Why Unionized Manufacturing Jobs Haven’t Returned

by James Sherk

The Washington Post published an article yesterday analyzing a little-noticed fact about the manufacturing recovery: It is occurring almost entirely in non-union firms. (Full disclosure: I helped the Post with analyzing some of the BLS data that informed the report.)

As most people know, manufacturing employment fell off a cliff in the recession. People put off making major purchases such as cars or refrigerators when times get tough. Between 2007 and 2010, one out of every eight manufacturing jobs disappeared.

Since then, manufacturing employment has recovered modestly, rising 5 percent. But breaking it down, only non-union employment recovered. Employment in unionized manufacturing firms fell a further 5 percent between 2010 and 2012, while employment at non-union manufacturers rose 7 percent. Despite some individual exceptions, unionized manufacturing jobs overall have continued to decline.

This is part of a longstanding trend. While “everyone knows” that manufacturing employment has fallen over the past generation, that decrease has occurred almost entirely in unionized firms. In 1977, non-union manufacturers employed 12.5 million workers; in 2012, they employ . . . 12.5 million workers. Unionized manufacturing employment dropped 80 percent over that same period. The de-industrialization of America is really a de-unionization.

WaPo doesn’t explore why this is happening, but academic researchers have. One major factor: Unionized companies invest 15 to 25 percent less in capital and R&D than comparable non-union firms. Less investment makes businesses less competitive, so they create fewer jobs.

Unionized firms invest less for two reasons. First, unions “tax” successful investments by demanding more concessions from firms that are performing better. If GM had developed a hybrid that got 100 mpg. does anyone think the UAW would have made any concessions? This union tax reduces the return on investing in unionized firms — hence they invest less.

Second, unions raise labor costs, both directly (via higher pay) and indirectly (inefficient work rules). But unionized firms can’t charge more than their competitors without going out of business, so they must cut spending elsewhere, which often means their investment budgets.

It was no coincidence the Toyota Prius has done far better than GM’s Volt. In the short term, underinvestment balances the firms’ books. In the long term, unionized firms fade away.

The Industrial Age model of adversarial collective bargaining does not work in today’s competitive economy. For unions to stay viable, they need to start adding value to enterprises instead of subtracting it.

— James Sherk is senior policy analyst in labor economics at the Heritage Foundation.

The Corner

The one and only.