials across and within job specializations. Accordingly, low and middle-skilled employees end up benefiting from larger premiums relative to comparable non-union wages, a fact that attract the prevalent wage inequality between unionized and non-unionized employees.

The notion of inequality when encountered in any case infers to a certain degree of bias or discrimination. In the case of unionized and non-unionized workers, inequality does not attribute to the conventional understanding since it is brought about by the collective bargain that unions have, not forgetting that any worker across the globe has the constitutional right to join a labor union and benefit from the higher wage premiums. Once the aspect of constitutional right is brought into picture to support wage dispersion between union and non-union employees, the essence of inequality gains an understanding from a different angle. A critical overview to this concept clearly lays the blame to employees who work outside labor unions; thus, the reason individuals cannot consider the inequality brought about by wage premiums as being related to certain forms of discrimination. Inequality due to discrimination could have been a valid argument in case some individuals earned higher than others in the same category without being considerate of characteristics that are used to determine wages such as level of education, size of the firm, type of the industry, and additional work responsibilities.

Non-wage compensation and benefits come in different packages for union employees. Employer-provided medical and pension benefits are more frequent for unionized employees compared to non-unionized ones. As established by the economic policy institute7, unionized workers are 3.2% more likely to receive paid leave- this is relatively a small effect as compared to wage premiums since a majority of workers are entitled to paid leave. Nonetheless, it is a further justification that unions improve the economic situation of its workers, regardless of the insignificance that can be derived from a given increment.

Unionized workers are 22.5% and 18.3% more likely to receive pension and health insurance respectively8. Unions influence greatly the pension and insurance benefits of its member employees. The value for these two packages as determined by the economic policy institute are 56% and 77.4% respectively9. The higher value for pension implies that unionized workers are likely to receive substantive benefits. Unionized employees benefit 28% pension contribution from employers. In reference to health insurance benefits, the higher value for unionized workers is attributed to the generous health plan they receive. Unionized employees pay 18% lower health care deductible and less share of the costs that cover a unionized worker’s family members10.

Strong unions set remuneration standards that non-union firms ought to follow and meet11. Non-union employers are required to adhere to the set provisions by improving compensation and employment practices beyond what they could provide in case there were no strong unions in that sector- this a clear impact of union threat. Olson define the union threat effect as the extent to which non-union employees benefit from the employers’ efforts to forestall unionization12. In the absence of the union threat effect, unions have developed norms and practices that have been generalized and applied to the entire economy. Consequently, the generalized norms and practices improve the pay received by the entire workforce.

Union wage-setting was exposed through media coverage to help workers determine the fair pay rates that employers need to offer. The effect of unions on wage dynamisms and the general wage structure remain immeasurable in some areas such as in the manufacturing sector. Nevertheless, the threat effect is a dimension that is quantifiable and always ensuring employees receive better pay. The impact of threat effect on wages is supported by the union density, which is a notion that refers to the percentage of a unionized industry. As noted by Farber in his analysis13, any change in compensation at any level brought about by the strength of a union density during a collective bargain has a significant effect on the final value of the earnings received. Thus, unions are an essential entity in the economic sector that all employees need to consider joining for improved wages, compensation, benefits, and work safety.


1 Lillie 2006

2 Bivens et al 2017, August 24

3 Lillie 2006: 39

4 Walters and Mishel 2003

5 Mortensen 2003: 26

6 Walters and Mishel 2003

7 Walters and Mishel 2003

8 Bryson 2007: 34

9 Walters and Mishel 2003

10 Hagedorn, Alexandra and Hagopian 2016: 990

11 Bivens, et al 2017

12 Olson 2019

13 Farber 2003

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The Effect of Unions on the Economic Situation of Employees and Employers
University of Northern Colorado
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effect, unions, economic, situation, employees, employers
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Dr. Amos Wesonga (Author), 2019, The Effect of Unions on the Economic Situation of Employees and Employers, Munich, GRIN Verlag,


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