A comprehensive and detailed study which explodes the myth that wages paid union building craftsmen are responsible for high residential construction costs. Published as an information Service by The Building & Construction Trades Dept. AFL-CIO 815 16th Street, N.W., Washington, D.C. Reprinted from Industrial and Labor Relations Review, Cornell University July 1965 THE EFFECTS OF UNIONS ON EFFICIENCY IN THE RESIDENTIAL CONSTRUCTION INDUSTRY: A CASE STUDY ALLAN B. MANDELSTAMM F NOR many years students of the labor movement have been interested in the impact of unions upon efficiency in particular industries and in the economy as a whole.1 Most popular statements of the problem have assumed that the effect of unions on efficiency has been unfavorable. Some students, on the other hand, have expressed disagreement or uncertainty:2 not only is it impossible to measure the results of such practices as "featherbedding" with any degree of This study attempts to shed light on the discussion of the impact of unions on efficiency. It does so by examining in detail one segment of one industry, namely residential construction. The method used is to compare efficiency and costs in such construction in two Michigan cities, one (Ann Arbor) heavily unionized, the other (Bay City) not. The comparison was made by securing estimates in both locations of the price and labor costs involved in the construction of a standard small house. The findings from this show wage bills in the two cities to be virtually the same despite substantially higher wage rates in Ann Arbor, the explanation being that fewer man-hours of labor were required there than in Bay City. Various possible explanations for this, such as the effect of high wage rates on quality of workers being selected, the impact of the union apprenticeship program, and entrepreneurial efficiency both due to wage and competitive pressures are explored and evaluated. The author is associate professor of economics at Michigan State University. He wishes to acknowledge his debt to Harold M. Levinson for many valuable suggestions, and also to give thanks to John Brittain, Rudolph Blitz, Millard Long, and Richard E. Bower. — - EDITOR The purpose of this article is to cast some light on this problem through a detailed case study of one segment of one industry: residential construction. The problem of restrictive union practices has been important in this industry both because of the strength of the unions and the way the economic characteristics of the industry (a high degree of seasonal and cyclical instability, a relatively casual employer-employee relationship, and 'See, for example, Clark Kerr, "Productivity and Labor Relations," in Productivity and Progress (Sidney: Angus and Robertson, 1957); F. Zweig, Productivity and Trade Unions (Oxford: Blackwell, 1951); Sumner Slichter, Union Policies and Industrial Management (Washington, D.C.: The Brookings Institution, 1941); Sumner Slichter, James Healy, and E. Robert Livernash, The Impact of Collective Bargaining on Management (Washington, D.C.: The Brookings Institution, 1960). "Bloom and Northrop argue that on balance unions probably reduce efficiency. Gordon Bloom and Herbert Northrup, Economics of Labor Relations (Homewood, Illinois: Richard D. Irwin, 1961), p. 469. Slichter comes to the opposite conclusion. Sumner Slichter. The Challenge of Industrial Relations (Ithaca: Cornell University Press, 1947), pp. 69 and 72-73. Chamberlain believes that the net effect of unions is probably neutral. Neil Chamberlain, Labor (New York: McGraw-Hill Book Co., 1958), p. 293. Separate median figures were computed for union and non-union contractors in Bay City (see Table 2). The figures used in this table are the over-all medians for all Bay City contractors. The numbers have been rounded to the nearest hour or dollar. Totals were calculated with the unrounded data; hence, slight discrepancies appear. All figures for "wage bill" include contractor estimates of payments for fringe benefits (health and welfare insurance, vacation with pay, etc.) and labor-connected insurance (that is, social security taxes and workmen's compensation). The "price" for carpentry is exclusive of the overhead and profit of the contractor performing this function (usually the general contractor, but sometimes a separate carpentry subcontractor). §The total "price" is less than the consumer would pay, for it excludes the overhead and profit for the carpentry and coordinating functions of the general contractor. It is also exclusive of the sewer installation, which could not be compared in the cities because of radically different conditions. From Table 1 it may be seen that the Ann Arbor median number of hours is below the Bay City median in 12 of 15 trades. Within Bay City, the union median lies below the non-union median 11 of 13 times. Application of a two-tailed sign test showed these results to be sig nificant at the .04 level for the intercity data, and at the .03 level for the intracity figures. For a more complete test of significance, the following statistical analysis was performed: for each trade, the mean number of hours was calculated for all contractors in both cities. The number of Ann Arbor contractors whose number of hours was above the over-all mean for their trade was noted, as was the same thing for the Bay City contractors. The standard test for the significance of difference between percentages was performed for the percentage of Ann Arbor contractors who were above the mean for their trade, as opposed to the percentage of Bay City contractors who were above the mean for their trade. The results were significant at the .005 level. The same test was performed on the union-non-union data within Bay City. These results were significant at the .06 level. The Mann-Whitney test was performed on the data for each individual trade. |