Rough Draft

John Schlenz

MHR 461/462 [Company address]

Purpose of the Study

According to an article published by the Wall Street Journal over 14.6 million (11.1%)

employees in the United States workforce are members of unions (Trottman,2015). While the

number may seem small in terms of the overall American workforce (155.4 million) the

aforementioned union population is larger than that of the entire civilian population of Sweden,

Greece and Portugal. With the membership increase of .04% in the public sector and a decrease

of .02% in the private sector the mention of unionization in a workplace still enervates

management. The reason for such a fear of unions comes in a quasi-unknown product, which is

just how unions may affect the most important asset that a firm has: its workers and their levels

of productivity. The following studying is meant to find the exact reason(s) as to why

productivity levels in a workplace may decrease in the event of union presence.

Summary of Facts

Sir Isaac Newton’s third law dictates that, “for every action there is an equal and opposite

reaction”. Thus, it should remain evident that when a union enters a workplace the concern that

should follow the inevitable wage increase should be a matching increase of productivity to

subsidize a firm’s profits.

With a historical 39.84% of firms reporting a negative correlation between a firm’s levels

of productivity and the existence of a union there lays no equilibrium, and the action goes

unanswered (Laroche, 2003). As a result, it leaves no small wonder as to why the word, “union”,

can cast a grim shadow over management and their actions. The near 40% of negatively affect

workplaces exposes a weakness for attempted unionization as a company may see themselves as

a firm which will end up on the negative side of the productivity correlation. A legal

consequence is that firms may lobby in ways which could violate the Wagner act, thus harming

the 20th century labor movement which sought to restore balance between management and rank-

and-file employees (i.e. upon looking for union members to interview I was informed of a failed

unionization attempt at a Costco distribution center. The cause for failure was under the table pay

increases for those who spearheaded the labor movement).

David Metcalf’s 2002 research paper on unions and productivity has proven pivotal as it

not only serves as the foundation for future research, but also extends itself to being one of the

first studies to suggest that unions can be both a catalyst for productivity expansion and

retention. According to Metcalf’s research there exist four possible reasons for the lower

productivity in the presence of a union:

1. Unions may be associated with restrictive work

2. Industrial action may have an adverse impact

3. Union firms may invest less than non-union firms

4. If unions are associated with an adversarial style of industrial relations the consequent

low trust and lack of cooperation between the parties may lower productivity

Metcalf’s four possibilities provide us with the foundation for further research, and it is through

the following study that I hope to expand on further reasons as to why unions may present a

decline in productivity through a number of other variables ascertained through personal

interviews including:

1. Unions may provide a feeling of comfort towards workers through job security.

2. Workplace management may be unable to create/adapt policies to promote

productivity (i.e. an example of the opposite would be UPS’s bonuses through

packages delivered programs which promote production in a union setting)

3. Mismanagement on behalf of the union: which can come in the form of not holding

up to pre-election promises.

Purpose of the Research

The purpose of the research can be approached on two fronts, one, through my personal

curiosities, and second, through my professional interest in the work done by labor unions in the

United States. The former can be explained through my father’s projection of blue-collar work

and how it is not only a means to support a family, but also, how impactful the products made

through blue collar work benefit society as a whole (i.e. through infrastructure, buildings, and

tangible goods). The history of blue-collar work and unions since the late 19th century are

synonymous, so to better understand labor’s success I have found it apropos to understand what

has kept labor moving, the unions.

The latter front, professional interest, stems from a union class taught by Dr. Kevin

Farmer. The class was presented in a way which showed ambivalence to unions, a position

which I still hold firm today. The research is not mean to either strengthen or weaken union

perception, but is rather meant to find an answer as to why unions may negatively impact a

workplace. The importance of the study is that unions still hold a sizeable portion of the

American workforce, and in order to better promote themselves to future due-paying members

and to management the unions should understand why their presence may negatively affect

productivity.

Assumptions

Assumptions for the paper and the research are that the correlation for either positive

productivity or negative correlation coupled with the presence of a union is similar across all

industries. For example, the interviewees consist of the three industries of telecommunications,

shipping, and EMTs.

Delimitations

A delimitation produced by a limited network is the limited amount of potential

interviewees and the amount of respondents to the questionnaire. The limited network of

interviewees limits the amount of potential first hand causes of negative productivity. Coupled

with the limitation of interviewees comes a limited amount of respondents. If the respondents are

limited to a certain geographic area, place of employment, or overall industry then the answers

provided may be skewed. A solution to this problem is to expand past my available network to a

wider area of union members through the use of union web boards, websites, and blogs.

Definition of Terms:

Shock Effect: “The presence of a union shocks management out of complacency and

forces them to develop better managerial practices and policies that improve workplace

efficiency, including more formal human resources policies such as training programs, and

objective rather than subjective selection tests. Moreover, grievance procedures, seniority

provisions, and other gains can increase morale, improve communication between managers and

employees and reduce turnover, which can all increase productivity.” (Budd,2010)

Labor Relations: Striking a Balance (textbook from McGraw Hill)

Methodology

1. Perform a relevant survey of the literature, in which recent or similar studies are analyzed.

2. From the relevant survey of the literature compose questions to be asked of interviewees.

3. Connect and compose interviews with management of union shops (included is an interview

with a manager of a union)

4. From those interviews construct a questionnaire which best fits the reasons of why unions may

decrease productivity in a large size of firms.

5. Distribute the questionnaire to employees of union shops. The end result would be non-biased

opinion since the result comes from the frontline, or those that do represent the origin of

productivity.

6. Perform an analysis of the data collected

7. Gain a conclusion on why unions may decrease productivity within the workplace.

Organization of the Study

The study is to be organized through the use of four following sections:

1. A review of related literature

2. Surveys and Interviews

3. Findings and discussions

4. Summary and conclusions

A review of related literature will consist of summaries of similarly related and timely articles.

The review will allow for a greater understanding of empirical research on the subject of unions

and productivity.

Part II: Review of Literature

1.Can productivity be socially embedded? Reflections on some productivity measures of 2000’s

Kocer’s main focus in his 2014 productivity analysis wishes to find the key elements to

improving productivity rates. Kocer accomplishes this by first stating how governments

including that of Finland, Australia, and Great Britain have put in effort to increase domestic

productivity rates (Kocer 2014):

“ …Britain formed a sectoral partnership committee so as to ensure that industrial relations in the

[paper] sector would be based on “spirit of cooperation, improving productivity, and ensuring

security of employment”

Kocer then goes on to provide a list for successful productivity initiatives which include:

Launching awareness programs (aimed at employees, employers, and trade

unions), which suggest a creation of “national purpose”

Establishment of sectoral skills and councils and training schemes

Involvement of local governments and establishment of regional and sectoral

tripartite Commissions

Special protocols for handling grievances

Work-audits for linking performance with innovations and creation of a database

for best practices

Broader job classifications and flexible and reduced working hours

Profit sharing and performance-related pay arrangements

Ensuring full-employment (aimed towards the government)

The article goes on to suggest that each of the tripartite (government, employer, and trade

unions) are in place to accomplish certain goals, goals which may seem feuding (i.e profitability

and better wages), but given the correct approach can coexist amongst one another (Kocer,

2014).

Figure 1 (Kocer, 2014)

After this suggestion of coexistence Kocer introduces the very nature of productivity

including the core variables that effect it, including trust, evaluation, monitoring, and time. The

following figure is meant to not only show the aforementioned variables but to show how

productivity can be affected by the tripartite.

Figure 2 (Kocer, 2014)

In the article it becomes obvious that Kocer values the worker as an individual, and goes

on to suggest that labor should not be treated as a commodity:

“…productivity initiatives resemble free-market projects which are, as repeatedly shown in history, self-defeating. Therefore in contemplating about production initiatives one should keep in mind that they must be embedded into the social fabric by taking into consideration more than short-term profitability and competitiveness

The conclusion to the article ends with a recommendation in order to improve productivity.

1. The government should place a “social pillar” into its people which include training program

and a sector-monitoring program to identify the premier productivity improving practices.

1. Trade unions and employers’ organizations should be aware of all the stakeholders

present, including that of societal benefits.

2.Productivity improvement and corporate survival: Challenges to trade unions

Where Kocer defines the variables that make up productivity Aroge defines the word

productivity, “Productivity improvement means an increase in output and quality of goods and

services in an organization or an industry.” (Aroge, 2011).

Aroge defines what he perceives to be the key influences of productivity improvement as

an interaction of production factors including;

Equipment and technological capabilities

Volumes of labor input

Quality of labor input

Attitude of human resources and scale of operation.

Worker’s participation in wage payments and award systems.

Job security

Similair to that of Kocer, Aroge notes the importance of both intrinsic and extrinsic

rewards. The former through job security, and the latter through wages and profit sharing. Aroge

also notes how the latter may influence a misconception of trade unions as troublesome,

“However, Trade unionism can benefit both employees and employers of labour because trade unions have the moral imperative to make the industry survive in the face of cut throat competition of the global economy and enhance performance on the job in order to increase productivity.” (Aroge, 2011) Thus, it could be concluded from Aroge’s arguments that trade unions can first and foremost benefit the worker, but also benefit the employer as a result of the motivated employee.

3. Human capital, unions and productivity in a labour-skilled sectoral approach

The two previous articles authored by Kocer and Aroge have found there to be not only a

place for the unions to exist in a business environment, but have aimed to show the reader that

unions and their activities are essential to creating long-term production growths. Yet, with

Mate’s anti-union approach he seeks to show that unions have a negative effect on a country’s

GDP ( Mate, 2014). Mate notes that through his findings and empirical calculation there exists:

The effect of a 1% increase in the level of union density results in a decrease in the growth of GDP per capita ranging between minus 0.07 and 0.15 percentage points in each sector. Nevertheless, there are negative coefficients in all branches, so labour unions are obviously controversially correlated with productivity growth in both of the sectors

A similarity between Mate’s findings and the previous two revolves around education

and skill training to be pushed on by the government in order to increase production, “ analysis

suggests that policy makers must try to increase the degree of competition in labour markets; i.e.

by motivating skilled workers to learn more for better productivity growth.” (Mate, 2014)

4.Membership Rate Falls for U.S. Unions in 2014.

Trottman’s article is primarily based around the statistic that the 2014 saw a -.02%

decrease in overall domestic union membership, from 11.30 in 2013 to 11.10 in 2014. Further

investigation into the Bureau of Labor Statistics release of the statistic shows just how each

industry stacked up in regards to union membership (Trottman, 2014).

The first figure shows that the private sector’s union membership is currently hovering at

6.6%, a decrease from the 7.7% of 2004. The second figure depicts a steady decline in overall

union membership (BLS, 2014)

\

5.What do Unions do to Productivity: A Meta-Analysis

Laroche’s article on what unions presence has on the effect of production is one of the more

important works of this review of literature as it takes data from multiple studies and provides a

culminate view on union and production correlation. Laroche finds that in 73 studies 45 showed

a positive correlation while 28 showed a negative correlation (Laroche, 2003).

Positive Negative0

5

10

15

20

25

30

35

40

45

50

Results of studies

Series 1

Although the parameters for a positive and negative correlation are broad (in the sense that even

a .001 can be positive and a -.001 can be a negative) Laroche illustrates that in the case of these

73 studies there a higher number correlation (i.e. .30 as opposed to -.01) than those of the

negative. This study is important as it takes into account not only a single study’s results, but

more importantly a great number of empirical data in order to illustrate just what unions can do

to promote productivity in the workplace.

6.Do unions increase productivity?

The Economist’s anonymous author first introduces the idea of why unions may provide

a hindrance in regards to increasing productivity, a hindrance brought on by an inclusion of

“featherbedding provisions” and perceived lack of adoption to new work processes

(Productivity, 2007). The author uses an example of a union, New York’s Local 3, to support his

claim that the work of unions is slow but overall better quality:

To be sure, unions often do very good work.  New York's Local 3 (electricians) is widely known for the

slow pace at which union jobs proceed, but also for the extremely high quality of their installations.

The anonymous author goes on to show ideal environments for the improvement of productivity

when a union is present:

“The union wage is higher than the average prevailing wage for the workers' cognitive

endowments and/or educational level” (similar to the previously cited articles)

“There are significant transaction costs to finding and retaining labour” (a new concept)

“The work easily lends itself to classification and regularization” (different from that of Kocer’s expansion of broader job classifications) (Productivity, 2007)

7. American Labor Unions: Underpaid, Overproductive Or Overpaid?

Gregory’s article is divided in two main arguments,

1. Labor is not underpaid

2. Union members are not more productive

The focus on the second argument is important to understand as Gregory first presents arguments

on why someone may associate a union employee with being more productive including:

company loyalty, more willing to train new workers, and more willing to require job-specific

training. Gregory’s refutation of the statement is made through the statement that, “real world

experience does not support this…” (Gregory,2011).

Gregory’s main arguments for the denial of union justification is that employee costs will

not be offset by a productivity boost, that making an employee “feel better” does not lead to

more productivity, and that unions do not allow for enough support for more workers

(Gregory,2011)

8. Works Councils and Establishment Productivity

Mueller’s empirical study paints a picture similar to that of Laroche, not only in their

analysis of multiple studies on the effects of unions and councils, but also on the results found.

Mueller finds that in the presence of a work council or trade union productivity is set to increase

at 6.4% compared to those in non-union work environments (Mueller,2012). The variables that

play a key part in improved production are mainly based on the premise of communication,

which includes closing the gap of “information asymmetries between labor and management”,

the true economic state of the firm, and acting as the legal collective voice of a firm’s employees.

9. Does Industrial Relations Policy Affect Productivity?

Certainly the most ambivalent of the articles, Peetz’s conclusion centers on the lack of

universality of industrial relations and managerial decisions and how it will affect a workplace’s

employees (Peetz, 2012).

Peetz opens his argument with the statement, “The decisions management makes, and the

relationship it has with employees and unions, will shape what happens in the workplace and can

have a noticeable effect on productivity”. Thus, one could interpret that management’s

acceptance and implementation of bargained agreements has a severe effect on productivity

levels (can be likened with Kocer’s productivity model which shows trust as having a positive

effect on productivity levels, see figure 2) (Peetz,2012).

As previously mentioned, Peetz’s ambivalence is captured in the last paragraph of the

article,

That is not the same as saying, though, that if IR policy is altered at the national level, it is going to have a widespread or noticeable impact on productivity. It is what happens at the workplace that matters—and some managers will make decisions under a new framework that will make things better than they would have been, and some will make things worse. Some will consult with and involve their employees, and some will exclude or exploit them. Many seek a holy grail in employment or industrial relations policy that is going to give a magic boost to the economy. But there is none—certainly not to be found in policies that aim to shift the balance of power in industrial relations one way or the other. (Peetz,2012)

10. What Determines Productivity?

Syverson’s article on variables that influence productivity yields a plethora of returning

variables, including:

Managerial practice and talent (similar to Peetz and Kocer)

Higher-Quality General Labor and Capital Inputs (similar to Aroge)

Information Technology and R&D (similar to Aroge)

Firm Structure Decisions (similar to Peetz)

Competition

Deregulation or Proper Regulation (Syverson,2011)

Overall, Syverson’s article provides reinforcement of variables that have a place in the

improvement of production, allowing for a tested approach to the following survey questions.

Parts III & IV: Survey and Findings

Why was question asked? :

The question was asked in order to limit the demographics to those found acceptable by the

outline of Cal Poly Pomona’s guidelines and survey requirements.

What was found?:

The 11 surveyed matched or met the age requirement.

Why was question asked?

In order to limit those who are currently experiencing a union environment.

What was found?

Those who answered the survey were members of a union.

Why was question asked?

Based on research from part II the authors defined and described several intrinsic and extrinsic

rewards that could affect an employee’s level of productivity. The question was asked first in

order to allow for a personal response based on experience and effect. The question was also

composed in order to set up the following ancillary questions in the survey.

What was found?

It was found that among the six selected rewards broader job classifications, reduced

working hours, and profit-sharing were chosen to have the most consistent “very positive”

answer on how a policy may effect productivity. The broader job classifications may be due in

part to an employee wanting to expand their responsibilities within a given company, thus

improving their overall productivity. Reduced working hours could lend itself to a greater

standard of productivity as opposed to one based on a bell curve (i.e. those who are forced to

work longer hours can decline in terms of productivity). Lastly, profit-sharing can be explained

through the employee’s wanting to seek a piece of the overall firm’s rewards, thus increasing

company loyalty and productivity.

Following a close second to the aforementioned three is the ensuring of full-employment,

improved wages, and performance-related pay arrangements. Full-employment is consistent

through the survey answers as a positive for productivity as those who are promised a stable

position within a firm may seek to improve themselves for a particular position within a firm.

Improved wages, according to Linda Rey, have been known to increase an employee’s sense of

purpose within a particular company and therefore explains a level of productivity increase

(Linda Rey, N.A) . Lastly, the performance-related pay arrangements, aka “piecework”, is

important to improving an employee’s level of productivity as it removes a cap for potential

wages (Linda Rey, N.A).

Why was question asked?

As suggested by Kocer the expansion of job classifications can lead an employee to

perform at a higher level (Kocer,2003). The reason for the separation of union and employer

promotion was to pinpoint an area of improvement for either of the two.

What was found?

It was found the union and the employer both did a poor job of promoting job broader

classifications. An explanation on the end of the union is due in part to their effort to improve

extrinsic rewards. As for the employer an explanation may be a lack of awareness for employees

wanting to expand responsibilities.

Why was question asked?

Kocer also suggests that an important productivity initiative is the reduction of working

hours, which can lead to stabilized levels of productivity as opposed to fluctuating (Kocer,2003).

What was found?

The survey answers provided showcase an overall level of good-very good for promotion

on behalf of the unions while the employers appear to be dichotomous in their approach (Poor-

Good).

Why was question asked?

Aroge notes that profit-sharing can be an effective way of indirectly improving

productivity (Aroge,2011).

What was found?

As an extrinsic reward the level of promotion performed by the employer was rather

high, with 45% reporting a “good”, while the unions responses hover around 91%. Overall the

employer can further promote on this as a means to improve the mutual benefit of an employee’s

outputs and an employer’s profit stream.

Why was question asked?

Another suggestion by Kocer regarding productivity initiatives is the use performance-related

pay bonuses (Kocer,2003).

What was found?

A surprising find was the level to which both promoted additional compensation through

bonuses based on performance. The percentage of “good” to “very good” for unions is 91%

while the level for employers is 54%. The percentage found by the employers is rather good, but

can, like profit-sharing, be a mutual benefit for the employer, which can increase overall

revenue.

Why was question asked?

The promotion of secured full-employment is both famous and infamous for unions and

employers. And as such it should be important to see how well unions and employers do in order

to promote this ideal.

What was found?

Not surprisingly the unions have a 91% “good” to “very good” answer. The employer, on

the other hand, has a 36% “good” to “very good” answering with the majority feeling that their

respective employer either does a “neutral” to “poor” job on the promotion of full-employment.

Why was question asked?

Similar to the famous/infamous promotion for full-employment on behalf of the unions is

the promotion of improved wages. As Kocer and Aroge suggest improved wages can have a

positive effect on productivity.

What was found?

It was found that unions secure their position as a collective bargaining unit which

promotes improved wages for their represented workers. Employers scored lower on the

promotion of improved base wages, as only 54% rated them as “neutral” to “good”.

Why was question asked?

The last question to be asked in the survey was overall how did the employee feel they

were either represented by a union or how well management responded to a union’s presence.

What was found?

It was found that unions still have room to improve as 27% of those surveyed scored as a

“poor” to “neutral”. The changing view of unions and how management reacts to them can be

encompassed by the overall negative score of 54% reporting a “very poor” to “neutral”.

Part V: Summary, Conclusions, and Recommendations

The purpose of the study was meant to find the exact reason(s) as to why productivity

levels in a workplace may decrease in the event of union presence, and through the use of

interviews done with union members and officials, as well as research and results facilitated

through the use of databases and the survey I believe it is safe to conclude that the fault is not

solely on either the unions or management, but rather is a combination of both.

Management

In accordance with the research done through databases and results procured from the

survey it may serve in the best interest of management to address two key components,

including:

1. Profit Sharing & Work-Related Bonuses

2. Full employment

Profit sharing is essential to the promotion of productivity in that it creates an environment

where additional output has a dually increased financial effect on the worker and organization.

While only 45-54% of union members agreed that their organization promoted either profit

sharing or work-related bonuses, it is important to note that these employment programs can be

seen as having an enhanced effort for their financial gain, while also creating an environment

which is a harbinger to greater innovation and trust (Kocer, 2014) Thus, the programs not only

make good sense as a promotion to workers but overall make good business sense as the

products are being made on a greater scale (and potentially at a lower cost, i.e. economies of

scale).

Full employment is also important to the promotion of productivity as it enhances the

idea of a motivating factor. With only 36% of survey responders stating their employer promoted

this ideal in a “good” to “very good” manner it goes to show that this ideal is severely lacking,

and could be having a negative effect on the remaining 64%. Aroge suggests in his 2011 article

that trade unions can first and foremost benefit the worker, but also benefit the employer as a

result of the motivated employee. With this suggestion in mind employers should note that there

exists very little duality between union programs and employer results, but rather that the two

can be symbiotic.

Unions

Unions are at fault in the lack of increased productivity through the lack of promotion of

broader job classifications. Kocer states that the effect of broader job classifications creates more

innovation, economic growth and stability (Kocer,2014). Thus, the lack of these broader

classifications leads employees at a standstill. With regard to innovation broader classifications

can lead employees to more job development and training, which can benefit both the employee

and employer. Economic growth and stability are accomplished through the financial gains that

follow a larger knowledge base, and can occur on both a micro and macroeconomic level for the

individual and community at large.

Conclusion

The role of unions is ever changing and while once the unions were perceived as being a

detriment to the expansion of an organization recent research has gone on to suggest that perhaps

unions may indirectly support the profitability and productivity of a firm and its workers.

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