Are Unions Still Relevant?

Labor Day celebrates the U.S. worker, a day that union leaders demanded be recognized. But do the organizations that brought Labor Day to America still hold relevance?

As TPOH has discussed in another post , union membership has declined considerably in the last 30 years, the years for which comparable numbers can be measured. And the percentage of workers in union memberships has surely fallen even more than that since their heyday of the mid-20th century.

Part of the relationship to union decline is the drop in the number of manufacturing jobs in the U.S., a drop that has been accelerated by technological advances over the past decades. But is the use of technology to replace the worker in part due to the outsized role unions played?

While unions cannot be blamed for the job losses that have occurred due to technological advances and offshoring, in many ways unions made matters worse for companies facing those changing global forces. Typically, union wage premiums arise because unions negotiate compensation packages that are artificially above market compensation levels. For firms facing global competition, unions raise their employers’ labor costs and make them less competitive. This hastened the outsourcing of production overseas to take advantage of lower manufacturing labor costs in other countries.Therefore, it’s important to recognize the hidden costs of union wage premiums. In the short run, unionized workers enjoy compensation packages that are above market levels. But in the long run, those wages reduce the profitability of their employers, and investment in the global economy will move away from companies with such high costs and low profitability.

Of course, that's not the only reason for the decline in union membership. The shift toward service sector jobs - professional, technical, and medical, like financial advisers, web developers, and physical therapists - is expected only to increase in the coming years, and those jobs aren't a good fit for unions.

A one-size-fits-all union-type compensation contract with pay determined mostly by seniority and not merit is no longer desirable or relevant for the workers of the 21st century. America’s workers today are increasingly competing in a highly globalized economy and labor market, and they are no longer are best served by union representation that ignores individual effort and merit-based compensation.

But just because unions don't have the strength that they used to doesn't mean the American worker is powerless. Skills training and education have made the "skilled laborer" more savvy and successful over the years, and this trend is something worth continuing to celebrate.

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