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Interns of the World, Unionize!, or The Costs and Benefits of Unions

by Matt Mitchell on February 21, 2011

in State Policy

Most economists—whether the they favor unions or not—view them as cartels. That is, unions are price-fixing organizations that collude to raise their price (aka the wage rate) above what would prevail in a competitive market. What could possibly be wrong with that?

Not much if you happen to be in the union. But there is quite a bit wrong with this if you happen to be a nonunion worker, jobless, a consumer of union-made products, or a taxpayer whose employees (public sector workers) are unionized.

Why is this so? Well think about the way a union works. When it negotiates to raise the wage above what would prevail in a competitive labor market, two things happen: 1) employers want to hire fewer employees at the new, higher wage, and 2) more people want to become employees at the new, higher wage. When this happens, those who don’t carry a union card are priced out of the market.

When I was in college, I had a LOT of internships (usually working for nonprofit research organizations). The going wage for an internship at the time was something like $1,000 a semester, or about $3.00 an hour if you worked 20 hours a week for 16 weeks. This was not enough to live off of and today I write a student loan check every month as a reminder. But I was willing to work for this paltry wage because I knew—given my low experience level—employers wouldn’t be willing to pay any more. I also knew I would learn new skills during the internships so that one day I could command a higher wage (even net of student loan repayments).

Now imagine what would have happened if, back in the late 1990s, all the interns had unionized and successfully bargained for higher wages. Research organizations would have decided that they could make do with fewer interns and a few more full-time students would have decided to apply for the internships. This combination would have inevitably locked some people—perhaps me—out of the opportunity to intern.   

Thus, nonunionized interns would have suffered. The customers of the research organizations would have also suffered as they would have seen a decrease in the quantity and quality of research that the organizations produced. Even those in nonunionized industries would have suffered as they would have found themselves competing with a higher supply of workers who couldn’t find internships. Arguably, there would have been longer-term costs as well because large sections of the workforce would have missed out on the opportunity to gain valuable on-the-job-training.

Unions likely benefit those who are in them. Research suggests that U.S. union workers’ wages are about 18 percent higher than those of nonunion workers (I say ‘likely benefit’ because despite this, many workers still prefer not to be part of a union). But whatever benefits do accrue to unionized workers, it is helpful to remember that there are also costs.

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