Reducing Unemployment: A Case for Government Deregulation

By Garry K. Ottosen; Douglas N. Thompson | Go to book overview
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CHAPTER 7
UNION PRODUCTIVITY EFFECTS, LABOR LAW, AND THE NAIRU

Union effects on wages and fringe benefits are not the only ways unions can increase the NAIRU or the rate of unemployment that is consistent with stable inflation. If, by reducing productivity growth, unions increase business costs, then this will increase the NAIRU through the same mechanism whereby other increased business costs, like government regulation-imposed costs, increase the NAIRU.

Do unions reduce productivity growth? Or do unions increase productivity growth? If unions increase productivity growth, then they may actually offset the union wage premium discussed in the previous chapter. What does the economic literature have to say on this issue?


THE LITERATURE ON UNIONS AND PRODUCTIVITY

When most people think of unions and productivity, they think of union work rules, featherbedding, and other inefficient union practices that would seem to reduce productivity But beginning with a study by Charles Brown and James Medoff in 1978, several studies have claimed that unions may actually increase the productivity of firms that they organize. These studies argue that unions may boost productivity, first, by "shocking" management into adopting more efficient techniques and, second, by acting as a "collective voice" of workers.

The group of studies that kicked off the union-productivity debate is sometimes referred to as the Harvard studies. Brown and Medoff's paper was the first of the Harvard studies. 1 Their approach differed from the conventional monopoly model view of unions in substance and result. Contrary to the restrictive (productivity-inhibiting) monopoly model, in this new model unions are seen as an institutional force acting as a collective voice of workers and boosting productivity by reducing labor

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