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High levels of income inequality and low rates of wage growth in the economy are sometimes blamed on a decline in labor unions. But do union actions, however well-intentioned, always result in the best outcomes for workers and help grow the economy? Recent evidence would suggest otherwise.
The “Fight for 15” campaign to hike minimum wages across the country, for example, is being touted as a moral imperative by labor unions. But, research shows that a higher wage bill for the firm will likely lead to dis-employment of the least productive workers. A loss of jobs is clearly not in the best interest of workers.
Perhaps realizing the potential for harm, these labor unions are now seeking waivers to protect their members from higher minimum wages. These actions suggest that even the strength of collective bargaining agreements cannot negotiate an outcome where higher minimum wages might not lead to the loss of jobs or other costly trade-offs.
If unions truly want to represent the best interests of workers, they should stop advocating for costly minimum wage hikes instead of simultaneously pushing for a wage hike and seeking waivers for the few unionized workers.
While there may be a general sense that collective bargaining agreements can somehow improve the overall welfare of workers by advocating both higher wages and higher employment, research shows that this is not true.
In a recent paper, the authors studied the role of unions in 17 Organisation for Economic Co-operation and Development countries over the period from 1960 to 1996. The study finds that unions tend to negotiate the highest wage increases for youths, women and older workers, and these increases lead to large employment reductions for those groups.
This is a likely scenario with the current Fight for 15 movement. More than 50 percent of minimum wage workers are younger than 25, and one in four is a teenager. Over 60 percent are part-time workers, and a large share of these workers is women. According to the study’s findings, these groups of minimum wage workers could likely face large employment reductions due to a doubling of the minimum wage. As I have written earlier, wage hikes that tend to lead to employment losses for vulnerable populations are unacceptable when better alternatives exist.
Finally, unions are not a bulwark against other changes in the market. Technological advances have resulted in automation and offshoring of jobs, affecting large groups of workers across the country. Instead of seeking union protection, research suggests that the demand for union membership has experienced a long-term decline, and data show that unionization rates have halved since the 1980s.
Today, many individuals in the labor market are still struggling to find full-time high-wage paying jobs. Many face obstacles such as the loss of middle-skill jobs, a significant increase in involuntary part-time work, poor wage growth and large declines in labor force participation among prime age males.
A variety of programs, including paid apprenticeships for youths, expansions of the Earned Income Tax Credit program for low-income workers and wage subsidy programs for displaced workers, exist and need to be expanded to help struggling members of the workforce. Most important, the solution is not union demands for mandated higher wages that could result in the further displacement of workers. Acquisition of skills, training and education will create more productive, self-reliant and able workers who will be able to negotiate for themselves the higher wages that they will be entitled to.
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