ARE UNIONS GOOD OR BAD FOR THE ECONOMY
Economists disagree about whether unions are good or bad for the economy as a whole. Let’s consider both sides of the debate Critics argue that unions are merely a type of cartel. When unions raise wages above the level that would prevail in competitive markets, they reduce the quantity of labor demanded, cause some workers to be unemployed, and reduce the wages in the- rest of the: economy. The resulting allocation of labor is, critics argue, both inefficient and inequitable. It is inefficient because high union wages reduce employment in unionized firms below the efficient, competitive level. It is inequitable because ‘some workers benefit at the expense of other workers. . Advocates contend that unions are a necessary antidote to the market power of the .firms that hire workers. The extreme case of this. market power is the “company town,” where a single firm does most of the hiring in a geographical region. In a company town, if workers do not ‘accept the wages and working conditions that the firm offers, they have little choice but to.move or stop working. In the absence at a union, therefore, the firm could use its market power to’pay lower wages and offer worse working conditions than would prevail if it had to compete with other firms for the same workers. In this case, a union may balance the firm’s market power and protect the workers from being at the mercy of the firm owners.