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Cost of Unionization - EPF 2003

Cost of Unionization - EPF 2003

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ContemporaryIssuesinEmploymentandWorkplacePolicy
der
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March14,2003
FinancialOutcomesinUnionandNon-UnionWorkplaces
Introduction
This
IssueBackgrounder
examinesthreeaspectsofunionizationoncompany
performance:
laborcosts,productivityandproductivitygrowth.Thisanalysisisbasedonareviewofrecenteconomicstudiesoftheimpactofunionizationontheperformanceofprivatesectorfirms.Moststudiesshowunionimpactresultingfromhighercompensationcosts,butmanyalsoshowanegativeimpactonproductivityandproductivitygrowth.Theconclusionthatunionizationreducescompanyprofitsisunquestionedevenbyeconomistswhofindfavorableeconomicoutcomesfromunions.Thedisagreementisoverthesourcesandthesizeofthefinancialimpact.
TheEPFanalysisfoundthatacompanywith10percentofitsworkforceunionizedcouldexperience2.6percenthigherunitlaborcostand21percentlowerbefore-taxprofitthanitsnon-unioncounterpartunlesstheunionimpactcanbeoffsetbycharginghigherprices.
TheEmploymentPolicyFoundation(EPF)appliedtheresearchfindingsonunionimpactsoncompensationcost,productivityandproductivitygrowth
to
output,costandprofitestimatesforatypicalcompanyderivedfrom2001privatesectorNationalIncomeandProductAccountsdata.EPFanalysisfoundthatacompanywith10percentofitsworkforceunionizedcouldexperience2.6percenthigherunitlaborcost,and21percentlowerbefore-taxprofitthanitsnon-unioncounterpartunlesstheunionimpactcanbeoffsetbycharginghigherprices.Thisfindingwasbasedonthecombinedeffectof16percenthighercompensationcostsandonepercentloweroutputperlaborhour.Higherlevelsofuniondensity,ahigherunioncompensationpremium,andlowerinitialproductivitywouldmagnifythesedifferences.Thereductionofprofitswouldbelessiftheunionizedfinnexperiencedaproductivitygaininsteadofproductivityloss.Reducedprofitabilitymakesitharderfortheunionizedfinntoattractinvestmentneededtoexpandfacilitiesandadoptmoreefficienttechnology.Theresultmaybeslowerproductivitygrowth-annualincreaseinoutputperemployee-comparedtothenon-unioncompetitor.Slowerproductivitygrowthmeans
that
acompetitivedisadvantage
in
termsofoutputperlaborhourwillemergeovertimeeveniftheunionizedfinnstartsevenoraheadofthenon-unionfinn.Tenyearsafterunionorganization,theunionizedcompany'soutputperemployeewould
be
2.4percentlessthantheoutputperemployeeofitsnon-unioncompetitor,iftheunionizedcompanyexperiencesjust0.25percentslowerproductivitygrowthfromanequalstartingbasis.Unlesstheproductoftheunionizedcompanycanbesoldforahigherpriceorothercostsavingsattained,theunionizedcompanyislikelytoresult
in
profitsperlaborhour14percentlessthananon-unionworkplace.Withinacompany,theimpactofaunionizedsegmentofthelaborforceonoverallcompanycostsandperformancedependsonthestrategicimportanceoftheunionizedsegment.Asmallproportionofthe
 
issuebackgrounder
workforceunionizedmayhaveamajorimpactonoperations,iftheunionizedsegmentaffectskeyelementsoftheproductionordistributionprocess.Unionizationofasegmentoftheworkforceofacompanymayalsohaveaspill-overeffectoncostsandproductivityifunionwagescales,benefits,andworkrulesbecomeamodelforhumanresourcepolicies
that
applytothenon-unionworkforce.Locationofcompanyoperationscanalsohaveanimpactoncompanyperformance,regardlessoftheshareofthelaborforceunionized.Operations
in
stateswithhighunionmembershipdensitymaybemorecostlyorlessproductiveregardlessoftheactualpercentageofthecompanyworkforcethatisunionized,ifthecompanyhastomatchlocalstandardsofcompensationandworkrulesthatreflectunionpresenceinthelabormarket.
In
ahighuniondensitylocale,anon-unioncompanymayfinditself
at
adisadvantageintermsofattractingandretainingthemostskilledandproductiveworkersunlessitofferscompensation
and
conditionscomparabletotheunionstandard.Table
I-at
theendofthis
IssueBackgrounder-
showsthewidevariation
in
uniondensity(privateandpublic)bystate.Thetoptenstatesintermsofuniondensityaccountfor41percentofallunionmembersnationwide.
From1986to2001,unionhourlycompensationcostsaveraged37.5percentmorethannon-unioncompensationcosts.Thisdifferenceoverstatesthehourlycostpremiumattributabletounionization.
Figure
1
TotalCompensation
HourlyCompensationPerLaborHourbyUnionStatus
Source,EmploymentPolkyFoundationtabulationofBareau
(If
LnborS1111isticsata.
Thecombinedprivateandpublicuniondensityisrelevanttoindicatetheoverallunionimpactonthelabormarketenvironmentbecauseofthesignificantlabor
2
©
EmploymentPolicyFoundation
Marcil14,2003
mobilitybetweenprivateandpublicsectorjobs.Overalluniondensitymayalsobeafactorinthepoliticalenvironmentthataffectsthelegalandregulatoryframeworkinwhichprivatecompaniesoperate.
ImpactofUnionsonCompensation
Figure1comparesthe
total
hourlycompensation(wagesandbenefits)byunionstatus.From1986to2001,unionhourlycompensationcostsaveraged37_5percentmorethannon-unioncompensationcosts.Thisdifferenceoverstatesthehourlycostpremiumattributable
to
unionization.
Figure2UnionMembership
By
Industry.2001
S01...~e:Em!.loy",,,,,':PolkyF<>"ndationtabulation
",f
BUI·eatJ
(If
Labol'
Statisli(sdala,
AsshownbyFigure2,unionmembersaremoreconcentratedinsomeindustriesthanothers.Figure3comparesunionandnon-unionweeklyearningsbymajorindustryin2001_Theimplicationsoftheseunion-nonunionwagedifferencesarecomplicated,notonlybyindustry,butbyvariationsinhoursworked,skills,andlocations.Forinstance,unionmembersintransportationtendtoworkmorehoursperweekandunionmembersinconstructionareconcentrated
in
skilledtradesandurbanlocales.
Figure
3
WeeklyEarningsDifference
by
Industry
UnionMemberandNon-union
Weekly
Wage
Eatnlng$
60%,.·--"-~--~----------------"------·----·-~~~,
50%
+-'---------------
~%+.-.--.-.--.-..-.---.---.-.-....-.-----.~--------_._--------
30%
+--!
---------.-.-.-------.----':::=?-
20%1
1..__._.._.......
-1....."--__
I
10%
+-:
__"..,O-..r--~""""'~--"'lM~.r.-·-........-.-----
O%";·~w-.~-Jwa-T-~~·--T--~~··-~···
i-\~V$'-<:f,
,fiG'-'"
#-¥f''''
.p.,iti'q,
t;jI~
~*~
~'$
{p~
-¥I''II
SOllWe:EIUIlI(lYIl1~lltPolkyFoundationtab".lntion
Qf
Iltu·enuofLabQr
Sluiisllc'dota.
 
issuehackgronnder
Manufacturingprovidesamoreconsistentindustrycontextforcomparingcompensationofunionandnon-unionworkers.Hoursworkedperweektend
to
besimilarforunionandnon-unionworkers,andtheskillandlocationdifferencesappeartobelesspronouncedthanisthecasewiththeconstructionindustry.
Figure4
WageandBenefitsComponentsofCompensation
HourlyCompen$tllio!lCos!
fOf
WagesandBeooutn
hy
UnionAffiliaiion,M3nufacluringEmployees,2002.
DollarsPerHour
$30
T~-~·~··-····~···-·-·~-···-·---.-----~--.-.--.-..-.----.---._.-._._._._.__-_..
$25
+._--.-_._._-
$2G
+--~-
$15
+-_._.-
$10
+--------
$5
+-----
$0
+.-~.-~~.~_-.
UnionNon-Union
SOIU~e:EmploymentPulkylIounduHflntabulationofBure,,"ofL"bol'Statisticsdar...
In
manufacturing,theunionweeklyearningspremiumreportedbyBLSfor2001(6.2percent)isalmostidenticaltothe6.4percentdifferenceinhourlywagecostbetweenunionandnon-unionworkersintheBLSEmployerCostofEmployeeCompensationseriesfor3rdquarter2002.1Figure4showsthatthedifferenceof6.4percentinunionversusnon-unionwagesinmanufacturingisdwarfedbythe36.5percentdifferencebetweenunionandnon-unionbenefitscosts.
EPF'scomparisonofunionversusnon-unionhealthinsuranceplancostsfoundthatplanscoveringunionworkersin
2001
costonaverage
$4.754-14.0
percentmorethanthecostforcoverednon-unionworkers.
Aleadingcomponentofthehighercostofunionbenefitsinmanufacturingandinotherindustriesishealthinsurance.EPF'scomparisonofunionversusnon-unionhealthinsuranceplancostsfoundthatplanscoveringunionworkersin2001costonaverage$4,754-14.0percentmorethanthecostforcoverednon-unionworkers.Unionworkerswerealsofoundtobelesslikelytocontributetothecostofhealthinsuranceandtocontributeasmallersharewhentheydid
contribute.'
Otherbenefitareaswhereemployercompensationcostsforunionworkersexceednon-unioncostsincludepaidleave($.76perhourhigher)andpensionbenefits
March14,2003
($1.15perhourhigher).Overall,thecombinedeffectsofwageandbenefitsdifferencesinmanufacturingresultinthehourlyemployercostofunionworkersbeing16percenthigherthanthehourlyemployercompensationcostfornon-unionworkers.The16percentdifferencebetweenunionandnon-unioncompensationsuggestedbythemanufacturingcomparisonfor2002isconsistentwithunionwagepremiumestimatesfortheoverallprivatesectorbasedoneconometricmodelsthatcontrolformultiplevariationsinworkercharacteristicsbyindustry,occupation,age,experience,education,etc.'
Figure5Impact
of
UnionCompensationonProfit
EsUmaladBerore-laxProfitPerHourwith16PercentUnionCompensationPremium
DollarsProfitPerHour
$4.00
r~--··-~···-·····-·"'·"'~·-·---···---···-···--···-·····~'---.'~~-"-'''''''-.-'''''~.''''.-.....--.......,---.-.....-"
$3.50$3.00$2.50$2.00I$1.50.$1.00:
$0.50I
$Q.OO
N()Union
10%
25%5%
Uaionn.,nsityinCompallYWo~kforceSour",,:EmploymentPolicyFoundation
tllblll'ltjOIl
ofUm"eJiQofr."borStaHstksdata.
Figure5illustratesthepotentialimpactofhigherunioncompensationcostsonatypicalprivatesectorcorporationbasedonthe16percentoverallhourlycostpremiumperunionmembertypicalofthemanufacturingsector.TheillustrationisbasedonananalysisofNationalIncomeandProductsAccountsdatafornon-farmprivatebusiness
in
2001.4Theestimatesshownreflectonlytheeffectofhighercompensationcostsassociatedwithunionizationanddonotincludeanypotentialeffectsofunionizationonproductivityorproductivitygrowth(thesepossibleeffectsarediscussedsubsequently).
Tenpercentuniondensityinthecompanyworkforceresultsinestimatedhourlyprofitsof
$3.34-9.4
percentlessthanthenon-unioncase.
Figure5showshourlyprofitperemployeeas$3.68perhourforacompanywithnounionmembersbasedonaverageoveralllaboroutputof$43.39perhour.Foracompanywithunionpresence,theprofitperhourwasfoundtobeless,dependingonthelevelofunionization.Tenpercentuniondensityinthecompanyworkforce
©
EmploymentPolicyFoundation
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