At the dawn of the 20th century, heavy industry and big business were in their infancy and a great deal of human labor was needed in order to facilitate the mushrooming Industrial Revolution. This quickly led to widespread abuse of workers, including children, who were often consigned to sweatshops where they were forced to toil for several hours a day. However, workers eventually united to form labor unions that stood up to the big corporations and negotiated better pay and working conditions for millions of employees and also demanded the passing of child labor laws. The effectiveness of labor unions, however has always been a source of controversy.

Who Do Unions Benefit?
Of course, labor unions were created for the benefit of their members. The union represents the workers to the employers and negotiates on their behalf to secure better wages and working conditions. Unions also run the largest non-military job training service in the country and often partner with organizations such as the United Way to perform various community services. Research that tracks the wages of unionized versus non-unionized employees indicates that the wages of union workers exceed that of non-union employees by about 8 to 12%.

Economic studies have also suggested, however, that much of the difference in pay and benefits that many union workers enjoy compared to non-union employees can no longer be attributed to the unions themselves. Modern union contracts make it more difficult for a company to fire an unproductive employee, so employers now tend to be much more selective in whom they hire, which has resulted in an increase in the quality of the union workforce as a whole. Many unions form for employers and industries that are larger and more stable financially because this allows the union to demand better wages and benefits.

Economic Impact
Unions can convince workers to join them as a means of preserving the unions' clout in industries (such as the U.S. auto industry). But history shows that this can cripple an industry, especially over time. Members of the UAW enjoy wages of about $70 an hour, a wage greater than that of many Ph.D. scientists. They also enjoy a whopping seven weeks of vacation per year for unskilled laborers. Foreign automakers came to the U.S. auto market in the 1970s and used non-union workers in the southern states to build vehicles. Due to the savings in labor costs, these foreign automakers could afford to sell their vehicles for less money. This made it much harder for the big three automakers to produce competitive cars at affordable prices for the public, and in 2008 Chrysler and GM were forced to declare bankruptcy.

Corruption
Jimmy Hoffa gave millions of dollars of union pension money to the Las Vegas mob in the '60s and '70s, and elements of organized crime can muscle into local labor unions and take jobs and other benefits from working members. Some unions are not above using strongarm tactics to protect their territories, as the International Longshore and Warehouse Union proved in September of 2010 when it attacked a railroad dock terminal, overpowered security guards and sabotaged trains carrying grain for a company that tried to use a different labor union.

The Bottom Line
Regardless of their effectiveness, labor unions have played a major role in workers' rights and the economies of America and other capitalist countries. Although some economists say that unions have outlived their usefulness, they will likely continue to impact our industries and other sectors of the economy one way or another for decades to come.

Related Articles
  1. Economics

    5 Developed Countries without Minimum Wages

    Find out about five developed nations that have no federally regulated minimum wage and how these countries use unions to ensure workers are paid their due.
  2. Personal Finance

    Don't Sign That Non-Compete Without Reading This

    Non-compete contracts aren't just for high-level execs these days. How to protect yourself if your employer – or prospective employer – insists you sign one.
  3. Credit & Loans

    Just Hired? How to Navigate Your New Job Benefits

    Being new at a workplace is nerve-wracking enough. Here's what to do first after you've been hired to better navigate complicated benefits plans.
  4. Mutual Funds & ETFs

    Make Employees Happier with This Simple Tip

    Offering socially responsible options is a good way to increase employees' sense of satisfaction, which can lead to improved morale among other things.
  5. Professionals

    Split Dollar Life Insurance: How it Works

    Understanding how split dollar life insurance plans are designed and what tax regulations they must follow.
  6. Retirement

    How To Do a Background Check on Prospective Employees

    Discover why background checks can be extremely costly, tips for small businesses conducting checks on a budget and if professional checks can be avoided.
  7. Retirement

    Why Most People Need to Work Past the Age of 65

    While 65 has always been the prime age for retirement, several changes are making it nearly impossible to leave the workforce at this age.
  8. Entrepreneurship

    How to Write an Effective Job Description to Attract the Right People

    Learn tips and advice for employers on how to write a job posting and what to include in the posting to attract the best candidate for the job.
  9. Investing

    How to Make a Layoff Less Painful

    Getting laid off is never fun, but there are ways you can prepare yourself emotionally and financially to best manage a layoff.
  10. Entrepreneurship

    3 Reasons to Develop an Employee Handbook for Your Small Business

    Learn how a small business can benefit from an employee handbook covering labor laws, codes of conduct, leave policies and media relations.
RELATED FAQS
  1. Can LLCs have employees?

    A limited liability corporation (LLC) can have an unlimited number of employees. An employee is defined as any individual ... Read Full Answer >>
  2. Do flexible spending accounts (FSA) funds roll over?

    An individual can utilize an employer’s cafeteria plan of employee benefits to establish a flexible spending account (FSA). ... Read Full Answer >>
  3. What protections are in place for a whistleblower?

    Whistleblowers can play a critical role in ensuring the compliance, safety, honesty and legal fairness of governments and ... Read Full Answer >>
  4. What should a whistleblower do if their employer retaliates?

    Although specifically prohibited by employment law, employer retaliation against whistleblowers for exposing employers' wrongdoings ... Read Full Answer >>
  5. Will a hike in the minimum wage result in deadweight loss to businesses and labor?

    There have been studies which show that hikes in minimum wage create deadweight loss to business and labor. It is possible ... Read Full Answer >>
  6. Do businesses in states with right-to-work laws have demonstrably less deadweight ...

    Deadweight loss from union activity is believed to represent as much as 0.04% of the gross domestic product (GDP) as of 2 ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center