Labor Unions, and the Problem With "More"

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It is interesting to watch so-called "Progressives" tout 19th century solutions for 21st century problems. One such initiative is "high speed rail", upon which the Obama administration proposes to spend $53 billion. However, another (and far more economically destructive) goal is "increased unionization".

It is not surprising that unionized companies like GM, Chrysler, and Bethlehem Steel went bankrupt, and that heavily unionized States like California, New York, and Illinois are in deep financial trouble. By their very nature, unions must seek to drive their employers into bankruptcy. If they don't, then they aren't doing their job.

When asked what organized labor wanted, Samuel Gompers (who became the first head of the AFL in 1886) replied "More". This remains the essential purpose of labor unions to this day: to get "more". More than what? More than "market".

People won't work for nothing. Even without unions, companies must offer an overall package (wages, benefits, working conditions) sufficient to attract and retain the workers that they need. The interaction between the company's needs and the workers' alternatives sets the "market wage".

Unless workers are held at gunpoint, it is not possible to "exploit" them for any length of time. Whether it is the U.S. in the early 20th century or in the third world today, what enables the appearance of industrial exploitation is the reality of subsistence farming. People hate subsistence farming. As long as there are large numbers of people whose next best employment alternative is subsistence farming, market wages will be low.

The logic of the free market is for companies to pay market wages, earn high profits, and reinvest their earnings in more factories, thus eventually creating industrial jobs for all of the subsistence farmers. Then, as the labor market tightens, market wage levels will rise as employers are forced to compete for scarce labor.

Unions are designed to impede this process. They provide an example of what Bastiat called "What is seen and what is not seen". In the case of the unionization of third world factories, "what is seen" is industrial workers benefiting from higher wages. "What is not seen" is people condemned to subsistence farming because of the factories that were not built with the profits that were not earned or the foreign capital that was not attracted.

The purpose of a union is to extract from its employer more than the market wage. If it doesn't do this, then there is no reason for workers to support it or to pay dues to it. Because companies must sell their output at market prices and pay market returns for the capital that they employ, they cannot afford to pay more than "market" for any major input. Accordingly, any unionized company for which labor is a significant part of its cost structure will eventually be destroyed.

Today's executives know that unionization is the "kiss of death" for their companies. They have no choice other than to resist unionization where possible and to disinvest and flee (whether to Texas or to China) if it occurs. If they don't, they will lose their customers to lower cost producers.

It is not possible for the leadership of a union to "be reasonable" (accept market wages) unless an employer is on the verge of bankruptcy. This is because there is competition for union leadership positions, and people vie for those positions by promising to get "more" for union members. Unions are hard-wired to press for "more" as long there is "more" to get, even in the short run.

At the peak of American unionization, in the 1940s, 33.9% of private, non-agricultural workers were represented by unions. By 2010, the number was down to 6.9%. Driven by globalized competition, this percentage should continue to fall. The last bastions of unions in the private sector will be employers for whom labor is not a major cost factor (e.g., oil refineries) and situations where unionization is legally enforced (e.g., building trades in New York City).

"Progressives" want increased unionization, but the only way that unions can expand (or even survive) is if the customers can be held at gunpoint. It is not enough to hold employers at gunpoint, because they will simply disinvest and disappear. (This is why "card check" is not a long-term solution to the problems faced by unions in the private sector.) As a practical matter, this means that unions need the government to use its power to force people to pay above-market prices via taxes and/or trade barriers.

In 2010, the number of union-represented employees government employees (7.6 million) surpassed the number of unionized workers in the private sector (7.1 million) for the first time. Since it's peak about 55 years ago, private-sector unionization has declined by almost 80% (from 33.9% to 6.9%), while public-sector unionization has almost tripled, from 9.8% to 36.2%.

Early union leaders thought that it made no sense to try to unionize government, because government had no profits in which labor could share. However, for more than 40 years, the union movement has understood that its survival depends upon enlisting government coercion in its cause. The labor movement has focused its efforts on organizing government employees, and unions have allocated an ever-increasing amount of their members' dues to political activities. Union money goes almost exclusively to Democrats, because the Democrats are the party of government, and the survival of unions now clearly depends upon government.

Unions are in a difficult position today. They exist to get "more", but they can only get more if someone else can be forced to take less. As economies have globalized, capital has become increasingly mobile, making it impossible for unions to extract "more" from business owners. This has forced unions to seek to try to get "more" at the expense of nonunion workers, taxpayers, and the involuntarily unemployed. Even with the support of government force, "more" is becoming increasingly difficult to come by, and union efforts to extract "more" are becoming increasingly resented.

For the labor movement, there is no solution to this problem. It is inherent in the unions' drive to get more without producing more.


Louis Woodhill (, an engineer and software entrepreneur, and a RealClearMarkets contributor.  


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