In Praise of Organized Labor
Never mind the conventional wisdom. The evidence says that when bosses partner with unions, it's good for both workers and the bottom line.
By Jeffrey Pfeffer

(Business 2.0) – There's one word that never fails to raise the blood pressure of my friends in business: unions. In the minds of many executives, organized labor is the archenemy of the basic prerequisites for business success--flexibility, efficiency, and a relentless emphasis on results. Yet while that may be the conventional wisdom, my job is to provide managers with the information they need to make better, more profitable decisions. And I'm here to tell you that the evidence on the role unions play in the workplace belies many common preconceptions.

From a management perspective, health care is a great field to study, because the relationship between personnel practices and practical outcomes is straightforward: When care is bad, patients die; when it's good, they live.

So what does the data tell us? A recent study summarized by the Institute of Medicine shows that having fewer nurses per patient--a cost-cutting tactic embraced by many hospital administrators but opposed by nurses' unions--is associated with higher rates of patient infection, pneumonia, cardiac arrest, and death. To reduce heart attack mortality rates, research published in the Journal of the American Medical Association shows, quality of care is more important than even advanced cardiac technology. Other factors that influence health outcomes include the degree of autonomy that nurses enjoy, their effectiveness at working in teams, and staff turnover.

Studies in a variety of industries from retail to airlines have shown that unionization leads to higher pay, which in turn attracts higher-quality employees and reduces costly turnover. Collective bargaining also institutionalizes communication between bosses and workers, while employee involvement in establishing working conditions provides more workplace control for frontline staff.

In hospitals, these benefits of collective bargaining clearly improve the quality of patient care. In a 2004 study of the risk-adjusted death rate from heart attacks in 344 acute-care hospitals in California, for example, researchers Michael Ash and Jean Ann Seago found that facilities with unionized nurses had a 5.5 percent lower mortality rate than non-union hospitals.

The same study also found that much of that gain disappears when labor-management relations become adversarial. That's a familiar lesson for Kaiser Permanente, the $28 billion health maintenance organization that in 1997 launched a formal labor-management partnership with its 26 local unions following a decade of strikes and conflict. Since then, in Kaiser facilities where shared decision-making and a strong partnership have taken hold, results have improved dramatically: Workplace injuries fell by more than 20 percent, Kaiser's employee satisfaction climbed from 65 percent in 2000 to 80 percent in 2003, and plan-member satisfaction increased by 3 percent. Most impressive of all, the cost savings attributed to the partnership arrangement have exceeded $100 million.

What about unions' impact on profits? Generally speaking, the evidence shows that unions cost nothing. Yes, they raise direct labor costs. But on balance, the higher wages paid to unionized workers are offset by productivity benefits that come from having a higher-quality and more stable workforce, so the net effect on profits is essentially zero.

This all points to a broader conclusion: At the end of the day, managers must decide how to deal with unionized employees, generating either conflict and declining results or collaboration and greater success. I know this is easier said than done. Yet the consequences of failure can be extreme--as many of the troubled U.S. airlines are now discovering as they attempt to duplicate the success of highly unionized Southwest. The simple truth is that the lessons to be drawn from unionized health-care workers about the importance of information sharing, employee involvement, and a more experienced workforce also apply to most other industries--and non-union workforces as well.