Unions: good for equity, good for efficiency

by kathy on May 9, 2008

By Kathy G.

It’s ironic that this James Surowiecki piece about Toyota’s success came out this week, given the fact that the the latest financial report from Toyota (via Megan McArdle) shows a substantial decline in profits. The decline is being blamed on “a stronger yen and soaring raw-materials costs.” Truck sales in the U.S. have also been down.

Whatever problems Toyota is currently having, Surowiecki points out that Toyota has “long been the auto industry’s most profitable and innovative firm” and that this year it may become the sales leader, as well. What have been the secrets to Toyota’s success? Surowiecki points to innovation, and in particular, Toyota’s vision of “innovation as an incremental process, in which the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis.”

Crucial this philosophy is

the idea that innovation is the province of an elect few; instead, it’s taken to be an everyday task for which everyone is responsible. According to Matthew E. May, the author of a book about the company called “The Elegant Solution,” Toyota implements a million new ideas a year, and most of them come from ordinary workers.

Though other companies have tried to duplicate Toyota’s techniques, they have had limited success, due in large part to the fact that “most companies are still organized in a very top-down manner.”

Though none of Toyota’s North American plants are unionized, their factories in Japan are, as are many of their factories elsewhere in the world. And Japan is where Toyota developed its innovative managerial techniques. The right-wing argument about unions is that “work rules” and lack of flexibility will inevitably stifle innovation and lower productivity. In fact, Ann Coulter’s arm candy loves to make this point, over and over. But Toyota’s success would appear to contradict this theory. And in fact, there is much evidence that contradicts the old conservative myths about the subject.

The best research has found that unionized firms are, on average, more productive than their nonunionized counterparts. There are a number of reasons for this. Partly it’s because union wages are higher, so managers work harder to improve efficiency. But it also has to do with what’s called the exit/voice tradeoff: a worker in a nonunion job is more likely to quit if she’s dissatisfied, but if she’s in a union, she has a voice—via arbitration and grievance procedures, for example—that she can use to try to improve working conditions.

Because unions give workers a voice, unionized workers have lower quit rates than their nonunion counterparts. This reduces turnover costs, which is one reason why union firms enjoy higher productivity. Union workers also have longer job tenures, which means they’re more skilled and experienced, on average, than their nonunion counterparts.

Unions also often lead to better labor/management relations. There’s evidence that unions improve morale, for one thing. Forming a union can giver the employer the impetus to weed out authoritarian and paternalistic managers; in addition, it can facilitate worker/management cooperative ventures. Unions create improved communications between workers and management, which can lead to better work policies and an improved production process. All these effects tend to result in improved productivity.

One especially interesting finding in the literature is that unionized workplaces have fewer managers. The intuitive assumption may be that more managers leads to more close supervision of workers, which leads to more productivity, but the literature on unions sheds doubt on that thesis.

Getting back to Toyota—it is interesting that so much of their success is due to their having implemented suggestions from ordinary workers. A union setting would tend to provide a far more hospitable environment for soliciting such ideas, since union workers have mechanisms for voicing complaints and suggestions and don’t have to fear for their job security. American workplaces, which tend to be nonunion and overmanaged (the U.S. has one of the highest ratios of managers to workers in the world), would present structural obstacles to adapting Toyota’s decidely non-top-down system.

More workplace democracy, in the form of more unions, fewer managers, and fewer firms organized on top-down principles, is highly desirable from an equity standpoint. But Toyota and the literature on unions provide compelling evidence it would be better for efficiency, as well.

{ 82 comments }

1

SamChevre 05.09.08 at 8:07 pm

Huh? This is even more than expectedly counter-factual.

Is there any evidence, anywhere, that American unionized firms are more efficient? (Efficient = productive, controlled for capital levels.)

2

David Weman 05.09.08 at 8:30 pm

She provided two links.

3

Anonymous 05.09.08 at 8:51 pm

Toyota’s innovation in organizing production is much more complex than simply the role of unions. Indeed, Japanese unions are company unions that do not play the same role of adversarial wage bargaining that is the core function of the European-American labor union. In order to understand the lean production system, one must read Taiichi Ohno’s 1978 book (translated in 1989 as “Toyota Production System: Beyond Large Scale Production.”). While there are other strands of practice and intellectual history that contribute to it, Ohno invented what is now called lean production or the Toyota Production System and identifies its core elements. Krafcik’s 1988 MIT thesis on comparative production flows in auto manufacturing that coined the term “Lean Production” is also useful for an outsider’s perspective on Ohno’s system.

In order to understand the role of labor in the Toyota production system and see the flaws in equating the Toyota model to higher productivity in unionized firms, I *strongly* recommend Satoshi Kamata’s 1973 book (translated by Akimoto in 1982 as “Japan in the Passing Lane: An Insider’s Account of Life in a Japanese Auto Factory.”) Kamata was a journalist who worked under cover in the Toyota Koromo factory for a season and reported the ways in which the Toyota production system exploits certain categories of workers and uses social network structures to extract greater effort and attention from them than would be possible by traditional Taylorist managers.

Addressing the overall point, research from Sweden and Germany does suggest that Works Council systems can increase productivity by mobilizing the intellectual abilities of workers to solve production bottlenecks and introduce applied innovations (the best theoretical frame for this effect is probably Polanyi’s concept of tacit knowledge linked with networked problem solving) without the kinds of systems described by Kamata, it is difficult to draw general conclusions about the productivity effect of unionization from the Toyota case or philosophy.

4

Matthew Kuzma 05.09.08 at 9:15 pm

And in fact, there is much evidence that contradicts the old conservative myths about the subject.

Get it? You could be talking about anything, here!

5

Commenterlein 05.09.08 at 9:26 pm

I know the literature on productivity and unions reasonably well, and the evidence for a positive link is most definitely not compelling. Ambiguous and really difficult to pin down, especially once one tries to take the endogeneity of unionization into account, seems like a more accurate characterization.

On a more conceptual level, if practices like higher job security, worker empowerment, better grievance procedures, and so on that you associate with unions do indeed lead to higher productivity, why haven’t companies figured this out and offered these kind of contracts and practices by themselves? You argument seems to require not only that certain union-associated practices improve productivity, but also that firms are too stupid to recognize that and opt to leave these efficiency gains on the table. Or am I missing something here?

6

abb1 05.09.08 at 9:57 pm

Unions and companies are supposed have adversarial relations, not complimentary. If Toyota makes higher profits than other car-makers, then the Toyota workers are not being paid fair wages, and that’s what their union should be concerned about.

7

Mark Shapiro 05.09.08 at 10:46 pm

commenterlein: ” . . .You(r) argument seems to require not only that certain union-associated practices improve productivity, but also that firms are too stupid to recognize that and opt to leave these efficiency gains on the table. . . “

Of course firms know that treating workers decently improves productivity. That’s why slavery never existed.

8

Mark Shapiro 05.09.08 at 10:48 pm

Please ignore the unintentional (r) in the comment above . . . and the rest of the comment, if you like.

9

noen 05.09.08 at 10:58 pm

Or am I missing something here?

Yes, you are. Many in upper management do not have the best interest of the company in mind. They are not working towards a common goal. They are pursuing their own narrow self interest. America has conflated greed with the common good for too long. We’ve paid the price for Nash’s paranoid schizophrenia for decades.

In Asian cultures working for the good of the company is woven into the fabric of their lives. It’s unthinkable for management to be as self centered and, frankly, sociopathic, as American managers can be. When an America CEO suicides because he let the company down is when we’ll start seeing some changes. Don’t hold your breath.

10

Thomas 05.09.08 at 11:02 pm

A whole post on Toyota and relative productivity without a mention of the fact that Toyota factories in the US are more productive than their union counterparts. I can’t imagine why Toyota fights unionization.

11

Commenterlein 05.09.08 at 11:08 pm

Noen,

Even if I agreed with you, I don’t think you answered my question. Kathy’s argument seems to be that certain practices she associates with unions raise productivity. If so, then the selfish greed you dislike should motivate managers and shareholders to push for the same practices in order to reap those productivity gains.

12

JohnFLob 05.09.08 at 11:30 pm

Based on a lifetime observing unions and their effects on productivity real life seems to contradict the article and many of the posts that support it. Most unions appeared to have had organizational structures that replicated the corporate structures.

The upper echelons of the unions were focused on control, power, and influence. They seemed obsessed with being overly confrontational with the company. Also unions were too protective of workers that performed poorly. Even workers with markedly low productivity volumes or extremely high QC rejections rate were protected by the union.

Union structures also placed unrealistic limits on the range of activities workers were allow to perform. ‘God forbid’ that a non electrical union member change a light bulb in a table or floor lamp.

13

etc 05.10.08 at 12:00 am

Tangential threadjack, but:

America has conflated greed with the common good for too long. We’ve paid the price for Nash’s paranoid schizophrenia for decades.

People have been conflating a much-disliked school of economics with a mathematician for far too long. I for one fail to see how the demonstration that all Riemannian manifolds can be isometrically embedded as a submanifold of a Euclidean space has any relevance to unions. Game theory’s a bit of a stretch too, really.

14

Seth Finkelstein 05.10.08 at 12:01 am

Commenterlein: That’s a trivial argument of market perfection.

A: “X is an counter-productive practice”
B: “How can that be? [Implicit: The market is perfect] Then someone would do not-X, and outcompete the less-efficient X. [Implicit: Because we live in the best of all possible worlds, all practices are the most efficient]“

Noen did in fact answer. The problem here is that whenever a reason is given that the trivial argument is false, the reply can be to repeat the trivial argument.

15

Commenterlein 05.10.08 at 12:18 am

It’s a trivial but powerful argument (which does not rely on market perfection), and dismissing it out of hand makes little sense.

In fact I would claim that Noen’s argument that capitalists and / or managers would leave productivity gains on the table because they are greedy makes a lot less sense.

Look, if Kathy or anyone else wants to make the argument that market and / or organizational imperfections prevent firms from making productivity-maximizing changes to their work practices, then I am more than happy to entertain it. Let’s talk about what these imperfections are, why firms can’t solve them by themselves, and how one might help them to do so. For example, why don’t firms offer employment contracts with enhanced job security, if that would increase productivity?

As an aside, the observation that jobs that require more employee autonomy and creativity are less likely to be unionized than others seems to be evidence against Kathy’s hypothesis.

16

kathy 05.10.08 at 12:41 am

“I know the literature on productivity and unions reasonably well, and the evidence for a positive link is most definitely not compelling.”

Oh yeah? Sorry, but you are wrong. The serious research that has been done on this subject overwhelmingly supports the idea that unions are associated with more productivity, not the opposite.

I cited two books that support my argument. Can you cite any books or papers to support yours? If so, I’d love to hear about them. Because I myself don’t know of any.

17

Quo Vadis 05.10.08 at 12:43 am

Years ago I worked as a glazier in both union an non-union shops. While there were some things I definitely liked about the union (the pay and the caliber of my co-workers), my relationship to the business and to management was definitely much more remote which is not necessarily a good thing. My stake was in the success of the union, not the company I worked for.

There’s nothing specific to the communication model between a union employee and the company that would be an advantage in implementing a broader participation of the employee in the business. My communication with the business and management was, like my relationship to them, very restricted and formalized. The path for grievances was through the shop steward who had better things to do than to relay my bright ideas about running the business to management.

The very nature of the loyalties involved would make it not only more difficult to implement, but more difficult to motivate as well. There’s no way for the company to provide incentives for contributions that are beyond the scope of the union contract, and no career path to allow an employee to move from assembly line worker to industrial engineer.

18

giotto 05.10.08 at 12:45 am

Unions also often lead to better labor/management relations. There’s evidence that unions improve morale, for one thing. Forming a union can giver the employer the impetus to weed out authoritarian and paternalistic managers

Why do we assume that management wants any of these things? Corporations are authoritarian organizations, designed to be run from the top down, and those at top have few incentives to modify the arrangement. And for many at the top opposition to unions is a matter of ideology, that is, largely a matter of faith: unions are to be opposed because unions tip the balance of power toward the wrong people. Faith in this ideology is so widespread that it is now being taken up by more and more university administrations, as is very evident in the McGill administration’s
strike-breaking
campaign
directed against the TA
union
McGill is being authoritarian, apparently in order to demonstration that it can do so and get away with it. Specifically, they need to crush the TAs so that the clerical workers won’t get any ideas. There’s your labor relations.

19

Thomas 05.10.08 at 12:55 am

Kathy, that’s fantastic. I now see that the only serious research on the subject is also the only research you are familiar with. I don’t even know what to say to this kind of stupidity.

20

kathy 05.10.08 at 1:00 am

Thomas, that’s fantastic. I see that you yourself do not link to a single article, study, or book that supports your own ideas. Nor do you even attempt to make an argument pulled from your own ass.

So I see that I must take you *very* seriously indeed. Bwah ha ha ha ha!

21

Commenterlein 05.10.08 at 1:06 am

“Oh yeah? Sorry, but you are wrong. The serious research that has been done on this subject overwhelmingly supports the idea that unions are associated with more productivity, not the opposite.”

Kathy,

I am genuinely baffled how you can interpret the existing evidence as “overwhelmingly supportive” of a positive productivity effect. I am sure you know Barry Hirsch’s recent review of the literature in the Journal of Labor Research. AFAIR he summarizes the average effect of unions on productivity as pretty much zero, and negative on investment and growth. I have met Barry Hirsch at a few conferences, and he is about as pro-union as on can get, so he cannot be easily dismissed as being biased against unions.

The main reason why I would describe the empirical evidence as ambiguous is that nobody has come up with a good instrument for unionization. Without one, we are looking at a correlation and have no idea what’s driving it. The fact that you want to give it a causal interpretation is really more a statement about your priors than anything else. Given my own priors, I would be more inclined to interpret a positive correlation between unions and productivity as caused by high productivity creating the space for unions to thrive.

22

Borealis 05.10.08 at 1:07 am

Has anybody recently been to Uniontown, USA, also known as Detroit, Michigan? All those efficient union businesses sure have dropped the cost of housing prices there.

23

giotto 05.10.08 at 1:52 am

# 20:
Let me see if I can get this straight.

Many Detroit industries were/are unionized.
Many Detroit industries fell on hard times.
Therefore, Socrates is mortal.

Is that how this works???

24

giotto 05.10.08 at 1:53 am

2. There is no 2.. “1.” was a typo.
em, well. . . .

25

Andrew 05.10.08 at 2:55 am

From the aforementioned Hirsch article:

“A particularly rich data set has been developed recently by Black and Lynch (2002). They estimate
production functions for a large sample of U.S. manufacturing plants over the period 1987-1993. Their study focuses on the effects of various workplace practices, information technology, and management procedures, but union status is also measured and analyzed. Absent interaction terms, Black and Lynch find slightly lower productivity in unionized plants following inclusion of detailed controls, a result equivalent to that in
the Clark and Hirsch studies. The authors, however, find that this result is driven by low productivity among unionized plants using traditional management systems. Unionized plants that adopt human resource practices involving joint decision making (i.e., total quality management or TQM) and incentive-based compensation (i.e., profit sharing for nonmanagerial employees) are found to be more productive than their nonunion counterparts, which in turn had higher productivity than union plants using traditional labor management relations (Black and Lynch, 2002). These results reinforce the conclusion that union effects are not a given, but depend highly on the specific economic and labor relations environment in which unions
operate. Although one is reluctant to put too much emphasis on these specific results, they comport well with our priors. The suggestion is that union plants with high-performance systems, presumably adopted with union agreement, can realize enhanced productivity, whereas traditional top-down managed union plants realize no such enhancement. Such research reinforces the need to get inside the union black box, helping us understand why there is high variation in performance across different unionized settings.”

26

Andrew 05.10.08 at 3:42 am

Just read another of Hirsch’s papers. Good stuff. In this one, he discusses the factors contributing to the rise and fall in union density over the last 50 years.

Of particular interest to me in this paper, the authors note that a contributing factor to declining union density has been their efficacy in passing government employment regulations which benefit all workers, thereby (ironically) eliminating the need for unions in the first place. We have been replacing collective bargaining with workplace safety mandates, minimum wage laws, discrimination laws, family leave, ect…
When disagreements arise, however, I would think litigation over regulation would be more expensive than union arbitrage, but I’ve never really studied it.

I’d also suggest that because unions have become so focused on self-preservation and rent seeking in an increasingly hostile labor market, rather than promoting labor law beneficial to all workers, both union and non-union employees have suffered.

Anyhoo, there are a number of excellent points in the article which I didn’t touch on. Well worth reading.

27

Matt Weiner 05.10.08 at 4:08 am

rent seeking

What exactly does this mean here? For instance, this account (by an actual, if perhaps obscure, economics professor) describes rent seeking as “seek[ing] to have value transferred to [oneself] without providing anything in return”; but this seems like mere invective and also doesn’t apply to the unions — if the unions are a separate party from the workers, then they provide something valuable to the workers, and if they aren’t, then they provide something valuable to the employer (namely, the workers’ labor). Furthermore, the Wikipedia article says that a paradigmatic form of rent seeking is manipulating the regulatory environment; but you seem to be suggesting that the unions should be manipulating the regulatory environment by promoting labor law beneficial to all workers (I agree).

Sorry to jump on you, but this has bugged me for a while about the concept of “rent seeking”; and I see that some guy cited in the Wikipedia article claims (p. 133) that whether you consider unions to be rent-seekers depends on whether you think that their net effects are positive or negative, which doesn’t make rent seeking seem like a very fruitful way of analyzing their role.

(And, as you can tell from my citations, I’m no economist, so I would appreciate a lay explanation of the concept that doesn’t boil down to “economic/governmental activity that has a negative effect.”)

28

noen 05.10.08 at 4:13 am

That’s interesting Andrew. If I had to guess I would think that the reason for that high variation is the difference between feeling part of something bigger than yourself and that your contributions are valued versus feeling it’s every man/woman for themselves and that your ascent up the corporate ladder is measured by the bodies you leave in your wake.

It’s service to self vs service to others. It probably isn’t that black and white, one very likely needs a mix of both.

“Let’s talk about what these imperfections are, why firms can’t solve them by themselves, and how one might help them to do so. For example, why don’t firms offer employment contracts with enhanced job security, if that would increase productivity?”

Ideology is one answer. For a long time we’ve been living under the ideology that society is best structured as made of individuals all seeking only their own rational self interest. We believe in this ideology even in the face of evidence that few people actually conduct their lives like that.

A second answer is psychopathology. There do seem to be quite a few richer-than-God greedy bastards with their hands on the levers of power. Whom by all indications appear to qualify as full blown psychopathic personalities.

29

Thomas 05.10.08 at 4:13 am

Kathy, I needn’t cite any articles to understand that you’re a moron.

Andrew, that research isn’t serious, and in any case, the overwhelming weight of the evidence goes the other way (just ask Kathy), and though I’m sure she thanks you for bringing this isolated case to her attention (though she’s familiar with the literature, she’s never seen it before, which is appropriate, because it isn’t serious and goes against the overwhelming weight of the literature, in which all the serious work speaks with a single voice), it doesn’t change anything (how could it?).

30

jsalvati 05.10.08 at 4:16 am

I would be interested in seeing a post on Company Unions. I am curious about what the general progressive perspective is on company unions is. My (naive) impression is that company unions can provide a lot of the same benefits that normal unions provide without creating a duopoly.

31

K. Williams 05.10.08 at 4:21 am

Thomas, did you actually read the passage Andrew cited? It supports Kathy’s argument, rather than contradicting it (as you seem to believe). Black and Lynch find that when you compare companies that use forward-thinking human-resources strategies like joint decision-making and incentive-based compensation (like the kinds of strategies Toyota uses), unionized firms are more productive than non-unionized firms.

Did you get that? They find unionized firms are more productive than non-unionized firms. Now, how is it that you misread the passage. Do you think it’s possible your blatant ideological bias led you to think it said what you hoped it said?

32

Questioner 05.10.08 at 5:41 am

Hi Kathy. You offer a number of explanations for why unionized firms are on average more productive than nonunionized counterparts. I don’t deny the fact that nonunionized firms are on average less productive (though I wonder whether this “on average” is true in every industry–including the airline industry?–or just over all industry (in the world? In America?)). Anyway, I have questions below about the following three explanations you offer (and I don’t know whether these explanations have also been shown to be correct by the best research, or whether you’re offering these explanations in a more provisional manner):

1. Union wages are higher, so managers work harder to improve efficiency.

If I understand you correctly, you’re saying that, because managers have less money to waste, they have to be more creative with the money they have, which means they end up coming up with solutions that their counterpart nonunion managers don’t come up with. But why wouldn’t managers who have more money to waste use that extra money to come up with the same solutions their union counterparts have, and undercut the prices of the unionized firms, to boot? Is it that they can’t motivate themselves to do that?

2. A worker in a nonunion job is more likely to quit if she’s dissatisfied, but if she’s in a union, she has a voice–via arbitration and grievance procedures, for example–that she can use to try to improve working conditions.

If the union is quite large, I wonder whether she would still feel like she has a voice.

3. Unionized workers have lower quit rates than their nonunion counterparts (because unionized workers have a voice), which reduces turnover costs, which increases unionized firms’ productivity.

I was under the impression that union workers were, on average, paid higher than their nonunionized counterparts and, moreover, were harder to fire. Couldn’t this make up the lion’s share of the explanation for their lower quit rate, as opposed to the feeling of having a greater role that they play?

33

a 05.10.08 at 6:14 am

“It supports Kathy’s argument, rather than contradicting it (as you seem to believe).”

Well, I have no dog in this race and I’m just reading the passage that was put into comments, but I don’t think it supports Kathy’s argument.

Kathy said: “The best research has found that unionized firms are, on average, more productive than their nonunionized counterparts.”

I do think commenterlein’s point about correlation and causation is (as usual) pertinent.

Could be wrong about this, of course, no expert at all in this.

The comment said: “Black and Lynch find slightly lower productivity in unionized plants following inclusion of detailed controls, a result equivalent to that in
the Clark and Hirsch studies.”

Maybe Black and Lynch and Clark and Hirsch are not “the best research”? Otherwise the two quotes seem in contradiction.

Again quoting from the comment: “Unionized plants that adopt human resource practices involving joint decision making (i.e., total quality management or TQM) and incentive-based compensation (i.e., profit sharing for nonmanagerial employees) are found to be more productive than their nonunion counterparts…” Since I’m not familiar with the research, I’m not sure about the intent of the word “counterparts.” But it sounds like on a subset of workplaces – those with certain human resource practices – unionized plants are more productive than non-unionized ones. This would apparently include Toyota, the case that Kathy was considering (although Toyota is non-unionized in America, and I imagine (?) that the study is just American-based). But I believe Kathy never qualified her claims to her subset, and her arguments do seem to be intended to apply to the entire set rather than the subset.

34

Borealis 05.10.08 at 7:07 am

The point of this posting is that “The best research has found that unionized firms are, on average, more productive than their nonunionized counterparts.”

The link used to prove this point goes to an Amazon.com book published a year ago that no one has even bothered to review on Amazon.com.

If one would look outside the ivory tower of acadamia, one would see that in the U.S. even the workers haven’t believed this for thirty years. The only stronghold of unions are in the public sector where union dues can help elect the politicians that vote on the contract.

Cities that have been the icon of union work, like Detroit and Pittsburgh, are dying. Cities that are prospering in a modern economy are non-union.

It is not proof in an ivory tower, but that is the problem with a free market — it doesn’t consult the ivory tower when it passes out profits and losses.

35

Robert 05.10.08 at 7:13 am

I would think unionization would be associated with the introduction of the formal definition of processes that can be improved. I’m not familiar with literature about unionization, but I have read some claims about six sigma, Statistical Process Control, process improvement, etc. in my day job’s field.

As why managers would oppose productivity improvements – that’s obvious and has been answered above. For your amusement, I put up a story on my blog, which I doubt is atypical of the literature on Taylorism, scientific management, TQM, etc.

36

Tim Worstall 05.10.08 at 8:50 am

“Partly it’s because union wages are higher, so managers work harder to improve efficiency.”

Or it could be that managers, when faced with the necessity of paying higher wages, only hire that labour which is indeed more productive. But that’s a right wing argument, isn’t it, so clearly cannot be true?

37

Katherine 05.10.08 at 8:50 am

I note that commenterlein and thomas, despite being ever so sure that they are right and Kathy is wrong have yet to link to anything to support their ever-so-right view point.

38

Katherine 05.10.08 at 9:14 am

Tim, in your scenario, that labour that is more productive would be the union labour? Are you sure that that contradicts Kathy?

39

Treasa 05.10.08 at 11:56 am

I love the way people like to split the world into two places. It is entirely possible – and would appear to be the case – that some union shops are more efficient than some non-union shops and some union shops are less efficient that some non-union shops. My feeling is that to understand why, you need to look at the internal culture within a company to understand why. The issue in Toyota is clearly laid out. Innovation from everyone is valued. In a lot of other companies, it is only valued insofaras someone on the management structure can get credit for it. I would venture to suggest – not from my experience in reading the literature but from actually having to work in a lot of different companies – that the management culture has a lot more to do with how things are done. If you work in a company with a heavy blame culture, there is less time for innovation when everyone is working on covering their asses. If you work in a company with a heavy blame culture, then no one is going to want to do battle with the structures to get something new through the tumbleweed on the grounds that if it doesn’t work, they are screwed.

But it’s much easier to blame the on-the-ground workers than look at management cultures, isn’t it?

40

hard working American 05.10.08 at 11:57 am

Neon at # 9 and #26 is very close and Quo Vadis at #15 makes a good point as well. #32 Robert nails it.

41

Barry 05.10.08 at 12:01 pm

If I were a rich right-winger, it’d be heartening to see so many people, *on their own dime*, bash unions (with the exception of Tim Worstall, of course, who’s a paid wh*re). It used to be that one had to pay goons and liars; now they are foolish enough to work for free.

42

Slocum 05.10.08 at 12:11 pm

The best research has found that unionized firms are, on average, more productive than their nonunionized counterparts.

Ah, this must be why all the unionized automakers in North America have been growing, expanding, and taking the market-shares of the non-unionized companies (because American consumers naturally prefer the superior products produced by productive unionized workers who get on so well with their managers).

And this must be why Toyota, Honda, Nissan, Hyundai, BMW, and Mercedes (who have such positive experiences with unions in their home countries and understand the competitive advantages of a unionized workforce) all chose to locate in union-friendly areas and encouraged the UAW and CAW to organize their factories. And this must be why, having seen the advantages of unionization in safeguarding the prosperity in places like Flint, workers in these new factories all voted overwhelmingly to have the UAW represent them.

And, of course, it’s not just the auto industry — the competitive advantages of a unionized workforce must be why unionization has been expanding so rapidly across the U.S.

Seriously — as long as a union does not attempt to monopolize the supply of labor in an industry and force all consumers to enjoy the ‘benefits’ of their superior productivity, I have no problems at all with unions.

If the unionized workforce truly does produce a better product for a better price than the non-unionized alternatives, I’d be more than happy to buy their products. I’m not at all keen at being forced to buy their products, though.

43

Karmakin 05.10.08 at 12:16 pm

If you pay attention and look around to your job (in most cases), it’s pretty easy to see situations where productivity and quality improvements are left on the table in order to satisfy personal management goals.

A good example is in a sales team making unrealistic claims that the support team now has to deal with. Both are in separate departments, the sales team is making more sales, so they look good, while support costs have gone up, so they look bad. End result, the sales team looks better than the support team, however in reality the sales team caused the problem. Most management structures are completely unable to discern this. It doesn’t show on the bottom line, in black and white, it doesn’t exist.

A higher level opening opens up, the sales team head gets the promotion, and it shows that this stuff works.

The modern corporate structure shouldn’t been seen from an external point of view…that is, in terms of returns to shareholders, they should be watched from an inside point of view, in terms of competition between internal departments. It’s a much better model for analyzing and predicting corporate behavior.

44

Hidari 05.10.08 at 12:26 pm

At the risk of squaring the circle and agreeing with both Slocum and Abb1, I’m not sure that this is the best way to defend unions. After all, as Abb1 states: since when was it the unions role to boost the productivity of the firm? The purpose of a union is to help the working conditions of its members fight layoffs/redundancy etc. Insofar as this may be helped by improved productivity then fair enough, but it’s not clear why this should be the case. On the contrary, many legal, normal actions of unions (striking, for example) without a doubt harm the company, at least in the short term.

My second point concerns something that I know a little bit about, and is an analogous situation. For decades now, people have been trying to prove that unionised workforces are safer than non-unionised. But they run up against a fundamental problem: workplaces which are inclined to be unsafe (i.e. because of poor management) are more likely to unionise than the contrary: so any positive effect tends to be ‘hidden’ in the statistics. .

I’m wondering if this is an analogous situation. Companies where the management are incompetent and useless would also (I would imagine) tend to treat their staff like shit. Not always, but usually. And this would tend to result in a move towards unionisation. So any help that unions provide towards effective management might well be masked.

I think also, the cultural issues have to be taken into account here. Generally speaking, outside the US, companies, whilst not exactly being crazy about unions, tend to accept them. Therefore, in this situation I think my rule would hold. It would only be fly by night, dodgy, or incompetent firms that would flatly refuse to unionise. In the US on the other hand, hatred of organised labour is much more firmly entrenched in the mainstream. One can imagine highly competent and well run firms in the US with a psychotic loathing of organised labour in a way it’s hard to imagine in the US or Japan. So, my ‘rule’ might hold for countries outside the US but not for the US per se.

45

Tim Worstall 05.10.08 at 12:26 pm

“Tim, in your scenario, that labour that is more productive would be the union labour? Are you sure that that contradicts Kathy?”

Contradicts Kathy? No, just rearranges the possible causation that’s all.

“with the exception of Tim Worstall, of course, who’s a paid wh*re”

And hello to you too Barry.

46

Slocum 05.10.08 at 12:42 pm

One can imagine highly competent and well run firms in the US with a psychotic loathing of organised labour in a way it’s hard to imagine in the US or Japan.

It’s hard to imagine that Toyota, Honda, Nissan, BMW, and Mercedes all have a ‘psychotic loathing of organised labour’ (at least, not unless that is the result of their experiences with unions in their home countries, which I don’t think is what you’re arguing). But they do recognize that:

1. A non-unionized workforce provides a significant competitive advantage in the U.S. (and Canada too, let’s not forget — the Honda and Toyota plants are non-union there as well).

AND

2. In North America they actually have a good chance of being able to operate without unions and maintain this competitive advantage, so they make efforts to do so (by locating in traditionally union-unfriendly, right-to-work states, for example).

And there’s a third thing that nobody’s has mentioned. The North American workers for Honda, Toyota, and the rest realize that non-unionization gives them a competitive advantage as well. They agree to work for a bit less (but still a very decent wage) and the company grows, and there is overtime to be had rather than layoffs, and their community prospers. The non-union autoworkers in North America are colluding with their companies to take the business of the ‘legacy’ automakers and their unionized workforces. Now there’s an interesting case of labor-management cooperation for you.

47

Rick Dubin 05.10.08 at 1:53 pm

Unions had their honored place in the rise of workers rights, safe working conditions, fair wages and benefits packages. I suspect that they will again , in those third world nations experiencing the offshoring phenomenon that is employing their citizens and wrecking their environments.

Then a funny thing happened; union Presidents began to make as much money as their CEO counterparts, moved into the same neighborhoods , joined the same clubs and found they had much in common with each other and less in common with the rank and file. I speak as a many year member of some large unions, currently IBEW, in the past the Teamsters, SEIU and the TWU.

The second phenomenon that has altered the picture for the workers is the rise of what I would portray as twenty first century pirates; CEO’s who join large firms, make huge profits in the form of stock options and enormous bonusses, and then ride off into the night with their undeserved and unearned wealth after a period that averages about seven years. They leave behind much wreckage and a less secure position for the workers who remain.

Capitalism, aint it grand?!?

48

evagrius 05.10.08 at 1:54 pm

All of this discussion is rather useless.

Only one person, as far as I can tell, brought up the notion of cultural differences.

You can’t compare the production systems of the U.S and Japan without bringing in the profound cultural differences.

I once saw a TV program from NHK, the Japanese network, on engineering triumphs of Japanese manufacturing. Two episodes were memorable; one on the development of the VCR and the other on the development of Subaru’s first auto, the Ladybug. Both had similar scenarios- a company needed a new or better product so that it could survive and a team was created from across the company to do so. The atmosphere was similar to the sterotypical “samurai” movies, each member dedicating all of their life energy to the success of the project. No one member was key-all were. No one member was given credit-all were. No one member was responsible- all were. No one member was rewarded-all were. It was interesting to see the fictionalized episode and then the interviews with the real people involved.

The point is that there really is a different ethos involved. The U.S. glorifies the stand alone hero-maverick against the crowd while Japanese glorify the stand together group of loyal retainers around the leader in the middle.

49

dbr 05.10.08 at 2:11 pm

I work in a unionized manufacturing plant – I am an engineer, not in the line management, so I don’t get directly involved in negotiations, grievances, etc, but I have some exposure to those things. I would say that on the question of productivity, it depends.

I think for a union, the best negotiating environment is when the business is profitable and expanding – it is easier for the management to give larger raises or better benefits when profits are good, and the unions obviously have more leverage in threatening to strike a highly profitable plant than a barely profitable one.
In a growing business, its easy for the union to endorse and assist in productivity related investments etc as long as the productivity leads to plus production not reduced employment.

In a declining industry, like the American auto industry, the unions have negotiated to preserve jobs at all costs – to the point of workers getting paid for showing up specifically to sit in a big hall and not work. In those situations, the unions are obviously hurting productivity, and it leads to a death spiral for those companies.

A totally different situation is the construction industry – where the union members are organized by craft, hired by the job, and have a relationship with the union not any company. The unions in some ways benefit productivity – for example by providing training. In that environment competition between unions on who is allowed to do what task can lead to very inefficient, sometimes even absurd, work practices.

dbr

50

conchis 05.10.08 at 2:50 pm

Katherine,

Thomas is being a dick. But then, so was Kathy.

However, it seems entirely disingenuous to call commenterlein out for not linking to supporting research when (s)he did in fact provide a reference, and andrew subsequently linked to it.

51

Walt 05.10.08 at 4:01 pm

Are we talking about productivity here, i.e. the output per input? It is certainly possible that the output per input of unionized worker is higher, but that firms with non-unionized workers are more profitable than firms with unionized workers. (In fact, I would expect this.) Firms are not in the business of maximizing productivity; they are in the business of maximizing profits.

52

Naadir Jeewa 05.10.08 at 4:48 pm

Didn’t the Americans put union bosses on directors boards in post-War Germany?

53

Tim Worstall 05.10.08 at 4:56 pm

Walt, that’s a point. When Kathy is measuring productivity, is she measuring productivity per unit of labour? Or per unit of money spent on purchasing labour? The latter is what a company is interested in.
Entirely possible (possibly though, not necessarily true) that the higher per worker productivity of union labour is offset by a lower per dollar productivity of labour, given the higher wages.

54

Eric H 05.10.08 at 4:58 pm

The best research has found that unionized firms are, on average, more productive than their nonunionized counterparts.

And we know it’s the *best* research, how, exactly? The author could offer this without the superlatives and let us make our own conclusions. But she makes so many similar assertions that I find it hard to believe the rest.

For example, as several have now pointed out, there are unacknowledged cultural differences between US and Japanese firms. Dengjian Jin’s work on this subject is good. There are also differences between corporate cultures and between unions, e.g. some unions require and provide worker training, others don’t (the ILGWU, for example, may have created the first Industrial Engineering program). There are also vast differences between today’s industrial unions and, say, the IWW of the past; as noted in #47, some of these arise from the fact that the unions themselves have come to resemble the worst industries in which they represent workers.

The relationships between unions and productivity are likely to be much more nuanced than provided for in the original post. As others have noted, the low turnover may be due to industry growth and/or higher pay. Higher rates of productivity and seniority may also be due to survivorship bias. The history of the struggles of longshoreman’s unions against the container ship may be illustrative: the unions opposed containers, they were eventually defeated (with the help of various government agencies), and then the subsequent workforce was unionised. The new workforce consists of a few crane operators rather than many stong bodies, and is therefore more productive, but this was in spite of, not because of unionization, though the raw stats will tell a different story.

Incidentally, workers at GM and other American plants are decidedly anti-suggestion program, if Slaughter and Parker’s work is at all indicative. Such programs are, in their eyes, mechanisms for extracting tacit knowledge from workers in order to make it explicit and thus to use against the workers, i.e. to break jobs down into simpler tasks, allowing workers with less experience to step into them, commonly known as “deskilling”. In the Slaughter/Parker universe, workers should withhold this information to use as a bargaining tool. Bainbridge’s work on participatory management confirms the Slaughter/Parker claims.

You might also find the efforts of the Crolyist and Wisconsin Progressives to contain and direct workers’ voices interesting. The Taylorists at one time made overtures to unions to make just the argument you are implicitly making above: it was called the “Mutual Gains Strategy”. The Progressives, however, sought to control rather than empower unions, and thus to confine workers’ voices to very narrow channels (see, for example, Chris Nyland’s “Taylorism and the Mutual Gains Strategy”, or see Herbert Croly’s The Promise of American Life). The belief that only conservatives oppose such workplace democracy is underinformed.

Personally, I’m in favor of a lot less workplace hierarchy and I agree overall with the conclusions of the original article, but the arguments don’t support it very well. You might look at Kevin Carson’s work on agorism and organization theory for much stronger arguments.

55

Katherine 05.10.08 at 5:26 pm

“However, it seems entirely disingenuous to call commenterlein out for not linking to supporting research when (s)he did in fact provide a reference, and andrew subsequently linked to it.”

Entirely disingenuous? Ouch. No, I just missed that. Still, it is lazy at best to claim that someone (Kathy) has not provided evidence for her claims when she has put in several links and in response provide a reference that someone else then has to look for.

56

Quo Vadis 05.10.08 at 5:32 pm

When I was working as a union glazier, I was making 2-3 times as much money as my counterparts in the non-union shops with whom my employer competed. Productivity and quality were definitely on the minds of the membership. It was a source of pride and professionalism among us and anyone who didn’t measure up was looked down upon. We had to be more productive in order to keep our high paying jobs and we knew it.

The companies we worked for backed up our efforts with capital, sparing no expense to provide us with all the best equipment and support.

So yes, as individual workers we were definitely more productive than our non-union counterparts. We had to be.

57

Hidari 05.10.08 at 5:37 pm

‘A non-unionized workforce provides a significant competitive advantage in the U.S.’

Er….I’m not an expert on this, but was Kathy’s initial point not that this is not, in fact, correct (over the long term).

58

Tim Worstall 05.10.08 at 5:41 pm

“The companies we worked for backed up our efforts with capital, sparing no expense to provide us with all the best equipment and support.”

Well, quite: adding capital to labour does tend to make the labour more productive.

59

Quo Vadis 05.10.08 at 5:49 pm

Related anecdote:

A few month ago, I had a plumber come out to do some work and I asked him if he was union. He told me he wasn’t and that he could make a lot more money working non-union. It turns out that he’s not just a plumber, he’s a salesman. He told me that he gets a commission on everything he sells when he’s on a job. If he comes to fix a leaky faucet and sell you a new one, he gets a commission on it. He told me he makes over $100,000/year.

Brilliant business model!

60

kathy 05.10.08 at 6:46 pm

I’m working something else right now so I’m not going to reply to every comment here. Just two quick points:

1. The economic research that says unionized firms have higher productivity than their nonunionized counterparts is strong, and not particularly controversial even within much of the discipline of economics (though of course there are conservative economists who argue otherwise). See the two books I linked to, Richard Freeman’s What Do Unions Do? (Freeman is an economist at Harvard) and the follow-up, which consists of papers by a variety of economists that look at how the findings of the Freeman book hold up 20 years later (answer: they hold up well, including, specifically, the findings on productivity).

2. Several people asked if it’s true that unionized firms are more productive, then why do most firms resist unionization? Well, ignorance of the facts about unions and productivity, and the desire to maintain control over workers, probably explains some of it. But perhaps more important is this: unionized firms have lower profits than their nonunionized counterparts, as the Freeman book also shows.

61

Rick Perlstein 05.10.08 at 6:52 pm

“When disagreements arise, however, I would think litigation over regulation would be more expensive than union arbitrage, but I’ve never really studied it.”

Tom Geoghegan demonstrates precisely this point to devesating effectiveness in his most recent book, “See You in Court.” It’s one of the ways in which the decline in union density hurts everyone, or at least anyone who buys a product or service.

http://www.amazon.com/See-You-Court-America-Lawsuit/dp/1595580999/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1210445429&sr=1-1

62

Matt Weiner 05.10.08 at 7:09 pm

When Kathy is measuring productivity, is she measuring productivity per unit of labour? Or per unit of money spent on purchasing labour? The latter is what a company is interested in.

But isn’t the former what society should be interested in? This seems to suggest (as Kathy points out above) one reason why firms resist unionization; but it also suggests that society at large should encourage unionization, as improving total social product (or something like that) even if it redistributes more of it from company owners to workers. (Which redistribution would be IMO desirable from an equity standpoint anyway, as Kathy also suggests.)

If you don’t like talk of “society at large,” sub “anyone who doesn’t derive most of their income from owning shares in companies.”

63

Tim Worstall 05.10.08 at 8:13 pm

“When Kathy is measuring productivity, is she measuring productivity per unit of labour? Or per unit of money spent on purchasing labour? The latter is what a company is interested in.

But isn’t the former what society should be interested in? This seems to suggest (as Kathy points out above) one reason why firms resist unionization; but it also suggests that society at large should encourage unionization, as improving total social product (or something like that) even if it redistributes more of it from company owners to workers.”

Not hugely convinced that that is what society should be interested in, no*. Society (and as Barry says, as an eeevil right winger** perhaps I’m not allowed to talk of such) might want to pay attention to total factor productivity…how can we make the most, have the highest consumption, from what we have in terms of technology, labour and capital, OK, yes. But to insist that labour productivity is the only important one of these is to say that labour is the only constraint we face.

As above with the glazier, we can increase labour productivity by allowing it to access more capital: but is that the best use of the capital available?

Total wealth is increased by an increase in TFP, not LabourFP.

* What society should be interested in is the maintenance and increase of liberty. Economics, productivity, are a side show.

** I’m a classical liberal, if that helps.

64

agm 05.10.08 at 9:03 pm

I’m somewhat confused. Business people go into business to make money, perhaps with the zest of a challenge attached by making money in a novel or difficult set of circumstances. Larger organizations are still after the same fundamental goal.

If, as Kathy has pointed out, union shops have lower profits, I’m confused as to what’s at issue here. If unionization does not increase profit, then frankly I’m at a loss as to why anyone would think that unionization would be seen, by owners (i.e. investors) or managers as good for the business. It seems like this is a confusion of that which society can and should demand from business people with why businesses exist.

65

Slocum 05.10.08 at 10:06 pm

Er….I’m not an expert on this, but was Kathy’s initial point not that this is not, in fact, correct (over the long term).

Well it certainly has been true in the U.S. auto industry over the period that the Japanese and European manufacturers have had factories here. It’s been true long enough to bring the unionized automakers (and even more so, the unionized suppliers) into or near bankruptcy.

…even if it redistributes more of it from company owners to workers.

That’s the big myth. What it really does is redistribute money from consumers to unionized workers with company management as the middle men (just as the tobacco settlement wasn’t paid for by company owners, it was paid for by smokers in the form of much higher cigarette prices).

Ford, GM, and Chrysler made lots of money when the UAW was at its zenith and the UAW had a monopoly on auto labor. The UAW charged far above market rates for unskilled labor, but the Big 3 just turned around and charged the costs off to their customers, who had no choice but to pay.

This cozy arrangement (for the Big 3 and the UAW — but not consumers) began to unravel when the Japanese starting importing en masse in the 70′s and 80′s and totally came apart when they established their non-union American manufacturing plants (which created a constituency of workers who depended on the Japanese companies and made it impossible for tariffs to protect the Big 3 and UAW from competition.

66

Alex 05.10.08 at 10:37 pm

Jesus wept. Someone points out that some companies actually get on very well under a social democratic model because they’re good at what they do, and this joint turns into Beirut…

The classic thing about Toyota management was that they were the first car maker to have a big STOP button over every station on the line, and to actually encourage the workers to press it if they saw something wrong with a car or something dangerous. Rather than running the line at maximum speed come what may, and then cleaning up the bits, they realised it was better to stop, and fix the problem permanently…

67

Matt Weiner 05.10.08 at 11:16 pm

Tim — your argument may cast doubt on the idea that society should care about LaborFP, but it doesn’t seem to me to support the idea that society should care at all lowering the unit cost of labor to companies, either. Does it?

agm, ditto; business people may go into business to make money, but I don’t see why it’s my job to help them make as much of it as possible, or why my government’s policies should be oriented to that goal. We could just as well say that workers go to work to make money, and if unionization increases wages, then there’s no reason for workers not to favor it.

slocum, if the higher wages that union workers make are entirely passed on to the consumers, then why are the firms less profitable? Do you have any data backing up the idea that 100% of the union wage premium is passed on to consumers?

68

davidp 05.10.08 at 11:26 pm

The claim that “The best research has found that unionized firms are, on average, more productive than their nonunionized counterparts.” is too strong. The chapter by Barry Hirsch in the linked book does not provide strong support for this claim. I don’t have the book to hand but I do have the journal article reprinted in the book (which others have already drawn from)

Hirsch, Barry T. (2004), “What Do Unions Do for Economic Performance?”, Journal of Labor Research, 25(3) (Summer), 415–455.

Starting from page 425 it states “The thesis that unions substantially increase productivity has not held up well.” Hirsch also cites the meta-anlysis of Doucouliagos and LaRoche

Doucouliagos, Chris and Patrice Laroche (2003), “What Do Unions Do to Productivity? A Meta-Analysis”, Industrial Relations, 42(4) (October), 650–691.

which finds “a very small but positive ” average effect in the United States. Hirsch restates on page 430 that Freeman and Medoff’s characterization was “overly optimistic” and he concludes “that the average union effect is close to zero, and as likely to be somewhat negative as somewhat positive”. Hirsch then goes on page 431 to raise the problem of causality with the studies too. This is an important issue which very few studies (I looked at all studies in major journals cited in Doucouliagos and Laroche) address. You might be interested in one which does:

DiNardo, John and David S. Lee (2004) “Economic Impacts of New Unionization on Private Sector Employers: 1984-2001”, Quarterly Journal of Economics, 119(4) (November), 1383–1441.

If you know of others, would be most interested in these.

which takes advantage of a discontinuity – they find small negative (statistically insignificant) effects on productivity. Their sample is they admit not one that generalizes easily.

When talking about the reasons for the positive findings, it is only fair to acknowledge the causality problem here too. Hirsch discusses this concisely on page 427 – though it is part of a more general problem when trying to estimate productivity using value added.

Black, Sandra E. and Lisa M. Lynch (2001) “How to Compete: The Impact of Workplace Practices and Information Technology on Productivity”, Review of Economics and Statistics, 83(3) (August), 434–445.

This paper is also interesting and clearly attempts to deal with the causality issue – but more work – ideally where exogeneity is better established – would also be of interest

69

Hidari 05.11.08 at 12:32 am

‘Well it certainly has been true in the U.S. auto industry over the period that the Japanese and European manufacturers have had factories here. It’s been true long enough to bring the unionized automakers (and even more so, the unionized suppliers) into or near bankruptcy.’

OK I know I shouldn’t but I will. Evidence please.

70

anthony 05.11.08 at 4:07 am

Has the research factored in that US auto manufacturers make (and I mean that in the broad sense) really awful cars? I can’t think of one that doesn’t have at least three superior European or Japanese equivalents. What are the productivity gains available in turd polishing – unionised or not?

71

Kevin Carson 05.11.08 at 7:22 am

Commenterlein,

Management’s desire to feather its own nest isn’t necessarily conducive to maximizing productivity. After all, slave labor is about as unproductive as you can get, so why didn’t the planters set them free and pay wages instead?

Total management remunerations in a highly productive enterprise with empowered workers might well be less than their much larger slice of a smaller pie under the existing system. By definition, privilege reduces overall efficiency by interfering with incentives to productivity, but it also increases the material well-being of the privileged compared to what it would be without privilege.

72

Kevin Carson 05.11.08 at 7:40 am

I meant to add, even though worker self-management and residual claimancy is the obvious solution to most of the knowledge and agency problems of the firm, the structural presuppositions of corporate capitalism rule it out. The structural needs of a system based on absentee ownership and managerial hierarchy are inconsistent with allowing widespread worker autonomy; the needs of efficiency undermine the whole purpose of the system of power.

To bring back the slavery analogy, the ancient slavery economy was stagnant and a dead end, because the requirements for increasing efficiency were directly at odds with the whole exploitative purpose of slavery.

73

Tim Worstall 05.11.08 at 8:17 am

“Tim—your argument may cast doubt on the idea that society should care about LaborFP, but it doesn’t seem to me to support the idea that society should care at all lowering the unit cost of labor to companies, either. Does it?”

Lowering unit labour costs….in the form of interfering with the freedom of association of the labour? No, I don’t think that is something society should do but for non-economic reasons. Freedom of association is one of those rights which go to make up a free society and are thus, in my perhaps skewed view of the world, non-negotiable.

On the other hand we’re also not all that happy with the idea that such association can become a monopoly, one that can then (as above with the UAW perhaps) extract rents from the consumers. So there are times when as a society me might want to intervene, just as we would with a business setting up a mono- or oligopo- listic combine.

But it’s not “lowering the cost of labour” which is the driving force in either: it’s the play between association and the risks of monopoly.

On the gripping hand it’s Sunday morning where I am so perhaps my logic isn’t all that compelling.

74

abb1 05.11.08 at 8:38 am

66: Someone points out that some companies actually get on very well under a social democratic model because they’re good at what they do, and this joint turns into Beirut…

Not necessarily “social democratic model” – Japan is not very democratic, social-nationalistic? Any economic system where the value of a company is not determined (almost) solely by the last quarterly report can achieve miracles.

Here’s a link to Jon Schwarz’s post inspired by a recent ‘pie in the face’ event; it has some history of Toyota:
http://www.tinyrevolution.com/mt/archives/002235.html

75

Matt Weiner 05.11.08 at 4:23 pm

Tim, now it’s Sunday morning where I am so I’m not necessarily thinking clearly (for instance, the first time I read your comment entirely backward), but at this point the argument basically comes down to the question of who’s extracting rents from who, doesn’t it? — which I conveniently already complained about in comment 27. I was looking at one of the Hirsch articles Andrew cited and AFAICT when he says unions “seek rents” what he means is that they try to get higher salaries and better conditions for their workers, which seems no different from anything anyone tries to do in bargaining; it’s just that collective bargaining brings workers closer to an equal footing with a large employer.

I suppose the argument here is that the labor laws can give the workers a monopoly on work at that particular site — the employer can’t hire anyone except through the union (or, in open shops, under the terms negotiated by the union) — and that that creates an inefficiency. But the employer also (necessarily) has a monopsony over buying work at that particular site, so I’m not sure why the prospect of the union gaining a monopoly would be uniquely bad.

If the argument is that government ought to be wary of making unionization easier because of the danger of rent-seeking, then I think we’re back to the question we started with: Is the overall impact of unions good for society or bad for society? Even if unions decrease profit margins, that doesn’t mean they’re bad for society as a whole, especially if they do increase LaborFP and possibly TotalFP. The argument that unions promote rent-seeking and are thus bad seems appealing from a certain theoretical perspective, but I’m not sure it holds up in the real world, where the monopsony model may describe the labor market better than perfect competition models.

76

Commenterlein 05.11.08 at 6:04 pm

Kathy, you say that

The economic research that says unionized firms have higher productivity than their nonunionized counterparts is strong, and not particularly controversial even within much of the discipline of economics (though of course there are conservative economists who argue otherwise).

Please stop misrepresenting what the literature says. This is Crooked Timber, not DailyKos, and many of us know that literature and understand empirical research. By misrepresenting facts you are just outing yourself as someone not worth reading.

From Barry Hirsch’s article in the Journal of Labor Research in 2004:

Freeman and Medoff rightly emphasize that union effects on productivity vary with respect to the labor relations environment and degree of competition, that unions generally decrease profitability, and that there exists slower growth in the union sector of the economy. Subsequent research suggesting that average union productivity effects are close to zero does not support Freeman and Medoff’s conclusion that unions are generally good for productivity.

Barry Hirsch is a pro-union liberal who has worked for a very long time on detecting positive effects of unionization. Brushing him off as “of course there are conservative economists who argue otherwise” is dishonest and revealing.

The more important point, which have you chosen to ignore, is that unionization is very much endogenous, and more productive firms are empirically more likely to become unionized. Hence the simple correlation between productivity and unions you are trying to argue from is pretty meaningless. As a PhD student at Chicago, you know that, or at least you should. If you don’t, I’d strongly recommend you walk across the street and sit in Heckman’s class till you do.

Davidp above kindly pointed to the one study that makes a decent attempt to get at the causality behind any effect of unions on firm-level outcomes by using a regression discontinuity approach. Here is what the 2004 QJE article by Dinardo and Lee finds:

First, union effects on business survival are small—on the order of -.01 to -.02 on a mean survival rate of .40 over an average of eight years. Second, point estimates of the union impacts on employment, output, and productivity, are statistically insignificant; in the manufacturing sector, they range between -3 and 3 percent for production hours, between -4 and 4 percent for output, and between -2 and 0 percent for output per worker, over one- to fifteen-year horizons.

Bottom line: Your repeated claim that there is convincing empirical evidence for a strong positive union effect on productivity is very, very wrong.

77

Commenterlein 05.11.08 at 6:06 pm

I apologize for the strike-through in the previous post, I have no idea how I did that.

78

Commenterlein 05.11.08 at 6:08 pm

Here is the quote from the 2004 QJE article by Dinardo and Lee, this time hopefully without any screw-ups:

First, union effects on business survival are small—on the order of minus .01 to minus .02 on a mean survival rate of .40 over an average of eight years. Second, point estimates of the union impacts on employment, output, and productivity, are statistically insignificant; in the manufacturing sector, they range between minus 3 and 3 percent for production hours, between minus 4 and 4 percent for output, and between minus 2 and 0 percent for output per worker, over one- to fifteen-year horizons.

79

Matt Weiner 05.11.08 at 6:38 pm

I apologize for the strike-through in the previous post, I have no idea how I did that.

Textile markup treats dashes around text as a sign that it should strike the text through. I think Textile markup may also be what made the preview useless. O Blog Overlords, is it not time to get rid of Textile markup?

80

Matthew May 05.12.08 at 5:02 am

First of all, you are incorrect. Toyota’s joint partnership with GM in Fremont, NUMMI, is unionized, and has been for 25 years. Second, there are parts of Toyota plants that are unionized. Third, the NUMMI plant was shut down by GM in 1982, after a 20% UAW absenteeism, rampant substance abuse, double digit quality defects, and double the average assembly line. There were special cleaning crews hired to clean up all the liquor bottles at shift change. Prostitution in the parking lot out of RVs. 112 job descriptions. 15 levels of management/supervision. 4 murders in one year, drug-related. Numerous sickouts and wildcat strikes. 5000 union grievances on file…significant, because there were only 3000 people working there. GM shut it down.

Toyota and GM stuck their 50-50 deal in 1983…hired back 85% of the union employees. Took the 112 jobs and 15 levels of management down to a total of 5 levels: team member, team leader, group leader and a couple levels of plant management. Sent the leaders to Japan to teach them the Toyota Way.

Plant reopened in 84. Within 2 years it was GM’s #1 plant. 9000 employee ideas implemented in the first year…replacing the 5000 grievances.

Still, it’s Toyota’s worst plant, and the only one unionized by UAW…in every possible measure: productivity, quality, assembly time. Gee, what’s different between NUMMI and the other Toyota plants. Hmmmm…oh yeah, unions. You do not need them to give associates a voice.

You can read all about this in a number of books and articles. The knowledge is ubiquitous.

81

A Taormina 05.13.08 at 12:46 pm

Because unions give workers a voice, unionized workers have lower quit rates than their nonunion counterparts.

Unsupported assertion. The fact that workers have a voice may contribute to lower quit rates, but other factors include higher wages, better conditions (including restrictive work practices that ease expectations on workers), and the protection of incompetent, inefficient, lazy, or insubordinate workers who know they would fare poorly on the job market but who enjoy security through their union. None of these factors tend to improve efficiency. Moreover, turnover costs trade off against factors such as burnout, inflexibility in changing business environments, uneconomic pay rates due to seniority or other factors not directly related to performance, and opportunity costs.

82

Slocum 05.13.08 at 8:02 pm

slocum, if the higher wages that union workers make are entirely passed on to the consumers, then why are the firms less profitable? Do you have any data backing up the idea that 100% of the union wage premium is passed on to consumers?

A very late response, but …

The higher wages are passed on when the unionized firms have no effective non-union competitors (which was the case for Detroit automakers before, roughly, 1980). But the higher wages cannot be passed on when there are effective non-union competitors. This is the case for Detroit automakers now, who are competing against all of the Japanese and European non-union North American plants. And yes, this dramatically reduced the Big 3′s profitability.

Comments on this entry are closed.