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This could be a negative or positive effect that a Union would have on a business.


The Effects of Unions on Organizational Productivity and Profitability


Introduction. 1

Role of Unions. 1

Collective Bargaining. 1

Employee Welfare. 2

Legislation. 2

Effect of Unions on Organizational Productivity and Profitability. 2

Conclusion. 4

Works Cited. 5


Labor unions are bodies that represent workers in different industries by bargaining on the issues of wages, benefits and legal representation on behalf of employees. These bodies also lobby against labor violations at the organizational, state and federal level (Medoff and Freeman 84). Unions are powerful political actors who influence decisions in healthcare, trade and social security. This piece will identify the roles of unions before making a clear evaluation of their effect on organizational productivity and profitability. The overall impression in literature is that in most cases, labor unions are tools for promoting employee welfare at the expense of organizational productivity and profitability.


Role of Unions

Collective Bargaining

Unions represent their members in negotiations with their employers. This is because employees are not able to alter industry policies and organizational structure. They also organize activities such as strikes, sit-ins, go-slows and boycotts. Therefore, they tend to have a greater voice and power in industry decisions than individual employees.

Employee Welfare

Over the years, unions have successfully represented workers and fought for better working conditions and terms of employment. The efforts have led to the improvement of workforce’s conditions through policies of higher wages, benefits and balanced work schedules. Workers now enjoy health benefits, better working conditions and social security.


Unions have also shaped labor legislation and regulation by outlining proposed laws and presenting them to state and federal houses for discussion and execution. They also observe and monitor employee welfare and legislation protecting them against employer exploitation and victimization (Bigelow and Chaison 78). To promote industrial relations, the law makes it illegal for unions to have a majority composition of employers.

Effect of Unions on Organizational Productivity and Profitability

Economists have analyzed the role of unions on the economy and identified a negative correlation. Yet unions have played a major role in promoting the labor sector and bringing about individual benefits to members. However, they have often been described as negative contributors to the organizational productivity. Primarily, unions are concerned with increased employee wages. In this regard, they contribute to a decrease in the number of workers in an organization or industry in order to have the upper hand during wage negotiations. Moreover, unemployed workers are excluded from negotiations for higher wages and benefits. These high wages often translate to declining profits for employers (Dulles and Dubofsky 126). The situation is usually made worse for the unemployed workers who still have to contend with high commodity prices.

Sadly, unions do not negotiate high wage increments for entry- level employees, who often receive meager payments for a long time as they await to climb the ranks and register more years of union membership. Besides, unions have become highly commercialized, and they tend to negotiate better conditions and wages for employees in high-return industries such as finance and investment. These conditions have led to a reduction in job opportunities with the shift in competitive advantage across most industries. For example, American companies has greatly suffered due to the rising competitive advantage of labor markets in Asia particularly in the manufacturing and processing industries. This has created growing demand for Asian products and a corresponding decline in US-manufactured products.

In addition, unions have established themselves as monopolies that reduce employment figures in order to gain higher salaries for members. In this way, they are able to make huge earnings from organizational taxing. This has greatly reduced productivity in entire industries and organizations which now incur higher costs of production and operation per unit without earning back this difference in a failing consumer market. As an immediate result, the organizations have recorded reducing productivity, sometimes leading to their closure (Voss and Fantasia 56).


Economic theory portrays unions as tools of raising wages at the expense of lower profits and limited jobs. Unions have led to the stagnation of the labor force which has remained at the same scale after a period of tremendous growth. It is unlikely that the labor force will continue benefiting from extreme unionization in future. In addition, a new trend is emerging whereby employment contracts tend to be designed in such a way that the process of firing employees with low performance is hastened. In an attempt to avoid this, unions are extremely keen on advocating for the streamlining of the hiring process. At the same time, high performing employees are increasingly seeking employment in not-unionized sectors. This phenomenon further reduces productivity and financial returns for unionized companies.


Unions have brought the labor sector a long way in terms of growth. Initially established during the Industrial Revolution, they have contributed to better wages, benefits, health security, social security and reduced discrimination. People from different nationalities, genders, religions and races enjoy the ability to work in freedom in different parts of the country (Voss and Fantasia 24). Sadly, labor unions have failed to adapt to the current labor market. This rigidity has prevented the assimilation of new financial, economic and organizational structures. They have also been turned into tools of political and social influence with control being transferred to a few people instead of the entire workforce. Unionization has led to deterioration of the economy in general and individual organizations in particular. Truly, therefore, they have had a negative effect on the economy, organizational productivity and profitability. For this reason, human resources departments in many organizations are in constant turmoil as they strive to balance the cost of human input against output and market factors.

Works Cited

Bigelow, Barbara. and Chaison, Gary. (2002). Union and Legitimacy. London: ILR Press. Print.

Dulles, Foster. and Dubofsky, Melvyn. (2004). Labor in America: A History. Wheeling: Harlan Davidson. Print.

Medoff, James. and Freeman, Richard. (1984). What Do Unions Do? New York: Basic Books. Print.

Voss, Kim. and Fantasia, Rick. (2004). Hard Work: Remaking the American Labor Movement. Berkley: University of California Press. Print.

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