The Cost of Unionization

Cost-comparison analysis of unionized vs. non-unionized worksites, and a deeper understanding of the true cost of unionization.

Today, union representation may seem more appealing than ever to workers who remember the recession and are concerned about a variety of factors that threaten to affect their jobs in the future. A few very public strikes in recent years have contributed to the idea that, despite the apparent impact on workers, “it doesn’t cost to belong to a union – it pays!”

Unions seek out workers at profitable companies, and many of these companies have had to make changes in recent years to remain competitive. Those kinds of changes can cause fear in employees, and put them squarely in the sights of unions. When unions cannot seem to make headway into well-run companies, they’ll vilify a company working to maintain profitability by engaging in orchestrated corporate campaigns. A corporate campaign is where the cost of unionization begins even before a union represents workers and begins collecting dues.

The True Cost of Unionization

Most employees do not realize the cost of unionization, and how the presence of a union and their external activities can negatively impact the business (and job security, especially) in today’s competitive and recovering market. Now is the time for companies to proactively take measures to protect their company and their employees by remaining union free. The risk of doing nothing is too great.

Some research on the cost of unionization, such as the work done by John E. Dinardo and David Lee at the National Bureau of Economic Research, has led many to believe that increased wages and benefits have an insignificant impact on the market value of an organization. If this is the case, why did unionization play a significant role in the automobile industry crisis? Unions still preach to everyone that will listen about “The Benefits Of Being A Union Worker”—that unionized workers receive higher wages and more benefits than non-union workers.

A study released by the Bureau of Labor Statistics supports these claims. Researchers found that union-free employers paid an average of $19.06 per hour (wages and salary), while union employers in the same sector were obligated to $22.76 per hour. Additionally, unionized workers received $13.82 per hour in benefits, whereas union-free workers received $7.33 per hour in benefits. Union dues are not accounted for in this study, but does any of that matter if the company – or entire industry – collapses under the strain?

“Unions Are Not Inevitable”

Why do so many organizations, such as Wal-Mart, FedEx, Citigroup, Associated Builders and Contractors, even the US Chamber of Commerce, take such a strong stance against unionization? In his landmark text, “Unions Are Not Inevitable!,” author Lloyd M. Field explained, referencing multiple studies conducted in the five years following unionization. Field found that newly organized company’s operating costs increased by more than 25 percent of their gross payroll and benefit costs. In his book, Field provides an example of a company with a total payroll of $18 million, for whom unionization would then result in $4.5 million in additional annual operating costs.

The Real Numbers

Labor consultant Jim Gray specializes in helping business leaders with human resources and business transitioning issues and found that companies could expect to spend approximately $400,000 to more than $2,000,000 on a single unionization campaign. Gray’s analysis includes costs like attorney’s fees, travel expenses, meetings with employees, video presentations, lost productivity, and other investments that are often hard to quantify but can add up to thousands – even millions.

UnionProof Culture

As far as annual expenses for an organization with a union presence, Gray estimates that the total additional operating costs (over a union-free company) range from $900,000 for a company with 100 employees to more than $4,000,000 for a company with as many as 2000 employees. These amounts do not include wages and benefits, but do include items such as additional training for managers, additional Human Resources support, attorney’s fees, cost of arbitrations and handling of grievances, plus negotiations, lost productivity, strike planning, security, and lost sales margin, as well as a number of other items.

Extending the research out to 10 years post-unionization, the Employment Policy Foundation (EPF) stated that a unionized company’s output per employee would be 2.4 percent less than a union-free competitor if that unionized company experienced just a .25 percent reduction in productivity. They concluded that, unless the unionized company could sell their product at a higher price or other cost savings could be attained, the unionized company is likely to see 14 percent less in profits per labor hour than their non-union competitor.

Research by David Lee and Alexandre Mas, which used a similar methodology to Lee’s earlier study with DiNardo, found that unionization reduced an organization’s market value by approximately $40,500 per worker eligible to vote in a unionizing campaign.1

In his book, Union Proof – Creating Your Successful Union Free Strategy,” author Peter J. Bergeron notes that the cost of operating a unionized organization is estimated to be 25 to 35 percent higher than a union-free organization. Bergeron goes on to point out that unionized organizations lead to more extensive human resources staff, increased legal counsel, increased involvement with regulatory agencies, loss of flexibility, and increased labor costs due to rules on overtime, grievances and arbitration processing, and many other requirements.

With  extensive operational costs and potential loss of market value, organizations must be diligent in their strategies to avoid unionization. An integral part of any successful union avoidance strategy is communication with employees.

As noted by Bergeron, “Companies that are afraid of the ‘U-word’ are the unions’ most accessible targets. If your employees aren’t knowledgeable about unions, make sure that you are the one to provide that information – otherwise, the union will do it for you, and not in a beneficial way. Employers need to provide useful information. In short, employees need to see current, relevant factual information. They need to know about the things that can affect them, and they need to know that upper management… is aware of the challenges they face on a daily basis.”

Getting UnionProof

The UnionProof team at Projections offers resources to help organizations communicate more effectively with their employees. “We approach the goal of remaining union-free in a very strategic way,” says CEO Walter Orechwa. “It’s a matter of creating a culture that has a union-free philosophy at its core.” Part of that strategy, says Orechwa, is communicating the company’s union-free philosophy from the first day a new employee joins the organization. “We recommend starting out by creating an orientation program that includes not just the company’s history and vision, but also it’s values and culture.”

prevent union organizing tips

Further, Orechwa recommends educating employees – and the secondary audience, at home, on the competitive situations the organization faces. While some may say that employees cannot possibly comprehend this information, providing information on the cost of unionization does help employees have a greater understanding of market position, their role in maintaining it, and how a union is not the solution to any of those challenges. Through open, honest communication with employees and key influencers, organizations can maintain a healthy, union-free work environment.

The bottom line is that the cost of unionization can have a serious impact on the agility and profitability of any company. It’s vital that every union-free employer take preventive action now – building relationships with employees to let them know how much they are valued, not just for their output, but for their skills and input as well. Employers should consider it their responsibility to educate and inform employees of the reality of the cost of unionization. Times are hard; stay union-free to avoid making them harder.

1 Employment Policy Foundation, “Financial Outcomes in Union and Non-Union Workplaces,” Issue Backgrounder, March 14, 2003.

About the Author

Walter Orechwa

Walter is Projections’ CEO and the founder of UnionProof & A Better Leader. As the creator of Union Proof Certification, Walter provides expert advice, highly effective employee communication resources and ongoing learning opportunities for Human Resources and Labor Relations professionals.