Unions Increase Productivity in the Construction Industry

Frank Manzo IV is the Policy Director of the Illinois Economic Policy Institute (ILEPI). Visit ILEPI at www.illinoisepi.org or follow ILEPI on Twitter @illinoisEPI.

Recently released data illustrates the strongly positive relationship between unionization and productivity in the construction industry. Across the country, a 1 percentage-point increase in a state’s construction unionization rate is found to boost worker productivity by $0.805 per hour per worker.

During the period of analysis, Illinois had the highest construction industry unionization, at 38.2 percent compared to the national average of 13.2 percent. However, blue-collar construction workers in Illinois generated $87.72 per hour worked to the state’s economy, the 5th-highest productivity in the nation. This $87.72 per hour is significantly higher than the national average of $75.15 per hour (+16.7 percent). Furthermore, Illinois construction workers’ productivity also compares favorably to their counterparts in neighboring states:

  • Wisconsin: $78.67 per hour
  • Indiana: $75.92 per hour
  • Kentucky: $72.49 per hour
  • Iowa: $71.17 per hour
  • Missouri: $71.14 per hour

The linear relationship between unionization and worker productivity indicates that, if the private construction industry unionization rate were to increase from 38.2 percent to 48.2 percent (+10 percentage points), worker productivity would be increased from $87.72 per hour per worker to $95.77 per hour per worker (+$8.05 per hour). This equates to an additional $2.25 billion in economic output that would be produced over the 279.1 million hours worked by construction workers across Illinois. The added productivity is because unionized construction workers are better trained and less likely to suffer workplace injuries on average.

This data aligns with previous economic research which shows that union membership increases worker productivity. In a 2004 meta-analysis of 53 academic studies covering a total of 47,469 workers, Doucouliagos and Laroche find that American unions raise productivity in both the manufacturing sector by 10 percent and the education sector by 7 percent. Additionally, Allen (1984) found that union productivity in the construction sector is 17 to 22 percent higher than nonunion output. The high degree of unionization is one of the main reasons why road and bridge construction workers across the Midwest are so productive.

In conclusion, labor unions are an effective institution at increasing worker productivity in the construction industry. Labor unions raise and compress wages, increase apprenticeship training, and promote safer construction zones. Policies which reduce unionization, such as right-to-work laws, thus tend to have very negative impacts on construction worker earnings and lives. Construction trades unions help to stabilize the industry by developing an available supply of skilled workers for all contractors. To ensure that Illinois remains a highly-productive, high-wage state, unionization should be encouraged in the construction sector.

About the Data

In March 2015, the U.S. Census Bureau and U.S. Department of Commerce released 2012 Economic Census data on the construction industry. Conducted every five years, the Economic Census is a survey of a majority of businesses across America that have at least one employee. The data include information on value added and total labor-hours worked by construction workers in each state plus the District of Columbia. “Value added” is a measure of productivity over one year that is business revenues minus the costs for materials, components, supplies, fuels, and subcontracted work. Put plainly, it is the contribution of the construction industry to a state’s gross domestic product (GDP). Dividing value added by total hours yields a measure of construction worker productivity per hour.

2012 data is also available for private construction industry unionization rates in every state plus the District of Columbia. The U.S. Department of Labor surveyed 7,832 workers in the private construction industry across the United States in the 2012 Current Population Survey, which is conducted every year. The Figure above compares the average construction worker’s value added per hour with the private construction industry unionization rate in all states plus D.C.

*NOTE: In social science research, an R_squared of 0.37 indicates a relatively “large” relationship (0.5*0.5 = 0.25).

3 thoughts on “Unions Increase Productivity in the Construction Industry

  1. UPDATE… A reader emailed a question to me that I thought I should answer.

    His question: “Can you put the union productivity effect into a percent?”

    The answer: Yes, we can convert the figures using the natural logarithm. Mathematically, the change in the natural logarithm essentially equates to the percentage change. So it is a quick little trick.

    The same analysis as above gives us the following equation:
    ln(Value Added Per Hour) = 0.0107*(Unionization Rate) + 4.133.

    This means that a 1 percentage-point increase in construction industry unionization would, on average, be associated with a 1.07 percent increase in construction worker productivity.

    A 10 percentage-point increase in unionization would boost productivity by 10.7 percent.

    More importantly, since the Illinois construction workforce is 38.2 percent unionized, the linear relationship tells us that construction workers are about 40.9 percent MORE productive than they would be if for some reason there suddenly were no trades unions. This would be a significant decline in productivity, and the economy would certainly take a hit.

    Thanks for reading!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s