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September 02, 2003

How Unions Increase Pay

[Note that I've added a link to this older post on Why Unions Have Trouble Organizing Workers.]

The fact that unions increase wages is the most basic fact that most people understand about unions, but it's still worth understanding the details.

Start with this basic AFL-CIO summary and this UAW fact sheet. For a more indepth discussion of the union wage gain, see this new Economic Policy Institute paper.

These are the highlights:

The Union Wage Premium

Here are the basic significant premiums that union members earn over non-union members:

This is true not because unions organize in higher pay industries (although some industries have higher pay because they have been unionized), but this premium applies between workers within the same industry. In fact, the union wage premium is even higher in low-wage occupations: "For example, union cashiers may earn $10.97 per hour, 36 percent more than nonunion workers in the same occupation." Check this graph:

Average Hourly Earnings of Selected Occupations—2002

Despite the old stereotype of unions being about white guys, the union wage preminum is higher for minority groups and women than for white men. (And a higher percentage of blacks than whites are union members.)

Unions increase wages for non-union workers

One of the less understood facts is that while unions increase wages for members, they also increase wages for non-union workers. When you stop and think about it, this should not be surprising. In industries where unions push up wages, the non-union companies often have to raise wages to compete for the best workers.

Even where an employer could run a company on low wages, high union density means that a union organizer can show up, flash the higher wages in the contract and threaten to unionize the firm. To stave off that threat, those employers will raise salaries toward the union wage level.

The higher the percentage of unionization -- often called union density -- in an industry or a region, the higher the wages for both union AND non-union workers.

How this works out is illustrated in a case study of the hotel industry in this paper by Laura Dresser and Annette Bernhardt which revealed that:

...union wages were higher than non-union wages, but just slightly so (the premium within any one city ranged from 25 cents per hour to $1.70). Far more important was union density. As a VP of Hotel Operations for a major hotel observed: "In a union town, you pay if you're non-union. In a non-union town, you pay if you're union."

The highest paying hotels in our study, whether unionized or not, were located in high-density cities. In these hotels, housekeepers start at well over $10.00 per hour (and in one city, both union and non-union hotels pay over $13.00). By contrast, the worst paying hotels in our study were located in a low-density city, where housekeeping wages started between $6.00 and $7.00 per hour, regardless of whether the hotel was unionized or not.6 Waddoups (1999) documents this density effect for Las Vegas, finding that nonunion workers there earn wages approximately 19% higher than their nonunion counterparts in other cities, other things being equal. Our case study finding on the important wage effect of union density also echoes more representative studies across industries.

According to such broader research cited in the Economic Policy Institute's study, "the average nonunion worker in an industry with 25% union density had wages 7.5% higher because of unionization's presence." These effects are very strong for workers with less education, although college educated non-union workers seem to benefit less from unionization in their fields.

Strikingly, "because the nonunion sector is large, the union effect on the overall aggregate wage comes almost as much from the impact of unions on nonunion workers as on union workers."

To repeat that-- non-union workers actually gain more income collectively from the presence of unions than union members themselves.

ALL WORKERS benefit from increases in unionization-- some workers are just paying the dues and risking their jobs to advocate their formation, while other workers are passively benefiting from those economic gains. But these basic facts-- often obscured in discussions of unions -- should increase recognition of why unions are so critical to the economic well-being of so many workers across the country. And if the threat of unionization was not there, even workers in less unionized areas would suffer that much more.

Posted by Nathan at September 2, 2003 08:34 AM