Unions Retard Productivity, Profitability, Investment, and Employment Growth

Contact:

Michael Walker, Executive Director
The Fraser Institute, (604) 714-4545 Email: michaelw@fraserinstitute.ca

Release Date: 14 January 1997

Professor Barry Hirsch of Florida State University, author of the report Unionization and Economic Performance: Evidence on Productivity, Profits, Investment, and Growth, states that unions tend to decrease productivity growth, reduce profitability, retard investment in physical capital and research and development, and lower the rate of employment growth.

"Research from around the world indicates that union firms have lower levels of productivity in contrast to comparable non-union firms," noted Prof. Hirsch. "In some cases, unionized firms have profit margins which are 10-20 percent lower in contrast to non-union firms."

This evidence suggests that Canadians should be concerned about union monopoly power and their negative impact on economic growth and our standard of living, commented Fazil Mihlar, policy analyst at the Fraser Institute.

Another fact to emerge from the study is the overall negative impact of union behaviour, which leads to a reduction in research and development and other forms of innovative activity. In addition, union behaviour leads to a reduction in physical capital investment. For example, the average unionized firm had capital investment which was 6 percent lower compared to the average non-union firm. Hirsch also found that the average unionized firm has 15 percent lower annual investment in research and development. "The reduction of investment in physical capital and research and development -- which is a necessary lubricant for long-term economic growth -- should be of real concern to Canadian policy makers," added Mihlar.

The most significant result to emerge from the study was the impact of unions on employment growth. Studies on the employment effects of unions from Canada, U.S., and Britain suggest that unions have a negative impact`. In the case of Canada, a study conducted by Prof. Richard Long supports the international evidence. Long examined the performance of 510 manufacturing firms during the period 1980-85 and found that the median growth rate of non-union firms during this period was 27 percent compared to zero in unionized firms. After adjusting his analysis to account for the fact that unionized firms tend to be larger than non-unionized firms and tend to be in declining industries, he concluded that unionized manufacturing firms grew 3.7 percent slower, and that non-manufacturing firms grew 3.9 percent slower than their non-union counterparts.

Under most provincial labour codes, it is relatively easy to unionize a place of work, hence the higher rate of unionization in Canada compared to the U.S. "As a matter of public policy, it is imperative that provincial governments in Canada liberalize their labour codes. This policy prescription will potentially negate the adverse impact of union behaviour on the Canadian economy," said Mr. Mihlar.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.

For further information contact:

Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca

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