Question

From an economic perspective, what are the marginal costs of unions in the U.S.?

Answer 1

A union is a collection of people who come together as part of the labour force to demand for higher wages, better working conditions and safety norms, breaks as well as other benefits such as insurance etc from the employers.

These represent the supply side of economics for the demand for labour force which employers may have. They pay wages to these people and that acts as the cost of the labour force.

As unions come into existence, they have higher supplier bargaining power than they earlier used to when they were scattered and were competing against one another. This raises their salary and the companies need to pay higher in terms of the benefit which they grant to these people.

The costs which they pay accumulate and as a country we may lose out on a lot of jobs which otherwise the country may have been able to retain. The reason why many American firms have taken their business abroad in terms of manufacturing is this unionization of the labour force which has increased the cost of production and the overall costs of the product itself.

A product manufactured in the United States costs companies’ way more than it would in countries such as India, China, Vietnam etc. This then means that even if the country gains in terms of the quality of jobs which are provided due to the unionization, it still loses business of firms which expand over to the countries mentioned that offer lower costs and lesser supplier bargaining power.

Thus, the production levels in a country like the United States may shrink and business owners may take their operations elsewhere if unions increase in the country and put forward demands which seem unreasonable to the demand side which is the employers in the economy.

Please feel free to ask your doubts in the comments section if any.