The Role of Unions
By David Henderson
Every Labor Day in the last few years, we hear about the decline of unions and how that has been a bad thing. What I find striking is how economically uninformed most of this commentary is.
Start with the fact that what gave unions their big push in the 1930s was federal legislation allowing them to be the sole bargainer for employees, even for employees who had no wish to join or pay dues. What do we call an organization that is the sole seller? We call it a monopoly. And not the kind of monopoly that some people say Microsoft is or had been. Microsoft always has to compete with other software companies. No. Unions are the kind of monopoly that George Stigler wrote about in “Monopoly” in The Concise Encyclopedia of Economics. Stigler wrote:
Even today, most important enduring monopolies or near monopolies in the United States rest on government policies.
Interestingly, even two of the most prominent modern economist/defenders of unions admit that fact. In the article Labor Unions in The Concise Encyclopedia of Economics, Morgan Reynolds, formerly chief economist with the U.S. Department of Labor, writes:
According to Harvard economists Richard Freeman and James Medoff, who look favorably on unions, “Most, if not all, unions have monopoly power, which they can use to raise wages above competitive levels”
Unions, moreover, have a pretty ugly track record on race relations, which is why two prominent early 20th century black leaders, W.E.B. DuBois and Booker T. Washington, who agreed on little else, agreed that unions were bad for black workers. When people forcibly prevent you from competing and figure out ways to exclude you from working, you don’t feel very good about them. I remember attending an antiwar rally in San Francisco in 1980 (when some people were worried that the U.S. government would go to war against the Soviets in Afghanistan–little did we know that the U.S. government was already at war against the Soviets in Afghanistan) and hearing some young black women sing a song in which some of the words were: “The union man, he decide whether I live or die.” Incidentally, as Reynolds points out in Labor Unions, one of the economists who did the most to document the early negative effect of unions on black workers was President Carter’s chief economist of the Labor Department, Ray Marshall.
You’ll often hear people complain about unions today and say words to the effect: “At one point in our early history we needed them but today they’re no longer needed.” But this golden age of unions is a myth. That doesn’t mean that we don’t need them–possibly some people do. But what we don’t need is government support of union monopolies.
By the way, over the last 40 years or so, unionization has changed dramatically. As Reynolds writes:
In the United States, union membership in the private sector peaked at 17 million in 1970 and had fallen by nearly half–to 8.8 million–by 2002. Barring new legislation, such as a congressional proposal to ban the hiring of nonunion replacement workers, private-sector membership will likely fall from 8.5 percent to 5-6 percent by 2010, no higher than the percentage a hundred years ago. While the unionization rate in government jobs may decline slightly from 37.5 percent, public-sector unions are on schedule to claim an absolute majority of union members within the next few years, thereby transforming a historically private-sector labor movement into a primarily government one. Asked in the 1920s what organized labor wanted, union leader Samuel Gompers allegedly answered, “More.” Today’s union leader would probably answer, “More government.” That answer further exposes the deep, permanent conflict between union members and workers in general that inevitably arises when union-represented employees are paid monopoly prices for their services.
So our big challenge with unions nowadays is to rein in unions of government workers who are negotiating high wages and high pensions. That is what is wrecking state and local government budgets all over the United States.