Do Labour Unions Have an Impact on Organisations
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By: Osmond Vitez     

Organisations rely on three economic resources when conducting operations: land, labour and capital. Land represents the physical resources used to produce goods or services. Labour is the human resource a company uses to produce goods or services. Capital is the money used to acquire physical resources or human labour. A few business industries may use unionised labour in their business operations. Unionised labour represents a group of individuals that use a collective bargaining agreement to define employee relationships with an organisation.


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The National Labor Relations Act encourages the establishment of unions. This legislation states that employees have the right to organise, form, join or assist in labour organisations and use collective bargaining through representation. This ensures that employees are appropriately represented and limits unfair employer practices. While unionised labour may help employees improve their work environment and livelihood, it can create some difficult situations for organisations.

Increased Wages

Unionised labour often increases the wages companies pay across the board to their employees. While high-producing employees may be capped at how much they can earn in compensation, underperforming employees are usually given wages above the market rate for their skills and production levels. Collective bargaining agreements create significant benefits for employees who may not be interested in increasing output because they earn a higher wage. Collective bargaining agreements often strip the incentives companies offer to underperforming employees to increase their productivity.

Bloated Pension Plans

Collective bargaining agreements may be used by labour unions to create heavily-favourable employee pension plans and other benefits. These pension and benefit plans increase the cost per employee that organisations pay and add higher-than-average compensation rates compared to the open market. Pension plan agreements may also require organisations to fund pensions well after employees have retired or have been laid off. Unions may also seek increases to pension and benefit plans when negotiating new collective bargaining agreements, continually raising this business cost.

Workforce Reduction

Organisations may be unable to reduce the number of available jobs they can offer when employing unionised workers. Collective bargaining agreements often require organisations to maintain specific employment levels for unionised workers. Even during sluggish economic times or business cycle downturns, organisations may not be able to reduce the workforce, depending on the union’s bargaining agreement. Organisations may need to engage in exclusive negotiations to reduce the workforce when compensating for lower sales.


Organisations that offer reasonable compensation and above-average benefit packages to employees may be able to avoid worker attempts to form a union. Treating workers with respect and dignity in the workplace can also ensure that employees trust the organisation and won’t be motivated to start a union. Unions often cause organisations to struggle to create a competitive advantage in the economic market–usually achieved by producing the least expensive consumer goods possible. This can limit the job advancement or benefits companies can afford to offer employees.

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