By David R. Henderson
Most Americans think of Labor Day as part of a long weekend and the unofficial end of summer. It was originally meant, though, to recognize the contributions of labor unions. I recommend a third alternative: use Labor Day to honor laborers.
To honor laborers, you would have to respect their right to make choices for themselves. But because so many people, especially people in government, don’t respect that right, laborers face two main obstacles: (1) government regulation that gives labor unions monopoly power over their labor, and (2) other government regulations that restrict the kinds of deals that laborers can make with those who buy their services. Honoring labor would mean getting rid of those two obstacles.
First, consider unions. Many people think of labor unions as organizations that honor labor and defend the rights of laborers. That’s sometimes true. For instance, in the late 1970s, when President Carter imposed wage-price “guidelines,” George Meany, then president of the AFL-CIO, opposed them.1 But the typical union does not defend the rights of laborers. Instead, it defends its own power over laborers.
The difference between labor unions, on the one hand, and laborers, on the other, is huge. Governments in the United States and in many other countries often grant unions a monopoly. The unions use their monopoly power to control the supply of labor and regulate laborers in many industries. Honoring laborers would mean taking on the monopoly power of labor unions. While the unions often do use their power to help their own members, they also often use it to hinder competition from other laborers. Just as economists tend to oppose government-enforced monopoly in various industries, they have just as strong a case for opposing a government-enforced monopoly on labor.
Before examining unions more closely, consider the basic economics of monopoly. A monopolist’s goal is typically to get more profits than he could get if he had to compete with other firms. To accomplish this, he must somehow keep other firms out. Doing so is hard because, as Henderson’s 10th Pillar of Economic Wisdom2 says, competition is a hardy weed, not a delicate flower. The high profits that a monopolist achieves attract new entrants into his industry the way honey attracts ants.
A would-be monopolist has to figure out how to overcome this problem. The surest way is to persuade the government to hobble or forbid competition. That’s why the worst and most-durable monopolies tend to be those that are enforced by government. Twenty years ago, when I asked my students which monopolies they hated most, Exhibit A was typically the cable TV company. In virtually every municipality in the United States, the local government had granted a monopoly to one company. My students today aren’t as unanimous about their most-hated monopoly. That makes sense because even though local governments did not allow new cable companies, cable TV now faces significant competition from satellite TV and from the Internet. Competition is a hardy weed.
Now let’s apply this to labor unions. We need to distinguish between two kinds of unions: (1) unions that provide services to their members but do not require people to join and do not serve as the bargaining agent for non-members; and (2) unions that provide services to their members and do require people to join, or, if they don’t require people to join, do serve as the sole bargaining agent for members and non-members alike. My discussion is solely about the second group of unions; they are by far the most common in the United States.
These labor unions want to monopolize the supply of labor so as to increase the package of pay and benefits for those they represent. They figured out early on how to do so. It’s the same way that cable companies got monopoly power: by hobbling competitors. The competitors of labor union workers are typically workers who are not in their union.
If labor unions are monopolies, why do we so rarely hear that term used to describe them? The reason, I think, is that many people defend and support labor unions and do not want to think of themselves as supporting monopoly.
But two prominent economists who have written extensively on labor unions and who favor labor union monopoly admit that such unions are, indeed, monopolies. According to Harvard economists Richard B. Freeman and James L. Medoff, in their book, What Do Labor Unions Do?: “Most, if not all, unions have monopoly power, which they can use to raise wages above competitive levels.”3
And not just economists who support labor unions, but also some other union supporters, admit that they are monopolies. The late Arthur Goldberg, former Justice of the Supreme Court appointed by Lyndon B. Johnson, who was Secretary of Labor under President Kennedy, was previously counsel for the United Steelworkers Union. Goldberg once stated: “Technically speaking, any labor union is a monopoly in the limited sense that it eliminates competition between workingmen for the available jobs in a particular plant or industry.”4 Economists Armen A. Alchian and William R. Allen, commenting on this revealing quote from Goldberg, asked,
Why did he write “technically speaking” and “in the limited sense”? Is there some other mode of speaking, and is there an unlimited sense of monopoly? [Italics in original.]
What Alchian and Allen were getting at—especially with their challenge of Goldberg’s use of the word “limited”—is that all monopolies have some limits. The “limit” that a union “eliminates competition between workingmen for the available jobs in a particular plant or industry” is not much of a limit.
As noted above, unions have a monopoly over labor in the particular plant or firm in which they are organized. This has implications for two groups of laborers other than those who want the union to represent them. The first group consists of the workers who don’t want that representation. They lose the power to represent themselves or to organize, formally or informally, separately from the union. The second group consists of the unseen: the workers who would have had jobs in that firm or plant in the absence of the union monopoly but who don’t have jobs. The reason they don’t have jobs is that unions are typically successful at driving up wages (including benefits as part of the wage.) The law of demand says that with a higher wage rate, the amount of labor employed is lower. Most of those workers will ultimately find jobs, but the jobs they find will likely be less valuable to them than the ones they wanted; people tend to choose their best option, and the union, with its higher wages, foreclosed their best option.
One of the most graphic ways to see the harm that unions do to labor is to witness how they often treat those workers who want to fill jobs when the union is out on strike. The fact that they call those workers “scabs” is telling. What a horrible name to give fellow human beings whose only offense is to take jobs that they find desirable. But it’s not just the words; it’s the actions. Labor union activists have been known to physically attack, and sometimes kill,5 workers who replace union workers during strikes. In the last few years, the advent of movie cameras on cell phones has given us graphic evidence of strikers threatening physical harm.6
“Although early 20th century black leaders W.E.B. Dubois and Booker T. Washington disagreed fundamentally on many things, they agreed on unions.”
One of the well-told stories in labor economics that seems to have disappeared from many people’s consciousness is the role of unions in holding back black people. Economist Ray Marshall, a professor at the University of Texas at Austin and Secretary of Labor under former President Jimmy Carter, made a large part of his academic reputation documenting the U.S. labor unions that wouldn’t allow black members during approximately the first half of the 20th century.7 There were many. These unions did not honor black labor—to put it mildly. Interestingly, although early 20th century black leaders W.E.B. Dubois and Booker T. Washington disagreed fundamentally on many things, they agreed on unions. In an article in the Atlantic Monthly, Washington wrote:
The average Negro who comes to town does not understand the necessity or advantage of a labor organization which stands between him and his employer and aims apparently to make a monopoly of the opportunity for labor.8
DuBois summed it up: “[Unions are] the greatest enemy of the black working man.”9
Fortunately, the racism within unions is largely a thing of the past, but their past actions certainly are responsible in part for the situation in which some black people find themselves today.
Moreover, one labor union action that is not a thing of the past is labor unions’ almost-unanimous support of the minimum wage. This one law, as the late Milton Friedman and Rose Friedman put it, “is one of the most, if not the most, antiblack laws on the statute books.”10 The reason: it puts unskilled black youths out of work, making an already hard situation—climbing the economic ladder—much harder.
For more on these topics, see “Trade Unionism in the United States: General Character and Types”, by Robert F. Hoxie, and also the EconTalk podcast episode Richard Epstein on Classical Liberalism, Libertarianism, and Lochner, March 10, 2014.
See also “Minimum Wages”, by Linda Gorman, Concise Encyclopedia of Economics.
The discussion of unions would be incomplete if I ignored the area in which U.S. unionization has grown most: government employment. The latest data are for 2015. In the government sector that year, 35.2 percent of workers were in unions, whereas in the private sector, only 6.7 percent of workers were in unions. The number of government sector union members was 7.2 million, only slightly below the 7.6 million union members in the private sector.11
For unions of government workers, the economics are slightly different. Whereas in the private for-profit sector, employers must pay attention to whether the wages they agree to with unions justify hiring particular workers, this market discipline is muted in the government sector. To be sure, the law of demand also applies in that sector. But government workers are not just suppliers of labor to government employers; they are also, indirectly, demanders. Governments are more responsive to lobbying and special interests than for-profit firms are; government workers are one of the most important lobbies affecting government employment. That’s the sense in which government workers are demanders. Sometimes, the effect on demand is even more direct. In my small city of Pacific Grove some years ago, one of the candidates for the school board was a teacher who was also heavily involved with the teachers’ union. And she won! So she was, in effect, on both sides of the bargaining table.
Because government workers are an important lobby for high wages and high benefits, including, in many cases, defined-benefit pensions, government unionization results in higher taxes on other laborers, as well as on owners of capital. Morgan Reynolds, formerly chief economist at the Department of Labor put it well:
Asked in the 1920s what organized labor wanted, union leader Samuel Gompers allegedly answered, “More.” Today’s union leader would probably answer, “More government.”12
As noted in the introduction, one of the main ways that government puts obstacles in the way of labor is by refusing to let many workers come to individual agreements with employers on hours, pay, and other terms. Soon, for example, the federal government will almost double the weekly wage under which an employer must pay overtime. Currently, if an employee earns under $455 per week, the employer must pay the employee time and a half for any hours over 40 per week. On December 1, 2016, that threshold will rise to $913 per week, which is $47,476 per year. While the federal government bills this as a rule that will “put more money in the pockets of middle class workers—or give them more free time,”13 the reality is more complicated. Employers and workers will both lose flexibility in scheduling work. No longer, for example, will a worker making $40,000 a year be able, as easily as now, to work extra time in one week in order to get time off in another because the extra time would trigger the overtime rule.14
Moreover, the federal government—mainly the Internal Revenue Service—for decades has insisted on defining the employer/employee relationship so that workers who might want to be independent contractors cannot legally do so. This prevents a range of opportunities from even existing.
Let’s honor laborers. And the best way to do so is to get the government to stop using force against them.
Robert Higgs, “Carter’s Wage-Price Guidelines: A Review of the First Year”, Policy Review, Winter 1980, pp. 97-114.
For all ten pillars, see David R. Henderson, “The Ten Pillars of Economic Wisdom,” EconLog, April 12, 2012.
Richard B. Freeman and James L. Medoff, What Do Labor Unions Do? New York: Basic Books, 1984, p. 6.
Goldberg quote from AFL-CIO: Labor United, New York, McGraw-Hill, 1956, p. 157; quoted in Armen A. Alchian and William R. Allen, Exchange and Production: Competition, Coordination, and Control, 2nd edition, Belmont, California, Wadsworth, 1977, p. 417.
For a famous instance that, fortunately, was in the distant past, see “Herrin massacre,” Wikipedia.
See, for example, the video “Union thugs attempt to create dangerous work condition in Halifax Mass,” August 18, 2011, at YouTube.com.
F. Ray Marshall, The Negro Worker, New York: Random House, 1967, pp. 165-166.
Booker T. Washington, “The Negro and the Labor Unions,” Atlantic Monthly, June 1913, p. 756.
DuBois is quoted in Morgan Reynolds, Power and Privilege: Labor Unions in America, New York: Universe Books, 1984, p. 223.
Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement, New York: Harcourt Brace Jovanovich, 1980, p. 238.
Morgan O. Reynolds, “Labor Unions,” in David R. Henderson, ed., The Fortune Encyclopedia of Economics, Indianapolis: Liberty Fund, 2008, pp. 319-322.
For some other unintended anti-labor consequences of the new overtime threshold, see Donald J. Boudreaux and Liya Palagashvili, “An Economic Analysis of Overtime Pay Regulations,” Mercatus Center, April 4, 2016.
*David R. Henderson is a research fellow with Stanford University’s Hoover Institution and a professor of economics at the Graduate School of Business and Public Policy at the Naval Postgraduate School in Monterey, California. He blogs at EconLog.
For more articles by David R. Henderson, see the Archive.