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.