Unions: From the People Who Brought You Weekends

Unions: From the People Who Brought You Weekends May 13, 2008

I found this exchange between Jonathan Alter and Mickey Kaus fascinating. According to Alter, unions have largely been venal, short-sided, and generally bad for society. Yet he thinks we ought to expand their power and influence in the hope that they will behave in a more enlightened manner. Alter’s concern (in his words, “unskilled workers are getting the shaft”) is of course legitimate, but so far as I can tell his line of reasoning is pretty much the “politician’s logic” from Yes, Prime Minister: Something must be done. This is something. Therefore, we must do it.

But perhaps even Alter is insufficiently appreciative of the value of unions. I know that for a lot of people (including a lot of Catholics), that unions are beneficial to workers and to society as a whole is less a question of fact than an article of faith. My apartment is across the street from the headquarters of a union local, and in front of the building they have erected a giant digital billboard, across which constantly scroll slogans about how if it wasn’t for unions we would all be living in conditions of squalor and near slavery. The actual evidence on the point, however, is not nearly so stark.

According to a survey of 200 economic studies by H. Gregg Lewis, the wages of unionized workers were on average 15% higher than the wages of comparably skilled non-union workers. Other studies have found the wage premium to be as high as 30% (mind you, this is an overall average; union wage premiums tend to be low or non-existent for industries that are highly competitive and high for industries that aren’t). A 30% wage premium is nothing to shake a stick at, but it’s not anywhere near large enough to explain that enormous gains in living standards that have occurred over the past 150 years, and given that even at their peak only about a third of U.S. workers were unionized, one has to say that perhaps the guys across the street from me are overstating the case a bit.

Granting that unions do raise the wages of their members, the question arises: how do they do so. One possibility is that they do so by raising worker productivity. If workers want a bigger slice of the economic pie, the best way to get it is to help make the pie bigger. This possibility, however, does not seem all that plausible. As Kaus points out in the above exchange, unions typically demand (and receive) promotion based on seniority rather than merit and restrictions on the ability of employers to fire less productive workers, both of which hamper productivity. Unions are also notorious in opposing automation, job combination, or other measures that allow a company to do the same job with fewer workers. I know that some people have argued that unionization increases morale, which increases productivity, but it’s hard to believe that any such gains are largely enough to compensate for the loss productivity from union work rules, and if the “unions increase productivity” theory were true, then it would be a mystery why employers weren’t pushing unionization on their employees, rather than resisting it.

If unions don’t increase the size of the metaphorical economic pie, then any larger slice for them must come at the expense of a smaller slice for someone else. The only question is who. I see three plausible candidates: 1) non-union workers, 2) consumers, and 3) the employers themselves.

1. Non-union workers: To the extent the price of labor is governed by supply and demand, decreasing the supply (by, saying requiring an employer to only employ union members or otherwise restricting access to employment) will result in an increased wage for the members of a particular union member, though this increase will come at the expense of other workers, who will be forced to find other, less attractive work. Back when unions were thriving, this used to happen quite explicitly. Many unions, for example, were limited to whites and/or men, and I don’t think it’s a coincidence that the beginning of the decline in unionization coincided with the rise of the Civil Rights and Women’s Liberation movements, both of which made discrimination against those groups much more difficult (in his book Third Ways, Allan Carlson argues that the inclusion of a ban on sex discrimination in hiring in Title VII was a major cause of the decline of unionism in America, and while he doesn’t mention the banning of racial discrimination, the same argument would apply).

These days, however, the ability of unions to explicitly restrict membership is limited (organizations like the state bars still have this power, but that’s a topic for another day). Employers are not allows to discriminate against potential employees on the basis of union membership, and while some states force new employees of unionized businesses to join the union within 90 days, the union cannot refuse to accept such employees as members. There are still limits on immigration, but for the most part unions lack the ability to directly restrict the supply of labor so as to raise their wages. And in any event, while the benefits to union members from unionization may come at the expense of non-union workers, they can’t come solely at their expense.

2. Consumers: If unionization results in higher wages for workers, won’t employers simply pass those increased costs on to the consumers in the form of higher prices? Perhaps. But it’s not as if, prior to unionization, companies were charging consumers less than they could have simply out of the goodness of their hearts. Prices are governed by supply and demand, and while an increase in the cost of a product to an employer may change the price at which it is most profitable to sell that product, it is unlikely that this higher price will fetch the employer as high a rate of profit as he otherwise would have made. Particularly where the employer has to compete with other companies that don’t share these costs, his ability to raise prices to cover his costs may be quite limited.

3. Employers: One might think, therefore, that the bulk of any increase in union wages must come at the expense of employers, rather than non-union workers. While this isn’t quite a win/win scenario, bettering low wage workers at the expense of employers is a trade off most people would be willing to make.

The situation, unfortunately, is not quite so simple. While decreasing the profitability of unionized businesses may not seem problematic in itself, the long term consequences of this lost profitability are less than desirable. The less profitable a business is, the less likely it is to expand or to invest in capital equipment and technological improvements that will increase worker productivity, and the more likely it is that it will be forced to cut employment or even that it will go belly up (and keep in mind, the lost profitability suffered by the employer includes not only the higher wages, but also the lost productivity due to union work rules).

Over time, this lower profitability will tend to discourage new entrants into the industry where unionization can’t be avoided, while encouraging new entrants where it can. To the extent that unionized industries are protected from competition, either by legal restrictions or by other factors, the effect of all this may be diminished (it should not be surprising, therefore, that government employees are disproportionately represented among union members). Ultimately, though, to the extent that unions raise member wages at the expense of business profitability, they are doing so only at the price of their own eventual destruction.

All of which is a much, much too long way of saying that if you want to help low wage workers in America today, longing for a return of old-style unionism is probably not your best bet.

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