Labor Day is a good opportunity to consider whether unions help or hurt ordinary workers in America.
The answer is yes and no, depending on circumstances, but that’s actually the wrong question. The real issue, at least from a public policy perspective, is whether government should be a neutral referee in labor matters.
The union bosses reject that approach. They want the government to tilt the playing field, which is why the Obama Administration is using the National Labor Relations Board to promote the interests of Big Labor.
In this short interview on Larry Kudlow’s CNBC show, I argue that government should not have a thumb on the scale.
To elaborate, here’s what I wrote last year about labor unions and the role of government.
In a free society, people obviously should be free to join unions and companies should be free to negotiate with unions. But that also means that companies should be free to resist union demands and hire non-union workers. There is no right or wrong in these battles, just as there is no right or wrong when McDonald’s decides to sell french fries for a particular price. The market will reward good decisions and penalize bad choices. The only appropriate role for policy in this area is to enforce contracts and protect public safety.
I then make what should be an obvious point about what happens if unions use the coercive power of government to push wages – when adjusted for productivity – above a competitive level.
…above-market wages (at least in the private sector) are not sustainable in the long run. Workers ultimately get paid on the basis of what they produce and if it costs $25 per hour to employ a worker and that worker produces $23 per hour of output, that ultimately is a recipe for unemployment. A good example is the American auto industry, which has declined in part because of a compensation system that is not matched by productivity. This does not necessarily mean that wages are too high. It could mean that productivity is too low. Some of that, to be sure, is the fault of government policies such as a corporate tax system that penalizes investment (thus making it more difficult for workers to boost productivity). But unions also have used their government-granted power to insist on absurd workforce practices.
The important point in that passage is that unions may be hurting workers, not with demands for unsustainable wages, but instead by imposing work rules that undermine productivity.
That’s an empirical issue, to be sure. But here’s the bottom line. Government favoritism may help workers in the short run by temporarily pushing wages higher, but may hurt them in the long run by making companies – or, as I mentioned in the Kudlow interview, entire industries – uncompetitive.
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[…] a point I’ve made before (here, here, here, here, here, and here), so there’s no need to elaborate on that […]
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[…] a general rule, I’m completely neutral about private-sector unions. As I argued in this interview, the federal government should not take sides or tilt the playing […]
[…] protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with […]
[…] protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with […]
[…] protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with […]
[…] protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with […]
One of the big problems with labor unions in the US is due to the mandatory membership in closed shops, or even due to legislation. Labor unions can do whatever they want (usually much more than their members would like them to do), at great expense to their members.
It would make more sense to have labor union membership optional, while having the same labor conditions for both union and non-union workers. This prevents competition between union and non-union employees, which is ok because…
With voluntary union membership, the union needs to provide value for money in order to attract members from among the company’s employees. This means the union needs to work with the company to ensure the company’s future and the future of the employees’ jobs, using the resources that the labor union’s members provide.
If the labor union’s dues are too high, people will leave, depriving the labor union of resources. This incentivizes the union to keep its dues low, which in turn means there will not be resources for the labor union’s leadership to use the union as a means to advance their own career (into eg. politics) – the labor union needs to work for its members, in order to retain them, it cannot work for its leaders.
Make labor unions more like AAA and less like a political organization that happens to sometimes advocate workers’ rights on the side.
@Kieth
I don’t believe this is a ‘throw-away line.’ In the private sector, there is an inherent conflict between corporate management and union leaders. They have, by definition, opposite interests because whatever the workers gain (wages, benefits, etc.) the owners lose.
In the public sector, this isn’t the case. Lawmakers (the ones ‘negotiating’ with the unions) have nothing at all to lose by giving them what they want. In reality, they actually benefit in two ways by bowing to union demands: 1) They benefit directly with union donations and other political spending (on the backs of their membership, of course) and 2) They can show how good they are to the ‘critical workers’ of our society like teachers, police and fire fighters.
There are no comparisons between the unions of government workers and the unions of private workers.
@Dr. Linda
The inaction of government to provide protection from corrupt unions is a de facto thumb on the scale.
I don’t believe the companies have a right to contract with non-union. Currently the government does not enforce the rights of those who would take positions when the union goes on strike. That one problem , alone, ruins the free market concept. This has been going on for ever. Cross the government, and you may be in for a long court battle. Cross the union, and your body won’t be found.
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“…at least in the private sector”??? Dan, how could you?! …after all of your tirades against public dollar waste, and conspiracies of bureaucracies filling their pockets with unearned money ‘stolen’ from the taxpaters, please don’t slip into using throw-away lines a la the ‘gutter press’ & self-serving politicians
KB
Perth
I’d modify the statement to say that the federal government should not have a thumb on the scale. If state governments want to favor unions over corporations or favor corporations over union, that should be an issue within that state. If New York wants to be a closed state, let it. However, the federal government has no right to try to favor one state (like Washington) over another state (like South Carolina) because SC wants to attract businesses rather than driving them away. IMHO.
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