For more than
a century now, labor unions have been celebrated in folk
songs and popular myth as fearless champions of the
downtrodden working man, while "the bosses" are depicted as
coldhearted exploiters of employees. But from the standpoint
of economists—including many who are avowedly
pro-union—unions are simply cartels that raise wages above
competitive levels by capturing monopolies over who
companies can hire and what they must pay.
Many unions
have won higher wages and better working conditions for
their members. In doing so, however, they have reduced the
number of jobs available. That second effect is because of
the basic law of demand: if unions successfully raise the
price of labor, employers will purchase less of it. Thus,
unions are the major anticompetitive force in labor markets.
Their gains come at the expense of consumers, nonunion
workers, the jobless, and owners of corporations.
According to
Harvard economists Richard Freeman and James Medoff, who
look favorably on unions, "Most, if not all, unions have
monopoly power, which they can use to raise wages above
competitive levels." The power that unions have to fix high
prices for their labor rests on legal privileges and
immunities that they get from government, both by statute
and by nonenforcement of other laws. The purpose is to
restrict others from working for lower wages. As anti-union
economist Ludwig von Mises wrote in 1922, "The long and
short of trade union rights is in fact the right to proceed
against the strikebreaker with primitive violence."
Those
unfamiliar with labor law may be surprised by the privileges
that U.S. unions enjoy. The list is long. Labor cartels are
immune from taxation and from antitrust laws. Companies are
legally compelled to bargain with unions in "good faith."
This innocent-sounding term is interpreted by the National
Labor Relations Board to suppress such practices as
Boulwarism, named for a former General Electric personnel
director. To shorten the collective bargaining process,
Lemuel Boulware communicated the "reasonableness" of GE's
wage offer directly to employees, shareholders, and the
public. Unions also can force companies to make their
property available for union use.
Once the
government ratifies a union's position as representing a
group of workers, it represents them exclusively, whether
particular employees want collective representation or not.
Also, union officials can force compulsory union dues from
employees, members and nonmembers alike, as a condition of
keeping their jobs. Unions often use these funds for
political purposes—political campaigns and voter
registration, for example—unrelated to collective bargaining
or to employee grievances. Unions are relatively immune from
payment of tort damages for injuries inflicted in labor
disputes, from federal court injunctions, and from many
state laws under the "federal preemption" doctrine. Sums up
Nobel Laureate Friedrich A. Hayek: "We have now reached a
state where [unions] have become uniquely privileged
institutions to which the general rules of law do not
apply."
Labor unions
cannot prosper in a competitive environment. Like other
successful cartels, they depend on government patronage and
protection. Worker cartels grew in surges during the two
world wars and the Great Depression of the thirties. Federal
interventions—the Railway Act of 1926 (amended in 1934), the
Davis-Bacon Act of 1931, the Norris-LaGuardia Act of 1932,
the National Labor Relations Act of 1935, the Walsh-Healy
Act of 1936, the Fair Labor Standards Act of 1938, various
War Labor Boards, and the Kennedy administration's
encouragement of public-sector unionism in 1962—all added to
unions' monopoly power.
Most unions
in the private sector are in crafts and industries that have
few companies or that are concentrated in one region of the
country. This makes sense. Both factors—few employers or
regionally concentrated employers—make organizing easier.
Conversely, the large number of employers and the regional
dispersion of employers sharply limit unionization in trade,
services, and agriculture. A 1989 unionization rate of 35
percent in the public sector versus 12 percent in the
private sector further demonstrates that unions do best in
heavily regulated, monopolistic environments.
After nearly
sixty years of government encouragement and protection of
unions, what have been the economic consequences? A 1985
survey by H. Gregg Lewis of two hundred economic studies
concluded that unions caused their members' wages to be, on
average, 14 to 15 percent higher than wages of similarly
skilled nonunion workers. Other economists—Harvard's Freeman
and Medoff, and Peter Linneman and Michael Wachter of the
University of Pennsylvania—claim that the union premium was
20 to 30 percent or higher during the eighties.
The wage
premium varies by industry. Unions representing garment
workers, textile workers, white-collar government workers,
and teachers seem to have little impact on wages. But wages
of unionized mine workers, building trades people, airline
pilots, merchant seamen, postal workers, teamsters, rail
workers, and auto and steel workers exceed wages of
similarly skilled nonunion employees by 25 percent or more.
The wage
advantage enjoyed by union members results from two factors.
First, monopoly unions raise wages above competitive levels.
Second, nonunion wages fall because workers priced out of
jobs by high union wages move into the nonunion sector and
bid down wages there. Thus, some of the gains to union
members come at the expense of those who must shift to
lower-paying or less desirable jobs or go unemployed.
The monopoly
success of private-sector unions, however, has brought their
decline. The silent, steady forces of the marketplace
continually undermine them. Linneman and Wachter, along with
economist William Carter, found that the rising union wage
premium was responsible for up to 64 percent of the decline
in unions' share of employment in the last twenty years. The
average union wage premium for railroad workers over
similarly skilled nonrailroad workers, for example,
increased from 32 percent to 50 percent between 1973 and
1987; at the same time, employment on railroads declined
from 520,000 to 249,000. Increased wage premiums also caused
declines in union employment in construction, manufacturing,
and communications. As Rutgers economist Leo Troy concludes,
"Over time, competitive markets repeal the legal protection
bestowed by governments on unions and collective
bargaining."
The degree of
union representation of workers has declined in all private
industries in the United States in recent decades. A major
reason is that employees do not like unions. According to a
Louis Harris poll commissioned by the AFL-CIO in 1984, only
one in three U.S. employees would vote for union
representation in a secret ballot election. The Harris poll
found, as have other surveys, that nonunion employees,
relative to union workers, are more satisfied with job
security, recognition of job performance, and participation
in decisions that affect their jobs. And the U.S. economy's
evolution toward smaller companies, the South and West,
higher-technology products, and more professional and
technical personnel continues to erode union membership.
In the United
States union membership in the private sector peaked at 17
million in 1970 and had fallen to 10.5 million by 1989.
Moreover, the annual decline is accelerating. Barring new
legislation, such as a recent congressional proposal to ban
the hiring of nonunion replacement workers, private-sector
membership will fall from 12 percent to about 7 percent by
the year 2000, about the same percentage as a hundred years
earlier. [Editor's note: this prediction was made in 1992.]
While the unionization rate in government jobs may decline
slightly from 35 percent, public-sector unions are on
schedule to claim an absolute majority of union members a
few years after the year 2000, thereby transforming an
historically private-sector labor movement into a primarily
government one. Asked in the twenties what organized labor
wanted, union leader Samuel Gompers answered, "More."
Today's union leader would probably answer, "More
government." That answer further exposes the deep, permanent
conflict between union members and workers in general that
inevitably arises when the first group is paid monopoly wage
rates.
Assuming that
unions continue to decline, what organizations might replace
them? "Worker associations" that lack legal privileges and
immunities and that must produce services of value to get
members may fill the need. Such voluntary worker
associations could negotiate labor contracts, serve as
clearinghouses for workers to learn what their best
alternatives are, monitor administration of fringe benefit
plans, and administer training and benefit plans. Worker
associations could also institute legal proceedings against
collusion by employers, as the Major League Baseball
Players' Association does so successfully for players who
are free agents. Such services could be especially valuable
to immigrant, minority, and female workers now dominating
entry into the nineties' labor force.
Further
Reading
Epstein, Richard
A. "A Common Law for Labor Relations: A Critique of the New
Deal Labor Legislation." Yale Law Journal 92 (July
1983): 1357-1408.
Freeman, Richard
B., and James L. Medoff. What Do Labor Unions Do?
1984.
Harvard Journal
of Law and Public Policy 13 (Spring 1990). (Entire issue
devoted to labor law.)
Hirsch, Barry T.,
and John T. Addison. Economic Analysis of Labor
Unions—New Approaches and Evidence. 1986.
Hutt, William H.
The Strike-Threat System: The Economic Consequences of
Collective Bargaining. 1973.
Lewis, H. Gregg.
Union Relative Wage Effects. 1985.
Linneman, Peter
D., Michael L. Wachter, and William H. Carter. "Evaluating
the Evidence on Union Employment and Wages." Industrial
and Labor Relations Review 44 (October 1990): 34-53.
Lipset, Seymour
Martin, ed. Unions in Transition. 1986.
Reynolds, Morgan
O. Making America Poorer: The Cost of Labor Law.
1987.
Troy, Leo. "Is the
U.S. Unique in the Decline of Private Sector Unionism?"
Journal of Labor Research 11 (Spring 1990): 111-43.
Leadership Focus