Are Unions a Positive Force for Change in the Labor Market?

High-profile strikes have spotlighted unions and legitimate labor issues. But the most effective negotiations and outcomes aren’t a zero-sum game

Union demands may be fair in the short term, but they also have potential drawbacks. Most saliently, they can reduce the companies’ profitability and thus their sustained ability to keep paying workers fairly. Both sides—workers and managers/institutions—should keep this in mind, and practical solutions may involve incentive-based reward structures that reduce guesswork and keep motivations aligned.

Hollywood writers just concluded a strike that paralyzed movies and TV. Auto workers and manufacturers are in the midst of these issues, with potentially significant consequences for the US economy. Healthcare workers at Kaiser Permanente are executing a three-day strike that may be reinstated in November if pay issues are not addressed. And Vegas Strip hospitality workers are now threatening walkouts.

Many of the issues unions want to solve are real problems. However, organized work stoppages and eventual employer concessions can present risks—for the companies, their industries, the US economy, and possibly the workers themselves.

Here’s a brief look at organized labor and potential solutions for disputes.

The role of unions

The latest statistics put union membership at 10.1% of US workers. It’s the lowest proportion “on record,” down half from 30 years ago when reliable stats first became available. Unions date back to the 18^th Century in North America and are largely responsible, along with workers’ rights legislation, for vast improvements in pay, safety, and standards.

Organized labor has undoubtedly been a net positive for this country and many workers. And unionized employees “in the United States make 18% more than their nonunion counterparts.”

But there are drawbacks to unions, including but beyond historic instances of corruption by union leaders:

• High membership dues — which may or may not have ROI in every case
• Less worker autonomy
• Often prioritizing seniority, which doesn’t benefit newer members
• Fostering a competitive mentality between employers and employees

One negative, of course, is the impact of strikes on the overall economy. For example, work stoppages have lost “seven million workdays […] so far this year, the most in more than two decades.” And walkouts hitting carmakers, for example, challenge an industry responsible for 3% of the US gross domestic product.

The aftereffects of fraught negotiations can make products more expensive for all US workers. Also, drastically increased pay might contribute to a wage spiral that impairs the Federal Reserve’s efforts to fight inflation.

Specific industry impacts of and the role of technology

The average auto worker makes $28 an hour, according to Bureau of Labor Statistics, which equates to $58,240 a year based on a 40-hour workweek. The UAW is negotiating for a 46% pay increase and a 32-hour week, with overtime pay beyond that threshold. This would equal $68,024 of average base pay while cutting productivity by 20%.

Assuming a 1.5 rate for overtime, an average employee working 40 hours would make just over $93,533 a year. So, for the big automakers to maintain their productivity numbers, they would have to pay 57% more than the average salary in the US—though this analysis doesn’t factor in wages for autoworkers’ locations. However, the math also doesn’t account for UAW’s demands for more benefits for younger workers, which would significantly increase the total compensation.

Are these demands fair?

Maybe—proponents make the case that CEO pay rose 40% in the last decade. The numbers in an eventual agreement would also likely be lower than current demands. Nevertheless, these increased costs would come at a time when automakers are spending billions of dollars to transition to electric vehicles (EVs). Though government funding aids the effort, manufacturers are still making massive capital investments.

Thus, increased pay and benefits could negatively impact more than the automakers’ current bottom lines. Significantly higher compensation causes inflation in a product already viewed as too expensive, which might impair the companies’ ability to maintain new pay and benefits and could spur a shift to more automation (fewer workers) to combat overhead.

Technology also looms large in the successfully concluded Hollywood writers’ strike. In addition to gaining new streaming residuals and a “5% minimum pay increase” with additional bumps, the strikers sought and got “significant protections against the use of artificial intelligence.” Nevertheless, studios “retain the right to train artificial-intelligence models based on writers’ work.” Thus, we’ll have to see how tech impacts the number of writers and what they are paid in the long term. And AI issues will be bleeding into multiple labor markets.

These recent examples point to broader issues in the labor market. Wages have risen but still lag inflation by about a third. And the pay for both low- and middle-income earners has fallen significantly behind corporate profits and compensation for high earners. These problems are happening when new technology could threaten the viability of many jobs.

These issues are real and must be addressed. The question is whether unions—and strikes and negotiations that might be viewed as a zero-sum game—are the solutions.

Acting toward mutual benefit

Auto workers, writers, and other employees, unionized or not, have legitimate concerns about pay and benefits. So do many companies striving to compete and control overhead in an uncertain economic environment. High-profile labor disputes highlight these tensions while perhaps pointing to a better way forward than massive straight-line compensation increases that could eventually harm both parties.

The guiding philosophy should be if you do well, I do well.

For example, if the auto companies successfully shift to EVs and create long-term economic viability, it could create better opportunities for their workers. Does that mean employees will share in the spoils? Unfortunately, corporations have a very poor track record here—but ensuring everyone gains could be part of the negotiations.

These lessons apply to most businesses and their relationships with employees. In essence, everyone can benefit from a clear-eyed appraisal of the current situation and the future rather than rooting demands in the past and out-of-date thinking.

A well-designed mixture of pay and benefits, including individual and organizational performance-based incentives, removes some guesswork from what is fair and feasible. Companies rely on quality workers as their engines of growth, and workers depend on their employers to make a good, consistent living. In this sense, a union model that seeks straight compensation increases can have drawbacks despite members’ valid concerns.

Most businesses do not deal with unionized workers, but the lessons from recent strikes apply to everyone. Providing a fair wage and an attractive mix of benefits—including incentives that drive success—may help all parties prosper.

Karp HR Solutions helps businesses master the mix of finance and human resources. Contact us today for a free consultation.