The U.S. Bureau of Labor Statistics announced last week that for the first time, the number of government employees in unions exceeded the number in the private sector, which fell to a new low of 7.2 percent, down from 7.6 percent in 2008. At the same time the number of government employees in unions rose from 36.8 percent to 37.4 percent.
But private sector union membership has been on a slow and steady decline for decades. While union leaders decry the numbers, saying that good union jobs are disappearing, the reality behind unions is much more complex. To an extent, they have become a victim of their own success.
The AFL-CIO, the largest union federation in the U.S., claims on its Web site that unions help “build stronger workplaces” and “give workers a voice on the job about safety, security, pay, benefits — and about the best ways to get the work done.” Further, it says, unions “represent working families before lawmakers, and make sure politicians never forget that working families voted them into office.”
All of that, it turns out, is somewhere between misleading and blatantly untrue.
“They artificially increase wages in unionized industries, limit employment opportunities, depress wages in nonunion jobs, lower rates of return on investment in unionized firms, and slow the growth of productivity,” writes James A. Dorn, professor of economics at Towson University and editor of theCato Journal. “Unions politicize labor markets and have used the threat of violence to protect their wage premiums. In addition to using their monopoly power to secure higher than market wages, unions spend huge sums of money to maintain their power and limit competition.”
In its first issue of 2010,Cato Journal asks, Are unions good for America? The answer may surprise you, especially if you are a member of a union.
(Before going on I should disclose that I once paid union dues to the United Food and Commercial Workers when I worked at a grocery store.)
In 232 short pages of hard-hitting analysis, (but don’t do what I did and read it all in one sitting) Cato exposes some of the myths behind labor unions that practically everyone believes. Here are a few of them.
Myth: Unions work to ensure a level playing field for employees.
Fact: Unions advocate for laws which tilt the playing field in ways that are unfair to both employers and employees. Those laws often impair economic growth and innovation, as well as destroy the freedom to contract, according to Randall G. Holcombe and James D. Gwartney, economics professors at Florida State University. Over time, these labor laws actually cause a shift in employment from union jobs to nonunion jobs. In fact, research shows that the growth of labor unions during the Great Depression actually increased unemployment. Unions are still destroying jobs today.
“In the short run, because labor law has given to unions an advantage in the bargaining process, union contracts have had the effect of increasing the wages and benefits of union workers,” they wrote. “In the long run, the higher cost of union labor brought on by those union contracts has resulted in a steady decline in private sector unionism, and has eroded U.S. manufacturing in unionized industries — most visibly, the railroad and auto industries.”
Myth: Unions bargain on behalf of their members to get employees the wages and benefits they deserve.
Fact: Unions “bargain” with the guns of government in hand, to get employees more wages and benefits than they deserve, with a little for themselves on the side. By crawling in bed with government to pass laws which benefited the unions at the expense of employers — and, in the long run, employees — union leaders have drained American businesses dry. The long, slow decline of private sector unions reflects the economic destruction they left in their wake as they searched for fresh blood to leech. And today they’ve found the biggest source yet, the government.
Armand Thieblot, an economic consultant who has written books on union corruption and violence, writes:
When Samuel Gompers, then head of the American Federation of Labor, was asked in the early 1920s what unions wanted, he famously replied, “More.” At the time, everyone correctly understood that unions’ targets were the capitalists from whom additional wages and benefits would be wrested by force, and also that if unions were successful, capitalists would have to be content with “Less,” thus, just a transfer of economic rents within the system from one factor to another.
By the 1980s and 1990s, however, when unorganized capitalists had become thin on the ground and those already organized had mostly been rendered uncompetitive by past concession to union demands, unions’ new guiding trope became “More government.” To achieve it, unions became mordantly political. In economic terms, after unions had absorbed all of the readily available economic rents from their capitalist opponents, they have turned to seeking rents from new sources beyond the system — from the polity at large (from taxpayers), using government as the intermediary.
Myth: Project labor agreements reduce project costs and delays and are good for construction workers as a whole.
Fact: Project labor agreements increase costs and only help union workers. PLAs are agreements between construction project owners and unions that contractors on the project must use union labor, even if they otherwise would not. David G. Tuerck, economics professor and chair at Suffolk University, cites numerous examples of how nonunion workers were harmed when they worked under PLAs, “first by forcing them to pay twice for benefits already offered their workers and second by forcing pay cuts on their workers.” Then, unions use veiled threats to “labor peace” to intimidate project owners into accepting PLAs for “job stability.” Further, PLAs increased costs for every project studied which used them, sometimes as much as 20 percent.
“PLAs are motivated by a desire on the part of the construction unions to shore up the declining union wage premium against technological changes and other changes that make traditional union work rules and job designations obsolescent,” Tuerck writes. “Now the PLA has evolved into an instrument that the unions employ in tandem with the prevailing wage laws in order to reduce the competitive advantage of nonunion contractors.”
Myth: Prevailing wage laws are good for competition, improve safety and quality, and help train new workers.
Fact: Prevailing wage laws stifle competition, have no effect on job safety and quality, and do nothing to help train new workers. The Davis-Bacon Act of 1931, signed into law by President Herbert Hoover, mandates that on federal construction projects, workers be paid the so-called “prevailing wage” for similar local workers. In practice, the wage is set far higher than the actual prevailing wage, closely mirroring union pay scales. This virtually locks out nonunion construction workers from federal contracts.
George C. Leef, director of the Pope Center for Higher Education Policy, finds that all of the arguments for prevailing wage laws fail to stand up to even the slightest scrutiny. Worse, the Davis-Bacon Act was racially motivated: “The hearings and debate on the legislation revealed some ugly racial overtones with comments on how ‘cheap colored labor’ was driving down wages of white workers.” Robert Bacon originally proposed the bill because he was upset that a construction firm from outside his district, employing black workers, built a veterans’ hospital in his district.
Myth: Organized labor has worked to promote racial equality.
Fact: Unions have used racial discrimination as a tool to enrich themselves, and continue to do so today. In 2008, Richard Trumka, who is now the president of the AFL-CIO, said, “We know, better than anyone else, how racism is used to divide working people.” He should, because the unions have been doing it for their entire existence, and still are, as Paul Moreno, history professor at Hillsdale College, illustrates. It isn’t — and probably never was — the employers oppressing the black, or the Chinese, or the Hispanic people. Most employers, as it turns out, really are color blind, as Martin Luther King, Jr., noted in 1957: “With the growth of industry the folkways of white supremacy will necessarily pass away. Moreover, southerners are learning to be good businessmen, and as such realize that bigotry is costly and bad for business.”
As racism goes, unions made the KKK look like amateurs. Big Labor lobbied for, and got, special laws to make them completely immune for whatever they did — all the way up to outright murder. InUnited States v. Enmons, in 1973, the Supreme Court held that unions were immune from prosecution under the Hobbs Act if their violent acts were in furtherance of a “valid union objective.”
The problem of racial discrimination in organized labor in America was less solved than it was outgrown. The story of racial discrimination in the American labor movement confirms the view that unions act as cartels that attempt to limit the supply of labor and raise its price. An easily identified and culturally disfavored minority group provided a convenient category for exclusion. But most unions were unable to succeed without state power, and by the time that they acquired such power, blacks had already fought their way into the industrial workforce. Discrimination within, rather than exclusion from, unions then became the chief problem — one that spawned the policy of “affirmative action.” Finally, the macroeconomic costs of unions decimated the ranks of private sector unions.
And Trumka? He talked a good game about ending racism in organized labor, but whether anything will change remains to be seen.
Myth: Unions help preserve manufacturing jobs.
Fact: Unions were a contributing factor in the decline of American manufacturing, especially in the automobile industry. Detroit makes a great example. At the start of the 20th century, Detroit was a boom town and its manufacturing jobs were paying 33 percent above the national average. Union organizers brought their message of capitalist greed and exploitation to already highly paid auto workers, where it largely fell on deaf ears. Until the Great Depression, when union organizers used a variety of underhanded tactics to force automakers, steel plants and other manufacturers to unionize.
(Interestingly, Henry Ford at the time threatened to break up his company rather than submit to union demands; he finally gave in when his wife threatened to leave him.)
Stephen J.K. Walters, economics professor at Loyola, explains what happened next. Companies, squeezed hard and struggling to survive, would move their operations out of Detroit and other cities, and later, out of the country entirely.
In sum, at the onset of World War II most of America’s great industrial firms — which, thanks to agglomeration economies were concentrated in cities throughout the East and upper Midwest — now faced labor cartels. These cartels needed some time to consolidate their power, so increases in employers’ wage costs would be significant but gradual. Further, WWII and its aftermath, during which time America’s industrial rivals’ productive capacity suffered heavy damage that would be restored only slowly, insulated the unions and firms to some degree and for some time from the most severe competitive consequences of monopolistic and opportunistic prices for labor. But the employers started to adapt immediately in ways that standard economic theory would predict — and that would ultimately help create what became known as America’s Rust Belt. Union actions, clearly, were not the only reason that industrial cities would decapitalize, depopulate, and become poorer in the second half of the 20th century, but they merit inclusion on the list.
If you’ve lost a manufacturing job any time in the last 50 years, thank your union boss for destroying your job, with a one-finger salute.
Myth: Teachers’ unions work to increase the quality of children’s education.
Fact: Teachers’ unions work to increase their membership rolls and their political power, at the expense of your children’s education. While collective bargaining has done little to increase the salaries of union public school teachers over nonunion public school teachers, these unions perform a different service for their members: preventing them from having to educate children. Andrew J. Coulson, director of the Center for Educational Freedom at the Cato Institute, explains that teachers’ unions strongly oppose government reforms which would improve the quality of K-12 education, such as charter schools, vouchers, and property tax credits.
The NEA and AFT spend large sums on political lobbying so that public school districts maintain their monopoly control of more than half a trillion dollars in annual U.S. K-12 education spending. That monopoly, in turn, offers a more than 40 percent average compensation premium over the private sector, along with greater job security. And since both the U.S. and international research indicate that achievement and efficiency are generally higher in private sector — and particularly competitive market — education systems, the public school monopoly imposes an enormous cost on American children and taxpayers. We are paying dearly for the union label, but mainly due to union lobbying to preserve the government school monopoly rather than to collective bargaining. (Emphasis in original)
Myth: Public sector unions work for the general prosperity of their members and all Americans.
Fact: Public sector unions dramatically increase the cost of government to unsustainable levels. The cost of employee wages and benefits accounts for half of the $2.2 trillion that state and local governments spent in 2008, and that number is set to grow dramatically as employees retire and generous pension packages kick in. Though, calling them generous is an understatement.
Moreover, according to Chris Edwards, director of tax policy studies at the Cato Institute, those pension obligations are grossly underfunded, which will make the fiscal crisis even more acute this decade.
The upshot of all this is that policymakers will need to make large budget reforms in the years ahead. They will to need to deliver public services more efficiently, to privatize services when feasible, to cut staffing levels, and to terminate low-value programs. Policymakers often hesitate in making such reforms, but the high level of unionization in many state workforces will make reforms even harder to achieve. During labor negotiations, for example, public officials often succumb to pressure to make short-term concessions that end up damaging public finances in the long run.
Businesses can and do mitigate the inefficiencies of a unionized workplace, but governments are much more constrained and have less incentive to do so, driving up taxpayer costs even further. And public sector unions use their large war chests to buy influence and protection. “So the problem with public sector unions is not just that they block compensation reforms, but that use their privileged status to control broader policy debates.”
Myth: Right-to-work laws harm employees and prevent employers from freely contracting with unions.
Fact: Right-to-work laws improve the economy, and employers freely contracting with unions is prohibited by the Wagner Act. That Act forces employers to bargain with unions “in good faith,” which is interpreted to mean that employers must capitulate to virtually every demand of the unions or be accused of acting in bad faith. This is hardly freedom of contract. Right-to-work laws mitigate, but do not entirely fix, this problem.
I have some experience with this, since I once worked in a non-right-to-work state and was forced to join the union. I would rather have negotiated my own terms; I’d likely have gotten a better deal. It seems many Americans agree, as millions of them have moved from non-right-to-work states to right-to-work states in the last decade, a migration that shows no signs of stopping. Richard Vedder, economics professor at Ohio University, found that both predictive models and real world evidence show that right-to-work states experience more economic growth than non-right-to-work states.
Myth: Labor unions support trade liberalization because it lowers the prices of goods that workers buy.
Fact: This used to be true, but today’s labor unions oppose trade liberalization. They believe that increasing globalization has directly led to the decline of their unions, and thus their power. This isn’t exactly true, according to Daniel Griswold, director of the Center for Trade Policy Studies at the Cato Institute. “Although the evidence is lacking to implicate globalization as a whole, two aspects of the trend have been found to have significant negative effects on labor unions: inward foreign direct investment (FDI), and ‘social integration’ across borders.”
When foreign companies invest in the U.S., companies here realize that they can also invest in other countries. “The correlation of FDI and declining rates of union density suggests that ‘many workers feel greater insecurity from seeing capital mobility in their sectors, even if not in their own particular firms,” Slaughter (2007: 344–45) concluded.’
And social globalization, “the spread of ideas, information, images and people,’ a natural result of advances in communications and transportation, “reinforces what Dresher and Gaston (2007: 176) call a ‘growing normative orientation towards individuals rather than collectivism [which] makes collective organization more difficult.” Adding to the trends are rising levels of immigration and perceptions of younger workers who view unions as old-fashioned and anachronistic institutions.”
In competitive product markets, the drag that unions impose on firm performance can be debilitating to the firm and its workers over time. As described above, firms facing vigorous competition are not able to pass along higher costs to consumers without risk of losing significant market share. Newly unionized firms in such markets face the cruel choice of passing along higher labor costs to consumers, thus losing market share to more cost-efficient competitors, or eating the higher costs in the form of lower profits and less reinvestment in physical and intellectual capital. Either choice will result over time in an erosion of the unionized firm’s market share.
Myth: Paying workers higher wages will reduce unemployment and stimulate the economy.
Fact: The “high-wage doctrine” increases unemployment and drags down the economy. This doctrine originated with a 1921 report that Hoover commissioned while he was Secretary of Commerce dealing with what was, in retrospect, a minor recession. In addition to recommending higher wages, the report also said that government spending (now known as the stimulus package) can help the country recover from a recession. Neither is true, of course, and the report might have been completely forgotten had Hoover not become President. He put his disastrous ideas into practice, and the rest, as they say, is history.
Worse, proponents of these theories, which John Maynard Keynes gleefully signed on to, are more concerned with theories than facts, according to Lowell E. Gallaway, economics professor at Ohio University. That’s just a polite way of saying they’re full of crap. Galloway writes:
In the intellectual world, the high-wage doctrine continues to have its appeal. Prior to his appointment as chairman of the Federal Reserve Board, Ben Bernanke, collaborating with Martin Parkinson, noted: “Maybe Herbert Hoover and Henry Ford were right. Higher real wages may have paid for themselves in the broader sense that their positive effect on aggregate demand compensated for their tendency to raise costs” (Bernanke and Parkinson 1989: 214). More recently, Paul Krugman reiterated this view in a New York Times oped (3 May 2009), arguing, “Many workers are accepting pay cuts in order to save jobs.” He then asks, “What’s wrong with that?” His answer refers to what he calls “one of those paradoxes that plague our economy right now . . . workers at any one company can help save their jobs by accepting lower wages, but when employers across the economy cut wages at the same time, the result is higher unemployment.” This is simply a reprise of Klein’s (1947) views. Never mind the existence of more than a century of empirical evidence to the contrary. Krugman’s concern is not with the empirical problem, but with the theoretical connection between wage rates and employment. The high-wage doctrine still lives. In all probability, this persistent adherence to an incorrect doctrine once again will prove to be detrimental to the U.S. economy, just as it was in the 1930s.
Myth: Unions currently operate in a free market.
Fact: Unions are heavily dependent on the government to provide them unfair leverage over employers and control over their members. It is possible for unions to exist and provide valuable services to their members in a market free of government-sponsored violence and control, but those services would likely have to be geared toward helping employees improve themselves, rather than extracting undeserved compensation from employers.
Charles W. Baird, professor emeritus of economics at California State University, East Bay, examines what constitutes a free market, how existing labor laws destroy freedom, and what a union might look like in a true free market. It won’t happen any time soon, though, he says: “It is politically impossible, at this time in America, to repeal the Norris-LaGuardia Act and the National Labor Relations Act and replace them with any sort of free-market union law. Nevertheless, it is worthwhile to prepare the ground now for doing so in some future, more enlightened time.”
If you’re wondering why you’re out of a job, why Detroit is a wasteland, and why the economy is on the verge of collapse, don’t be so quick to blame Wall Street: Some of the blame belongs to the labor unions.
[“AFL-CIO building, Washington, D.C.” photo by Derek Blackadder; CC BY-SA 2.0]