Friday, February 11, 2011

Why unions can't get "More"

Louis Woodhill revisits the famous Samuel Gompers statement from the 19th century when Gompers was asked what organized labor wanted and the head of the AFL answered "More". In today's markets, unions can't get "more" without killing the goose that lays the eggs.
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.
This is why unions have to focus on unionizing government workers because their share of workers in the private market has fallen from close to 34% during the 1940s to 6.9% today.
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.


pumping-irony said...

It goes to show how organizations always manage to outlive their usefulness. Unions once served a noble purpose. In the early days of the Industrial Revolution, employers could require workers to work long hours in dangerous conditions. Abuses such as child labor and sweat shops were common. Before unions, the employee's only option was to quit, something most could ill afford to do as there was little in the way of social safety net at the time. Unions helped change that.

But there is no such thing as "mission accomplished" when power and politics are invovled. Organizations don't like to disband (the leaders would have to go find real jobs) so new "causes" had to be found, even if they weren't as noble as the earlier ones. So unions went from standing up for humane treatment of workers to trying to suck every last dime out of employers, generally with federal approval. Yes, they helped send quite a few industries offshore or to the dustbin of history and made automation extremely attractive to any industry in which it was an option. But you'll never get any organizer to admit any of this because it's always the fault of greedy foreigners or greedy fat cats or something. Government is really nirvana for unions as the functions can't be outsourced, never go out of business (not yet, anywyay) the "customers" can't decline to buy the product and the managers (i.e. the politicians) don't really care too much about cost effectiveness. But that gravy train is now looking like a high-speed rail trip off the bridge to nowhere.

There is a neat parallel to this in the civil rights movement. Think of organizations like the NAACP, then and now. This seems to be a rule of human endeavor - no matter WHY they are orginally established, the purpose of all organizations, bureaucracies and such eventually becomes self-preservation regardless of their usefulness or even the harm they cause society as a whole.

Pat Patterson said...

Aside from the petty empire building the one other problem that unions have is manifold. There is still an abundance of cheap labor as well as technically proficient labor in the market place which lessens the monopoly guild-type unions have. The skill level at the blue collar level has declined with mechnization and there simply is no need to produce a middle-class anymore that is capable of buying the products the companies produce ala Henry Ford.

Uncle Bill said...

This is the single best concise explanation of unions that I have seen. I wish more authors would explain it this way.