Do Unions Undermine Business Performance?

New research published by the National Bureau of Economic Research suggests that unionization has a negative impact on the market value of publicly traded firms. About one quarter of the decline in market value is due to lower operational efficiency. The rest of the decline appears to be a net transfer of value from shareholders and equity owners to workers.

“The decrease in equity value associated with unionization begins at the time the union wins its election and continues for about 15 months afterward. Calculations of the effects of a union victory suggest that it produces large negative returns of 10 to 14 percent. The authors also find that the effects are quite variable, depending on the degree of support for the union. When unions win elections with a bare majority, there is almost no union effect. But when unions win by a large margin, the effect can be as large as 25 to 40 percent.”

This has potentially large implications for Card Check, the policy the Obama Administration is promoting to encourage unionization.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.