- 17 -

bargaining process to learn about and improve the operation of the workplace25/. On the other hand, if management responds negatively to collective bargaining (or is prevented by unions from reacting positively), unionism can significantly harm the performance of the firm. While management giving in to exorbitant union wage demands can be associated with a decline in the organized sector, their reaching sensible agreements with labor could be mutually beneficial. On the other extreme is the case where management cooperates with racketeers who suppress union democracy and offer "sweetheart" contracts, i.e. contracts imposed by management without input from representatives of labor.

Several studies have attempted to measure the impacts of unions on wages, employment, output, total compensation, productivity in the U.S. Unfortunately, there are very few comparable studies for developing countries. Even the empirical evidence for the U.S. is mixed and is based on varying data sources, time periods and methodology. On the whole, the union relative wage advantage in the private sector in the U.S. lies in the range of 10 to 20%26/27/ which vary over time and across demographic groups. The union relative wage advantage tends to be larger during recessionary periods. Unions appear also to have improved the economic well-being of black men relative to white men, and to reduce women's wages relative to men since women workers are considerably less likely to be union members than are males. The overall effect of unions on the dispersion of earnings appears to have been positive28/ in the U.S.. Available empirical evidence on the loss of output or the "social loss" from unions suggests that the loss of output from the union wage differential, restrictive work practices and strikes associated with unions was estimated to be about 0.8% of GNP in the U.S.

On the other hand there is considerable evidence in the U.S. that unions do reduce worker quit rates, alter the entire package of compensation allotted to fringe benefits and union workers were found to be more productive in many sectors than non-union workers (although less productive in others). Unions effects on productivity are neither constant nor always positive and vary across industries and time periods as industrial relations practices vary; increased wildcat or illegal strikes associated with poor industrial relations practices have been associated with loss of productivity.

The limited evidence from union impacts from developing countries (including Malaysia and Mexico) suggests similar impacts as in developed countries29/. In most developing countries, even when the right to strikes is not restricted, strikes are not common; most unions lack strike funds and most workers lack the savings to carry out strikes. The success of the East Asian "miracle" countries (Korea, Singapore, Malaysia, Taiwan) in the 1980's and the mid-1980's success of Chile raises the question of whether suppressing unions contributes to economic growth. While the hypothesis has not been handled 25/See Freeman and Medoff, 1984.

26/Evidence from data between 1965-75 approximately. See Ehrenberg and Smith for a summary of empirical evidence of union impacts. Earlier summaries are available in Freeman and Medoff (1984) and Lewis (1986) for relative wage effects.

27/ Since unionized workers tend to have better non-wage benefits, tend to be represented in less flexible, more structured and more hazardous work settings, and could potentially be more able, ignoring benefits in such wage advantage calculations may understate union compensation differentials while ignoring non-pecuniary conditions of employment or worker ability may lead to an overstatement of union total compensation advantage.

28/Work by Richard Freeman suggests this. See Farber (1986?) on exercising caution in interpreting some of the available empirical evidence on union impacts.

29/See Freeman 1993 and references therein. Also Panagides and Patrinos for Mexico.