Harshing on Unions

HARSHING ON UNIONS….Tyler Cowen has a question for Ezra Klein:

I propose a deal. I’ll agree that unions, in the best natural experiments we have, boost wages by about 10 to 20 percent. On the other hand, will Ezra (and others) agree that unions are mostly detrimental to the rate of economic growth?

Hmmm. Considering the historically inverse relationship between union density and economic growth in the United States since World War II, I wouldn’t be very inclined to grant that premise. In fact, since middle class consumption is one of the main drivers of growth in modern economies, I suspect that boosting the wages of the middle class actually helps economic growth.

This discussion, I think, ends up being similar to discussions of the minimum wage. Simple economic theory suggests that a higher minimum wage ought to reduce total employment. Likewise, simple economic theory suggests that unionization ought to reduce economic growth. But in both cases, more sophisticated labor theory suggests lots of possible countervailing factors. So the question becomes: how much? How much does union density have to grow (it’s currently a paltry 7% in the private sector) before it becomes a problem? 10%? 15%? 25%? And how much does simple economic theory predict that unionization depresses growth? 1% a year? 0.1%? 0.01%?

This makes a big difference. In practice, if even low union density suppresses growth substantially, it’s unlikely that countervailing factors will turn it into a positive. But if the opposite is true, they might. Unfortunately, “the empirical literature on unions and economic growth is murky.” So how do we know?

Beats me. But like I said, strong unions sure didn’t seem to hurt economic growth much in the 50s and 60s. Conversely, the decline of unions did seem to bring middle class wages to a virtual standstill in the 80s and 90s — and without the upside of returning us to earlier economic growth levels, either.

In any case, I’m certainly willing to concede that unions have both upsides and downsides. The problem is that if we really care about the “problems of labor and the desire to raise living standards,” unions seem to be one of the few institutions concretely addressing them. I’m wide open to hearing alternatives, but somehow they never seem to arrive.