While unions ensure higher wages and an increased level of job security for their members, they also bring about many unintended adverse effects for the economy as a whole. The existence and growth of unions can contribute to increased unemployment levels, higher levels of racial disparity in income and reduced industry growth.
By restricting the number of eligible workers in an industry, unions essentially decrease the labor supply, shifting the labor supply curve upward. As a result, the existence of unions increases the average wage above the level that would naturally occur in the market. Yet the intersection of the new labor supply and demand curves also occurs at a lower employment level. Thus, there is a higher level of unemployment, as essentially businesses can afford to hire fewer workers at the elevated wage.
By increasing the average wage and benefit package above the natural market level, unions adversely affect the profit margins of the businesses and industries they affect The effects of unions have been known to be particularly significant for smaller businesses, which tend to have smaller profit margins. By contributing to increased labor costs and decreased profitability, unions can also slow the growth of businesses, and eventually industries as a whole.
Due to the fact that minorities tend to be disproportionately represented in unions, the growth of unions can also lead to higher levels of disparity in income. Unions not only lead to higher average wages among their employees, but they also contribute to higher levels of unemployment among those who are not members. Thus, unions can lead to lower average wages and lower rates of employment among minorities in affected sectors.