If Monopolies are Bad, Why are Unions Good?

One of the biggest suggestions by those on the Left for decreasing income inequality and “restoring the middle class” is increased unionization of the workforce.  Bernie Sanders has made this an important cog of his campaign and others on the Left are writing articles which show that income inequality increased in America as the power of unions declined.  In 1973, almost 25% of the private workforce was unionized, but today those figures stand at about 7%.  They will draw a straight line from 1973 to the present showing that income inequality has increased in that time period.  Just as there are several factors for the decline in union membership, there are even more reasons for the widening gap in incomes.  However, a unionized workforce is not the cure-all for this.

Working under the supposition that unions increase a worker’s pay, the best way to achieve this from the union standpoint is to control the supply of labor.  This is achieved in one of two ways, although often in tandem.  They can control the supply through union membership and then by preventing firings or layoffs through the collective bargaining agreements.  In short, the scales of supply and demand are tilted heavily in favor of the unions.  By holding down the employment rate in a business or industry, they can then demand higher wages for their members.

A perfect example of this phenomena is the US auto industry and the United Auto Workers.  Under the leadership of the UAW, sweet deals were worked out to the extent that workers were receiving lucrative benefits packages, seven weeks of paid vacation and a wage of $70 an hour.  Naturally, the auto makers passed on these increased labor costs to consumers.  That is the effect of any cartel and unions are nothing but job cartels.  Unfortunately for the American consumer, they had little choice but to suck it up and pay the higher prices.

With competition, however, the scales were tipped away from in favor of unions.  When foreign cars that were actually assembled in American plants using non-union labor entered the market in the late 1970s, the American car makers and the unionized workforce that made them had competition.   Naturally, consumers voted with their wallets.  By 2007, American auto sales accounted for less than 50% of the American market.  It should also be mentioned that this occurred before free trade agreements like NAFTA or TPP.  Competition, as with anything involving antitrust, prevents cartels from hurting consumers in the wallet and doing economic harm.  In fact, with lower car costs, consumers now had more expendable income.

Unions usually control the supply of labor by one of two means.  Violence is used less today than in the past.  There are still examples.  In 2011, members of the Longshoremen’s Union in Washington vandalized grain silos and trains at a terminal that used non-union labor.  Because there was now competition, farmers could move their grain to market at a lower price.  Of course, they crossed the line and received legal punishment for it which is why unions now use the government to restrict labor supplies.

For example, organized labor has a huge lobbying apparatus that endorses trade barriers which is why we see them today railing against NAFTA and the TPP.  They also use existing regulations to get their way.  A few years back, a company called Austra was going to build a solar energy plant in the desert.  The unions cooperated with environmentalists in California to block the project over a desert rat and hawk.  Eventually, Austra withdrew from the project with their only sin being they did not use union labor.  After they withdrew, unions were eerily silent when BrightSource- a unionized company- proposed a larger plant that threatened the habitat of another desert animal.  By tying up Austra in green tape, they restricted the labor supply.

Obviously, open trade has had an effect on union membership because there is now competition in products and services.  In 1975, imported goods accounted for 7.5% of all sales, but by 2011 that figure had more than doubled to 16%.  Incidentally, during that time, employment skyrocketed overall meaning that “globalization” hurt unions, not jobs.  Technology has also had an effect on declining union membership coupled with deregulation by Presidents from both parties.  The end result is that as union membership has declined, Americans have benefited through lower prices and higher quality products.  As this happened, those entering the job market came to realize that unions could not deliver on their promises.  Thus began a downward spiral for the unions.  The union model may have worked fine in the wake of the Great Depression, but someone needs to tell the Left it is 2015, not 1935.

Regardless, the belief that unions guarantee higher pay is a farce.  They claim that union members make 20% more than their non-unionized counterparts.  But studies have shown that unions cannot claim sole responsibility for that fallacy where the reality lies somewhere between 8-12%.  Instead, the greatest factor is an adjustment by employers who are more selective in their hiring decisions knowing that once employed, the union will protect that worker’s job even if they are not productive.

This is why unions target large or profitable companies and industries.  These are the very companies that are more likely to pay higher wages regardless of unions.  This is why one sees unions going after large firms like McDonald’s or Wal-Mart.  I have yet to see a unionization effort at a Sonic Drive-In, or a Big Lots store.  In fact, unions can only control wages and employment at companies that are sheltered from competition or those where there is a rising demand for a product or service.  Unfortunately, as an increased share of the profits of these successful businesses are diverted to wages and benefits, there is less money invested in research and development.  Again, the auto industry is the classic example where technological innovation in foreign cars left the American product in the dust.

If all of this is true, then we should see slower growth rates and fewer jobs created in unionized businesses and industries.  In fact, that is exactly what happens.  The unions accept slower growth rates and fewer jobs created in exchange for higher wages for the existing workforce.

Because unions are essentially job cartels and because the government’s antitrust apparatus refuses to acknowledge this fact, workers are now increasingly voting against unionization.  The only area where unions have seen an increase in membership is in the public sector because a monopoly exists.  A municipality or state has only one police force, one fire department, one set of teachers, one set of garbage collectors, etc.  In areas where merger of services have been proposed or attempted, it is the usually the public worker unions first in line with objections.

If monopolies were so bad at the height of the Progressive movement, then they are just as bad today when it comes to the monopoly unions control over the job market.  Fortunately, there are now an increasing number of right-to-work states to break that monopoly which is why they are the very states with the greatest population growth.  In effect, these state laws are akin to antitrust laws of days gone by.  There may have been a need for unions at one time to improve working conditions and wages in certain industries, but subsequent workplace safety and other legislation now perform that task.  Changes in management techniques and philosophies has also decreased the need for unions.  If we want to increase wages overall in the sustainable long term, then unions should get out of the way.