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.

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.

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.

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?

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.

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.

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.

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

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.

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.

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.

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

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