APU Business Original

The Real Influence of Worker Unions on Employee Compensation

By Dr. Gary L. Deel, Ph.D., J.D.
Associate Professor, Dr. Wallace E. Boston School of Business

In previous articles, I’ve talked about pay equity in the privatesector workforce and how to strategize employee pay within organizations. However, one major factor related to employee pay that has not yet been discussed is the influence of worker unions.

Unions have been recognized and protected by federal law since the National Labor Relations Act (also known as the Wagner Act) was passed in 1935. And worker unions have a tremendous impact on employee compensation – both in terms of wages and other non-wage benefits.

But in what direction is the effect? In other words, do unions result in higher or lower pay for workers on average?

Studies Show That Worker Unions Benefit Employees

Some might be tempted to think that unions would result in lower pay for employees. After all, unions perform an administrative function for workers, and that function has a cost.

Also, the work of unions generally tends to raise costs for employers. So, if those additional costs are passed on to employees, we might expect that worker pay in unionized environments would be lower than in non-unionized settings.

But actually, the reality is just the opposite. Study after study has consistently shown that employees who work in unionized environments are better compensated than employees who do not.

For example, the Economic Policy Institute (EPI) found in 2020 that unionized workers earn an average of 11.2% more in their direct wages than non-unionized workers. Similarly, in 2022 the Joint Economic Committee in Congress published a report which showed that unionized employees enjoy a 10.2% wage premium over non-unionized employees.

And while unionized employees tend to enjoy higher wages across the board, they also tend to see higher increases in pay over time with a given employer. Typically, that is because the cost of living or performance-based increases in pay are often stipulated in collective bargaining agreements between employers and the labor unions that represent the workforces.

Unions have Greater Impact on Women and Minorities

It’s also worth noting the unions have an even more profound effect on wages for women and minority worker demographics. Another EPI report from 2017 indicated that union pay structure all but eliminates gender-based pay discrimination in the workplace. And that same 2022 Congressional report indicated that Black workers in unionized environments make 17.3% more than their non-unionized counterparts, and Latino unionized workers make 23.1% more than non-unionized Latinos.

In addition to improving wages, unions also help to strengthen the middle class in America and lift working class citizens out of poverty, because unions tend to benefit less educated and lower wage workers more than they benefit higher wage, more educated workers.

But what about non-wage compensation and benefits? It turns out that unions help dramatically here, too.

For example, unionized workers in California are about 37% more likely to receive employer-sponsored health insurance and about 52% more likely to be offered a retirement plan. These effects seem to be observed throughout the country, as a recent report from the U.S. House Education & Labor Committee indicates that American unionized workers are about 27% more likely to be offered health insurance by their employers and about five times as likely to receive a pension.

The overwhelmingly positive effects that unions have on wages and total compensation should not be a surprise in retrospect. Unions shift the balance of power in the workplace so that employees have a legitimate “seat at the table” for bargaining the terms of employment.

Think about it. If one employee decides they want more money to do their job, they can go to their employer and threaten to quit if the pay demand is not met. But what is likely to happen? Chances are the employer will simply tell the employee to get lost. After all, they can easily hire another employee to fill the opening.

However, if all of the employees rally together and demand higher pay, suddenly the employer is faced with a real dilemma. After all, the employer can’t tell all the employees to get lost. If they did, their business would literally shut down. So, instead, they are forced to negotiate in good faith – and this strategy is the primary reason why employee compensation and benefits in unionized environments is generally better.

But corporate America and the conservative politicians with whom they tend to ally themselves know this well. And this is why they have worked tirelessly to spread a narrative about unions that suggests just the opposite.

Membership in Worker Unions Has Been Falling

Union opponents have been at work over the last few decades to crush unions with creatively misleading legislative tools like “Right to Work” laws, which purport to advocate for employees by giving them the freedom to opt out of unions but actually just destroy union funding and support. Indeed, many corporate leaders and conservative lawmakers in America would like the public to believe that unions do more harm than good – and that people would be better off abandoning them altogether.

And sadly, this campaign has been largely successful. At the height of unionization in America during the mid-twentieth century, more than one in three American workers was unionized. Today, that number is less than 12%.

Unions are obviously not perfect. Any movement or organization that is predicated on human input will inevitably be flawed and corrupted by the inherent and unavoidable imperfections in human intelligence and integrity. And it is understandable the companies would resist encroachment from unions, as their effects – while beneficial for employees – are generally detrimental to bottom-line profits.

Nonetheless, organizations with a sense of corporate social responsibility must realize that their duties extend beyond maximizing investment returns for shareholders. Across the board, unions generally bring about a net positive effect on the workers they serve – so their presence in American workplaces should be defended and promoted wherever possible.

This cause requires a sustained effort from employees to fight for their own union representation. But it also requires recognition on the part of employers that employee well-being should be a priority, and unions play an important role in serving the interests of that priority.

Gary Deel

Dr. Gary Deel is a Faculty Member with the Wallace E. Boston School of Business. He holds an A.S. and a B.S. in Space Studies, a B.S. in Psychology, a J.D. in Law, and a Ph.D. in Hospitality/Business Management. Gary teaches human resources and employment law classes for the University, the University of Central Florida, Colorado State University and others.

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