Fellow Pilots,
The article below is an excerpt from “What Were They Thinking? Unconventional Wisdom about Management” by Jeffrey Pfeffer (Harvard Business School Press, 2007) that appeared in Sunday’s Dallas Morning News. Dr. Pfeffer is a professor of organizational behavior at the Stanford Graduate School of Business and a world-renowned management, leadership and human resources scholar. Dr. Pfeffer’s article explains that though unions are often maligned, research shows that they can make companies highly profitable and competitive.
Fraternally,
Captain Lloyd Hill, President
Common Wisdom about Unions Dispelled in Data
If there's one word that never fails to raise the blood pressure of my friends in business, that word is unions. Even presumably progressive thinkers and executives in countries with a strong labor tradition see unions as anachronisms in the modern world.
Like much conventional wisdom, however, the prevailing views about unions are often inaccurate or incomplete.
Wages up, profit up
Consider the effect of unions on wages. Yes, there is evidence that unions raise wages. But higher wages do not automatically translate into lower profits or diminished competitiveness.
How can wages go up without profit going down? First, higher wages attract more skilled employees. Unionized firms, generally offering higher wages and more attractive working conditions, pull in more skilled and educated people. Such employees accomplish more per unit of time they work and thus are more productive.
Second, higher wages decrease turnover. Multiple studies in both unionized and nonunion settings demonstrate the negative relationship between relative wages and quit rates. Turnover is expensive, so curbing turnover produces benefits for the company.
Third, higher wages, just like higher prices for anything, encourage companies to economize on the use of labor. In the case of employees, that means investing in equipment and training, and ensuring that work methods are as efficient as possible so that labor hours don't get wasted. Studies in a number of industries demonstrate that unionized workforces are actually more productive than their nonunion counterparts.
Unions not only affect wages, but they also affect the distribution of earnings. Unions have an egalitarian ethos - necessary to effectively organize for collective action - and generally strive for a more equal wage structure. There is a lot of discussion about the "high road" competitive strategy in which industrialized countries stop trying to compete on the basis of labor costs - a battle they can never win - but instead compete on innovation, productivity and brainpower. In this effort, the evidence suggests that the implementation of high-performance work practices is useful.
Contrary to what many believe, having a unionized workforce is not antithetical to high-commitment or high-performance work practices - things such as investment in training, working in self-managed teams, longer-term time horizons for the employment relationship (read: more job security), information sharing and so forth. Rather, the empirical evidence suggests that unionization is positively associated with the implementation of such practices.
Furthermore, research suggests that many high-commitment work arrangements are relatively fragile. That's because the typical response to economic stress is to abandon strategies that entail investing in people or social capital. Ironically, unionization may lead to higher persistence of high-commitment work arrangements because unions act as a countervailing force to short-term pressures to abandon such arrangements.
It is perhaps in medicine where the positive effects of unionization can be most clearly seen. Studies summarized by a report from the Institute of Medicine show that lowering the nurse-patient ratio - a short-term cost-cutting tactic embraced by many hospital administrators and political figures but vigorously opposed by nurses' unions - is associated with higher rates of infection, pneumonia, cardiac arrest and death.
The authors concluded that it was probably the increased power the unionization provided to nurses as well as the increased level of joint decision-making that led to the better patient care results. That same study found that much of the gain disappears when union-management relations are adversarial.
Success stories
Some of the most successful private-sector organizations are unionized. Southwest Airlines, the only carrier to have been profitable each of the last 34 years, is the most unionized of all U.S. airlines at 82 percent of employees. UPS is unionized. So it is possible to be economically successful and have labor organizations.
Consider Cingular Wireless (now AT&T), which remained neutral while 18,000 employees joined the Communication Workers of America. At the same time, the company achieved the best financial results in its history, and Lew Walker, vice president of human resources, believes there is a connection between the two.
That's because the company got "engaged employees who are focused on customer service and building the Cingular network rather than nursing grudges against management."