10 Reasons Why Unions Are Economically Important

ILLINOIS ECONOMIC POLICY INSTITUTE: 10 WAYS UNIONS BOOST ECONOMIC 

EFFICIENCY 

KEVIN HOFFMAN  

REBOOT STAFF

A RECENT REPORT BY THE ILLINOIS ECONOMIC POLICY INSTITUTE, A NON-PROFIT THINK

TANK AND ADVOCATE OF LABOR UNIONS, LISTED 10 WAYS UNIONS HELP BOOST THE ECONOMY.

Here are the main findings from the report along with a brief summary for each:

1. Union workers earn higher wages and increase consumer demand

Full-time union workers, or those who work at least 35 hours a week, earn $4,400 more in annual 

wages and contribute about $1,000 more in federal income taxes than comparable 

non-union workers. With higher average incomes, union members spend more in the 

economy, which the report says creates jobs and offsets “potential negative effects that

 unions have on total employment.”

2. Unions reduce socially inefficient levels of income inequality

Unionization tends to reduce wage inequality, which benefits middle- and low-wage workers the 

most. The reduction in income inequality helps improve the economy as working and 

middle-class families spend a greater proportion of their incomes.

3. Union workers receive less government assistance

Full-time union workers are more likely to have employer-provided health insurance 

as well as retirement plans through pensions.

4. Union workers contribute more in income taxes

On average, union members pay roughly $1,000 more in federal taxes and 

more than $500 in state income taxes per year than comparable full-time 

non-union workers.

5. Unions increase productivity in construction, manufacturing and education

Unionization, particularly in the private construction industry, increases 

worker productivity by $0.805 per hour per worker.

“Illinois had the highest construction industry unionization in 2012, at 38.2 

percent compared to the national average of 13.2 percent. However, blue-collar construction workers in Illinois added $87.72 in value per hour worked to the 

state’s economy, the 5th-highest productivity in the nation.”

6. Unions reduce employee turnover rates

“Unions institute democratic workplaces that give workers a voice and 

standardize safety procedures. Through effective grievance procedures, 

unions protect workers against both workplace conflict and the abuses of 

managerial authority. On net, the result is a workforce with high morale, 

so workers do not want to quit.”

7. Unions fight against child labor and for public education

Pressure from labor organizations during the Great Depression led to 

the passage of the Fair Labor Standards Act in 1938, which regulated the 

minimum age of employment for children, among other things.

“Thus, by working to reduce child labor and to increase funding of public 

education, unions have increased national economic productivity over the 

long run.”

8. Unions fight against all forms of discrimination

“Today, labor unions remain at the forefront of anti-discrimination legislation. 

Unions continue to partner with civil rights groups, women’s organizations 

and equal pay supporters, and the LGBTQ community to ensure fair pay, 

job safety and freedom from employment discrimination. By helping to 

eliminate wage gaps and discriminatory hiring practices, unions have 

helped to increase profits and improve economic efficiency.”

9. Unions collectively bargain toward efficient contracts

Collective bargaining helps employers and employees reach an agreement in 

which an efficient level of union workers are hired.

“The give-and-take process exhausts all possible bargaining outcomes 

between the employer and the union, and the employer hires “the ‘right’ 

number of workers so that the union does not distort the allocation of labor, 

and there is no deadweight loss to the national economy.”

10. Unions fight against the “monopsony” power of owners, especially in sports

A monopsony is a market situation in which there only is one employer, 

which allows the employer to drive down wages below the competitive level. 

When workers are unionized, they’re able to return earnings to free-market 

levels.

The Illinois Economic Policy Institute report concludes:

Labor unions are imperfect, but they are also far from the distortionary institutions 
that shrink the economy and hurt job growth, as characterized by some 
commentators and politicians. Private, public, and nonprofit organizations can 
all increase and decrease economic efficiency– institutions are not inherently 
economically good or bad. The same is true of labor unions. While there are 
potential costs of unions, politicians and the voting public need to balance 
those concerns out by also considering the economic benefits of unions.

This Economic Commentary has investigated ten examples of how unions 
can– and do– increase economic efficiency. Unions still play a significant role 
in the American economy. Ultimately, unions boost consumer demand, reduce 
reliance on government assistance programs, support tax revenues, increase 
productivity, fight against social inefficiencies, and counter the power of big 
businesses. In evaluating the pros and cons of labor unions in the modern 
economy, these benefits must be considered.

 TO VIEW THE ENTIRE REPORT-CLICK ONTO THIS LINK