Actually, Howard Schultz, Unions May Just Be the Answer

“Howard Schultz famously state that unions ‘have a role to play’ but are ‘not the answer.’ But, are they not? Thankfully, there is an empirical answer to this question.”

Unions have occupied a prominent place in the public discourse over the last two years or so. In the United States, left-wing politicians like Bernie Sanders and Alexandria Ocasio-Cortez have revived interest in organized labor and made the health of unions a central talking point of their campaigns. The Democratic primaries have also helped in this respect, as union endorsements can provide an important boost for candidates. Yet, as it has just been reported, once again union membership hit a record low in 2019. According to figures published by the Bureau of Labor Statistics this year, the percentage declined by 0.2 percentage points to 10.3 percent of workers. The rate has been steadily declining for more than two decades. In 1983, the first year for which the BLS collected comparable data, the rate was 20.1 percent.

However, unions continue to play an important role in politics in the United States. Last year, the flight attendants’ union essentially ended the last government shutdown. With flight attendants on strike, the threat of a halt of air transportation across the country pushed the federal government to strike a deal with its employees. Elsewhere in the world, as social unrest continues to grow in Europe, Hong Kong, and other areas, unions have also been put in the spotlight. In France, unions have continued their lengthy battle against pension reform. In Hong Kong, people—as of late—have begun forming and joining unions as part of their protests against the Chinese-backed government. However, criticism of unions has been prevalent and has come from many sides of the political spectrum. Right-to-work laws, which have played a large role in the decline of membership in unions, have become prevalent in traditionally Republican states. Coffee magnate, could-have-been presidential candidate, and long-time Democrat Howard Schultz famously state that unions “have a role to play” but are “not the answer.” But, are they not? Thankfully, there is an empirical answer to this question.

First, I’ll provide a little more context. Schultz’s position, of course, is simply one of many along the long line of criticisms against unions. A common argument is that all unions do is stand in the way of productivity—and that they simply add transaction costs to the economy. They stifle creativity and workers’ individual initiative, instead promoting a stagnant climate. Another critique is that unions’ efforts in raising wages are misguided and, ultimately, fruitless because they only raise money wages, as opposed to real wages. Real wages are those that are measured taking into account the effect of inflation and only result from increases in productivity. Or put another way, they increase the cost of labor but not its value.