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Labor Unions Negative Effects on Economics Essay

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Updated: Jun 14th, 2019

Unions are regarded as associations that bargains with other companies, enterprises and other relations on behalf of their members. They range from those trade unions that negotiate for the workers that perform certain work, to industrial unions that negotiates for workers who belong to a certain industry (Waterwal in Work para. 3).

Although Labor unions play an important role in ensuring employees security and higher pays in their jobs, they have proved to negatively affect the overall economy. This is because they aggravate unemployment, reduced industrial expansion and promote large racial inequality in income.

Unions affect the labor environment in two ways which include controlling the labor supply and increasing its demand. Some of the mechanisms used by labor unions to ensure that the salaries and wages of their members are increased include: push for an increase for the minimum wages. This translates to an increased cost on the labor for those companies that hire low-skilled work force. This minimizes the disparity between the wages that is paid on the lowly-skilled with that is paid to the highly skilled (. Radlciff para 2)

As a result of this, the highly skilled workforces often forced to join labor unions so that they can negotiate on their behalf for an increase of their wages. Similarly, they can achieve the same by augmenting the marginal productivity of its members through training so that to have base for negotiating for an increment of their wages.

With the advancement in globalization and existence of a very effective e business that is enabling people to purchase different products and services online globally and at a lower cost, many people and companies are opting for the e commerce.

This has been boosted by the highly fluctuated prices of locally produced commodities as a result of the increased cost of production due to the high wages paid on workers. To discourage this trend many unions are restricting such behavior by imposing quotas and tariffs to control importations. This then increases demand of local products that consequently increases the demand of domestic demand.

They control labor also by lobbying for tight immigration rules. This makes it difficult for foreigners to migrate into these countries. These mostly affect the low skilled work force. Through these mechanisms labor unions are able to achieve their objective of controlling labor supply so that to ensure that they hike wages. This has resulted to the labor unions affecting the economy negatively through the following way:

Labor unions have been noted to increase the unemployment rate. This is because labor unions are known to decrease the labor supply in the market. They do so through the restrictions they put on various sectors on the kind of people to hire (Beik 8).

By doing so the unions increases the average pay that is paid to employees to make it be above that which should naturally crop up in the market. This makes the juncture of new labor and demand curve to happen at a lower level than normally. As a result of this, there the number of unemployed people is large since many enterprises can only afford to employ few workers due to the high wages they demand.

Thus, labor unions should be eliminated so that to reduce the current high unemployment that is being experience in many countries. For instance, the unemployment rate in Germany is 8.5% and 9.6% in US. Therefore, if the labor unions are eliminated the unemployment rates will decrease as many industries will be able hire more workers at a lower cost, but as long as these restrictions persists, the unemployment will continue increasing since every company try always to minimize its cost of production to enable it maximize its profits and one way of ensuring this is by cutting down on the labor cost by either cutting down its work force and capitalize on the few.

Labor unions lead to slow growth and loss in business value. Negative effects of labor unions are experienced significantly by small enterprises. This is because their profit margins are generally small. To survive and run at a profit they must employ the right strategies and tactics that will enable them operate at a lower cost to avoid operating at a loss due to the thin profit margins that is associated with them (Holley, Jennings and Wolters 79).

Thus, by the labor unions contributing to higher employees wages, it leads to slow growth of businesses because high labor cost often triggers closer of many such enterprises and mostly during the time of economic depressions. Thus, this greatly hinders the expansion of businesses and the whole industry in general.

To avoid such limitation, the labor unions should be done away with so that the wages can be dictated by the market which is often lower than that advocated by these unions. Through this process many small businesses will flourish and thus help in the overall economic growth.

Labor unions are also associated with increased pay disparities (Radcliff para. 4). This mostly happens when unions offer their employees very high wages. Similarly, they often lead to an increase in unemployment for those that are not members. This can have an effect of lower average wages and high unemployment to the minorities in the sectors affected.

Labor unions lead to increased prices for products. Many critics compare labor unions with cartels. This is because they both use the same principal of cutting down supply for a thing so that to increase its price (Radcliff para 7).

Unions as cartels limit the workforce supply and increase their pay. The productivity of the company is greatly reduced due to the limitation of the work force. This coupled with high labor costs forces companies to sell their produces at a higher cost so that to offer their employees the high wages they demand (Vedder and Gallaway 107).

This is realized at the expense of their consumers. Thus, the principle used by the labor unions do not help to improve the overall economy, since the only people that do benefit from it is the union members who enjoy the high wages. The people that mostly gets affected negatively are those consumers that happen do not happen to belong to any union as they are forced to pay elevated prices to satisfy the ego of a few. Therefore, such unions should be abolished as they can be viewed a calculated move of exploiting the marginalized.

Labor unions results to non-motivated and less skilled work force. Individual workers do not have powers to negotiate for themselves and this is the reason they join labor unions which are mandated with this responsibility (Beik 82). The labor unions therefore do not want the employees to perceive that their own efforts are the reason for their wage raise, but perceive it as a result of the handwork of the unions.

This creates bias nesses in the remuneration process since increment is based on how long an employee have been with the union, but not on productivity and skills. Thus, the less competent workforce enjoys better pays than those skilled and highly motivated employees.

The failure of labor unions use merits when bargaining for pay increase of their members leads the highly motivated work force to become less motivated since their extra efforts are not motivated (eHow Contributor para. 6). Similarly, it limits the zeal for many employees to pursue further education which as their extra skills will not be recognized. This reduces productivity and innovations since many industries are then saturated with unskilled and non-motivated workforce. This greatly affects the overall economy.

Unions are known for long to help many employees receive good wages and favorable terms of employment. This has resulted to an improved standard of living for majority of these workers. This is because an increase in their wages enhances their buying potential which intern affects the economy positively.

On the other hand, labor unions have been noted to cause more harm to the economy that good since they have accumulated more power day by day and currently are behaving like cartels whereby they are cutting down the labor force to increase its demand so that to hike the wages of their members.

This have resulted to many companies closing down, underperforming due to shortage of workforce as many organizations cannot afford to employ many workers at such high wages. Thus, labor unions should be eliminated to so that to boost the overall economic growth.

Works Cited

Beik, Mildred. Labor relations. Westport, Connecticut: Greenwood Publishing Group, 2005. Print. eHow Contributor. Bad effects of labor unions. 2010. 02 December 2010.

Holley, William, Jennings, Kenneth and Wolters, Roger. The Labor Relations Process. Stamford, Mass: Cengage learning, 2008. Print.

Radcliff, Brent. Unions: Do they help or hurt workers? 2010. 02 December, 2010

Vedder, Richard and Gallaway, Lowell. The economic effects of labor unions revisited. Journal of Labor Research, 23.1(2007):105-130.

Waterwal in Work. Labor unions and the economy: how they have a negative net benefit. 2010. 02 December, 2010

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