by Lowell Gallaway, Jonathan Robe
Competitive Enterprise Institute
July 30, 2014
By raising the cost of labor, unions decrease the number of job opportunities in unionized industries. That, in turn, increases the supply of labor in the nonunion sector, thereby driving down wages in those industries. As a result, the natural rate of unemployment increases and economic output decreases – a phenomenon known as “deadweight loss.” This study calculates deadweight loss by state, and finds that more unionization correlates with lower wages and thus a drop in GDP. This conclusion suggests that the decision to officially encourage collective bargaining through public policy, which was the primary thrust of the National Labor Relations Act of 1935 (the Wagner Act), was rife with unintended negative consequences.