Labor unions are a monopoly on labor, so cause all the standard problems associated with a monopoly, including possibly significantly hurting the economy. However, they provide a vital escape valve for a democracy: The very bottom of the social pyramid often organizes themselves into labor unions; they who would otherwise not have much political power, the poor who would normally be trampled by the rich and powerful.
It prevents things going horribly wrong with power concentrated to the wealthy. I think this is worth it. But it would be nice if there were a better mechanism to accomplish this.
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Paul Krugman, "Wisconsin Power Play" (New York Times column)
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