The Nature of Unions

Large groups of people generally respond to incentives and pressures.  We shouldn’t be surprised when an organization behaves according to its true nature, seeking to avoid or eliminate obstacles on the way to accomplishing its goals.

Labor unions, for example, exist for the declared purpose of obtaining better compensation, benefits, and job security for their members.  There’s nothing inherently wrong with that.  Every worker wants all three of those things.  The idea behind a union is that if workers organize into a group, and hire professional representation, they’ll get a better deal than if they bargained individually.

If collective bargaining by the union is successful, then by definition union employees become more expensive than non-union workers.  It’s silly to consider only hourly wages in this calculation, because much of a union worker’s compensation comes in the form of elevated benefits.  If you pay someone $20 per hour, and their benefits are worth $40 per hour, then their true hourly cost is $60 per hour. 

This cost must include not only specific cash payments by the employer into 401(k) accounts, health insurance, and the like, but also the cost of benefits such as vacation or sick leave, and union-imposed limits on productivity.  (If you’ve never worked with union labor before, they are often given very strict rules by the union concerning precisely when they start and stop work, or exactly what activities they can perform while on the clock.)  Even the difficulty of firing or disciplining unsatisfactory union workers, or laying them off in difficult economic times, must be factored into their true cost.

The increased cost of union labor creates a dilemma.  Since non-union workers cost less, what is to prevent employers from hiring them instead?  How could a company that employs expensive union labor prevail against competitors who use cheaper non-union labor, and are therefore able to bid less for contracts?

One solution is for the union to add value to its labor, making employers willing to pay the higher cost.  If you’re old enough, you might remember an extensive advertising campaign in the Seventies designed for this very purpose, encouraging consumers and employers to “Look For The Union Label” on products they buy.  The idea was to associate higher quality goods and services with unionized labor.

In a highly competitive marketplace, it becomes difficult for unions to sell their labor with promises of higher quality… especially since unionized labor is notoriously difficult to work with, due to the productivity-limiting rules mentioned above, and the way union representatives insert themselves as a layer of bureaucracy between workers and management.  Organized labor is a lot more expensive than hiring individual workers.  They don’t cost five or ten percent more – they often cost two or three times as much to employ.  It’s hard to convince employers to pay this much voluntarily.

This leaves the union with only one other method of preserving its collective bargaining power: it must limit the ability of non-union workers to compete with its members.  That is why organized labor is so desperate to get the “Card Check” legislation Democrats promised them.  It would remove secrecy from union votes, enabling the union to pressure independent workers into joining up.  There is already a law known as the Davis-Bacon Act, passed in 1931, that prevents non-unionized operations from under-bidding union shops for government contracts.  Union shops would almost never win competitive bids for public works projects otherwise.

Organized labor is heavily depending on political interference in the free market for success, because only political power can effectively shut down competition.  Collective bargaining only works if the union has a functional monopoly on providing labor to the employers it negotiates with.  Threats of a strike are only effective if employers cannot simply fire the striking workers and replace them.

Monopolies are extremely difficult to create without government intervention.  Government power is even deployed to force people to join unions.  For example, last year in Flint, Michigan, independent day care providers suddenly discovered that union dues were being subtracted from the state child-care subsidies they depend upon, and remitted to an organization created by AFSCME and the United Auto Workers.

AFSCME is the American Federation of State, County, and Municipal Employees.  Its involvement in compulsory unionization illustrates the fatal flaw created when the nature of unions is combined with the nature of Big Government. 

Within the competitive atmosphere of the free market, the ultimate limit on the power of labor unions is the point at which their demands kill the industry they work for.  If the union of basket weavers demands so much compensation that it’s no longer possible for baskets to be created and sold at a profit, they put themselves out of work.

This limit is almost completely erased for public-sector unions.  The government cannot go out of business (well, up until now, it hasn’t.)  Union demands can’t “kill” the public sector.  At the point where public services can no longer be delivered within the government’s budget, the government will simply raise taxes, or run a budget deficit.  When officials consider austerity measures, they find well-organized and well-funded union operations staging massive protests, while taxpayers with day jobs can do little but follow the news on TV.  If the officials consider firing or disciplining the public union employees, they will be castigated as heartless monsters depriving their citizens of morally imperative government services.  The political cost of opposing a public union is almost always greater than the cost of raising taxes on everyone else, or running a budget deficit.

Everything happening in Wisconsin is entirely consistent with the nature of public unions.  If Governor Walker and Wisconsin taxpayers lose this struggle, it will be repeated in every other insolvent state, as unions flex their political muscle to erase the only logical limit on their demands.