The Cost of Unionization

Labor consultant Jim Gray specializes in helping business leaders with human resources and business transitioning issues. Over the course of decades in working with companies facing union organizing drives, Gray found that companies could expect to spend anywhere from $400,000 to well over $2,000,000 on a single unionization campaign. Gray’s analysis includes vital investments like legal counsel to keep the company from running contrary to the law, costs like travel expenses, and spending time and resources to educate employees on both sides of the unionization question. Add to that the lost productivity, the stress, and a loss of consumer and vendor confidence, and you have a total cost that is often hard to quantify but can add up to thousands – even millions. And of course, the larger the company, the more a single unionization campaign costs.

Today, we’re in the path of a perfect storm that has a lot of employees asking if a union is their best path to a brighter future. The COVID-19 pandemic, job losses, scheduling changes, and the pivots companies have had to make to stay afloat have affected workers dramatically, and in some cases, permanently. Issues surrounding worker safety and mental health during the pandemic created uncertainty, and fear of the future is a formula for employees turning to unions. 

Add to that Corporate Social Responsibility, wealth inequality, the push to pass the PRO Act, and technology that supported remote work actually making it easier for unions to organize employees from traditional and non-traditional bargaining units, and the cost of unionization becomes more relevant every day. 

The Amazon union vote in Bessemer, Alabama, got a lot of national attention. Teacher strikes and protests regarding returning to face-to-face classrooms, work stoppages, and walkouts over a perceived lack of corporate responsibility for worker safety and a seeming lack of concern for the contingent or gig workforce have each been at the center of a rallying cry by unions. These issues have provided a platform for greater visibility for unions.

Unions have long stated that “it doesn’t cost to belong to a union – it pays!” But the cost of a strike can be enormous. During the 2020 pandemic, after two years of increases in the number of work stoppages, we saw fewer major work stoppages in 2020. Experts are predicting an increase in work stoppages in the second half of 2021 as people return to work.

Unions’ strategy for seeking out new members is to target employees at growing, profitable companies. Fewer companies fit that profile in 2020 and early 2021, having had to make cuts to remain competitive. But sudden change 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 a strategic and concentrated effort to damage a company to the point where they accept the union’s representation of workers. A corporate campaign is also when the cost of unionization for the company begins even before a union represents workers.

How Much Do Union Dues Cost? The Cost of Unionization for Employees

Unions still like to organize on a platform of “The Benefits Of Being A Union Worker”— that unionized workers receive higher wages and more benefits than non-union workers. But the real question is, why should employers pay more per hour to cover the cost of union dues? The Office Of Labor-Management analyzed union financial data for the period 2000-2019. In 2019, $10 billion was collected in dues, and only $3.75 billion went to representational activity. The average union collected $2.5 million in dues in 2019, and about 36 percent went to representational activity. And with fewer members, unions must increase the dues for existing members, meaning workers see an increase in the cost of unionization as well.

How are union dues calculated? The amount of union dues employees pay varies because each union sets the amount. Some unions charge a percent of pay, while others have a flat amount. The Teamsters Union dues rate is 2.5 times the hourly wage for one hour plus two dollars for the strike fund if you make $11 per hour or more. If making less, it’s 2.0 times plus the strike fund. 

The UAW has a more complicated setup because, tellingly, they are trying to build an $850 million (yes, almost a billion dollars!) strike and defense fund. Until that goal is reached, UAW members are paying dues of 2.5 hours of straight time pay. After that amount is reached, dues are two hours of straight time pay.  

SEIU Local 2015 for California Long Term Caregivers has a regular member dues rate of 3 percent of gross wages with a minimum of $15.50 and a maximum of $45 and includes the strike fund. So the average union dues percentage in 2021 ranges from 1.5-4.0 percent of gross wages, depending on the union local and any assessments the local union charges.

What Do Union Dues Pay For?  

Unions talk about the cost and benefits of union membership in the same breath. The dues are said to benefit employees, but up to half of the dues (called per capita) go to the International. In exchange for their dues money, union members get: 

• Representation in collective bargaining 
• Representation during labor grievances 
• Established rules on wages and benefits 
• Established rules on issues like promotions and raises 
• Lobbying at the national level for laws that benefit organized labor  
• Established rules on job security, seniority, and tenure
• Established rules on hours, scheduling
   

What’s important for employers to communicate is the flip side of these services. Employees lose their flexibility to have personal needs met, something that’s vital in times of stress. Unionized employees lose their voice and ability to speak to management on their own behalf. A unionized worker can be forced to strike - often when they’re least able to afford it. Adversarial relations often develop between management and employees, perpetuating an “us vs. them” mentality, which can devastate any organization that thrives on collaboration and teamwork.

The Cost of Unionization on Companies

Why do so many organizations, such as Amazon, 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 benefits 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. 

Some years ago, researchers John Dinardo and David S Lee conducted a study on “Economic Impacts Of New Unionization On Private Sector Employers,” in which they estimated the impact of unionization on business survival, employment, output, productivity, and wages. They concluded that increased wages and benefits have an insignificant impact on the market value of an organization. In the years since we have had reason to question the truth of this conclusion. Why did unionization play a significant role in the automobile industry crisis? How did unions figure into the Hostess crisis that laid off over 18,000 workers? It’s clear that the cost of unionization on a company can be devastating to its ability to survive in difficult times.

Do unions cost jobs and reduce the ability of a company to remain competitive?

The additional costs are real. The real estate firm Related, located in New York, sued construction unions because the unions were inflating costs by $100,000. The lawsuit said the company was being forced to pay up to $70 an hour for someone to pick up coffee. The union’s own financial struggles were being passed along to employers. Unnecessary high costs like this were a product of inefficient union work rules requiring more workers than necessary and New York’s prevailing wage law.  

While this is just one example, New York’s construction unions are not the only unions that have a problem because their retirement funds are in crisis. Unions need new members and younger workers to support retiring workers. In this case, in a completely legal scheme, New York’s construction unions were setting wage rates based not on costs or market rates but on their own need to fill their coffers. 

Gray estimates that the total additional annual operating expenses for an organization with a union presence 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 estimates do not include wages and benefits but do include items such as:

• additional training on managing in a union environment  
• additional Human Resources training and administrative support 

• ongoing legal fees 
• cost of arbitrations  
• handling of grievances 
• time spent in negotiations with each contract renewal 
• lost productivity due to union work rules 
• strike contingency planning to reassure customers 
• security in the event of unrest 
• lost sales margin against non-union competitors

Extending the research out to 10 years post-unionization, the Employment Policy Foundation (EPF) stated that a unionized company’s output per employee is 2.4 percent less than a union-free competitor if that unionized company experiences just a .25 percent reduction in productivity. The EPF 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. 

In his book, “Union Proof – Creating Your Successful Union Free Strategy,” author Peter J. Bergeron noted 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.

The Impact Of Unionization on Corporate Valuation

David Lee conducted a second study, this time teaming up with another Professor of Economics and Public Affairs at Princeton University, Alexandre Mas; this second study used a similar methodology to Lee’s earlier study with DiNardo and found that unionization reduced an organization’s market value by approximately $40,500 per worker eligible to vote in a unionizing campaign. 

A more recent project by Keegan Woods and Kelvin Jui Keng Tan at the University of Queensland looked at union influence from a different perspective. Does the influence of unions in the political arena in the United States have a negative impact on corporate value? If so, do corporations spend more than they would otherwise to try and offset union influence? The conclusion was that labor unions do have a negative effect on firm value through the political channel (lobbying paid for with union dues), forcing corporations to make more political contributions to stop the potential damage. This is particularly relevant today as the pro-union Biden administration and House of Representatives push for laws like the PRO Act, making it easier for employees, gig workers, and supervisors to join unions.  

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.” 

The Library of Economics and Liberty points out that economists studying unions analyze them as cartels that restrict labor supply to force wages above the competitive levels. Think of apprenticeship programs for the trades. They limit the supply of labor. Once a union wins an election, they have monopoly power to represent all employees. Unions get their monopolistic power from government policy and laws that protect them from things like antitrust laws and force employers to make their property available for union use. When employers face increased costs and are forced to pay higher wages, they inevitably hire fewer workers.