The Union Threat Effect

Again, we return to the question of why labor–management relations is worth studying if only 12.1% of the U.S. workforce belongs to unions and engages in collective bargaining. One reason, as suggested by the above discussion, is that union density is significantly higher than this percentage in some geographic locations (the Northeast, Midwest, and far West) and in some industries (government, utilities, transportation, and telecommunications). In those communities and in those industries, unions play a very important role.

There is, however, a second reason why the subject of labor–management relations is worth studying. This reason is that the influence of unions reaches well beyond their membership and the unionized workplaces in which they work. This phenomenon is called the union threat effect.

The union threat effect occurs when, in order to remain competitive in a local labor market and to keep their employees from forming a union, nonunion employers raise their wages and benefits to levels approaching—or even matching—those of a direct competitor who is organized.

One way to illustrate this is to look at two employers engaged in a similar business in the same town.

 

Union Threat Effect Example

 

1. As shown in Figure 1.3, unionized Company A pays better and has better benefits than nonunionized Company B.

Company B's employees will undoubtedly learn what Company A's employees are making. And they may come to the conclusion that if they had a union they might also receive the same wages and benefits that Company A provides its employees. Under these circumstances, it would not take long for Company B's employees to initiate a union organizing drive, a drive that could result in the unionization of Company B.

2. Company B's management wants to avoid company unionization.

   The management of Company B wants to avoid this at almost any cost, so they will often, reluctantly, raise the pay and benefits of their employees. Even though it may end up offering compensation similar to the unionized employees at Company A, Company B probably will still feel it is better off because it will not have to deal with a union. One of the main reasons employers make every effort to keep their employees from organizing is that unions force employers to share (through bargaining) some of the decision-making over the day-to-day operations of the workplace. By providing wages and benefits similar to their unionized competitors, nonunion employers avoid losing further control and flexibility over their workforce.

3. The union threat effect takes place.
   
   Clearly, if there were not a union present in Company B's geographic area, there would be no reason for the employer to raise its wages and benefits. This is why the threat of unionization has a much greater impact than the union-density figures suggest. Walters and Mishel (2003) further studied this union threat or spillover effect in How Unions Help All Workers, published by the Economic Policy Institute. In this study, Walters and Mishel conclude that unionization has an upward effect on the wages of all workers, improves benefits for all workers, decreases inequality, and leads to safer workplaces.