“Unions are a valuable tool in maintaining both a living wage for workers, and safe working conditions.”
This is the classic argument for unions and it may, MAY have had merit 100 years ago. Laws have since been passed to protect workers’ rights and guarantee their safety. What does a union do for workers and consumers that OSHA, overtime laws, trade associations, and a 40-hour work week don’t do?
In the past, workers’ rights often weren’t recognized and maybe organizing was the only way to have their voice heard. Those days are long gone. Workers’ rights are guaranteed and affirmed through legislation; not to mention a change in culture. Any business that tried to exploit its workers would quickly find itself without employees or in jail, or both. Unions are simply not necessary to achieve this end.
Therefore, the argument that unions promote safe working conditions is hollow. So what is their true motive? People are much closer to the truth when they talk about high wages. I talk about bootleggers and Baptists often: During prohibition, there were two groups that really wanted to see alcohol outlawed. One group was the Baptists who wanted to see prohibition passed for the “right” reasons (immoral, destructive, etc.). The other group was the bootleggers because they knew they would make a ton of money.
We can think of unions in the same light. Many people have honest, albeit misguided, ideas of unions being good for the worker. These people are the Baptists. The bootleggers are the Union organizers, and once they have a few recruits, the union members themselves, because they know they stand to make enormous amounts of money. Unions are very good for the union worker. In fact, too good. It’s no wonder they fight so hard to keep their union power.
In the 1930s, in a wrong-headed response to the Great Depression, unions’ collective-bargaining power was greatly strengthened by the government as enforced by the National Labor Relations Act (NLRA). This backs unions up with force of government and gives them the power to strike without any repercussions. If the idea was to shift power from the companies to the workers, the NLRA went too far. Now, once unions are formed, they have ALL the power and companies are virtually powerless.
What are companies’ options when negotiating with unions? If they don’t pretty much cave to every union demand, the union strikes and the company is powerless to continue with its business. The union workers can’t be fired and they use intimidation and force to prevent anyone else from doing their work.
The result of all this? The union demands unreasonably high wages (the average UAW wage was about $29/hr., but if you add in benefits, it equaled $65/hr. This includes all UAW workers, even those that clean the hallways and cut the grass. One of the major reasons GM filed for bankruptcy was to get out from under the crushing weight of union wages and benefits. There is no reason an unskilled worker should be making such high wages. It is contrary to all the forces of economics).
What is the practical effect of such high wages? Wages are simply the price of labor. And like everything else, if the price goes up, quantity demanded goes down. A very real consequence of unions is that companies hire fewer workers.
Unions are great for the fortunate few that are part of a union, but they severely hurt non-union workers and cause companies to produce less (labor is one of the four factors of production. If factors of production change, supply is changed. In this case, since the price of labor goes up, not only do firms demand less workers, but they actually produce less because the cost of production has gone up).
Therefore, the economic effect of unions on the average worker is twofold: First, since the price of inputs is higher, it costs more to produce every unit, therefore firms produce less. In basic economic terms, the rise in the cost of inputs causes the supply curve to shift left, lowering the equilibrium quantity produced and raising the price.
source(click to enlarge)Okay, so the market for the good being produced has been severely depressed, raising the price hurting consumers. Within that market for the good, the high wage demanded by the unions causes firms to hire fewer workers because the wage demanded is well above the market wage for that work, causing a labor surplus – more commonly called unemployment. In other words, at such a high wage, many workers are willing to work for such a wage, but employers aren't willing to pay that high wage. As a result, the quantity of labor supplied (Qs) far exceeds the quantity of labor demanded by firms (Qd).
source (click to enlarge)So we end up with a situation where firms demand less labor overall because they produce less. Of that labor that they do demand, firms are forced to hire even fewer workers than they otherwise would because of high wage. Those few workers that do get hired are much better off, but it comes at an enormous expense to consumers and other workers.
Thus, companies are not as profitable as they could be, goods that could and should be being produced aren’t, the average workers finds it much harder to find a job, and the result of all this is a significant hit to GDP. Unions very seriously hurt economic production. In short, unions make the individual workers better off at the expense of the companies, other workers and the general economy.
The free market is very capable of creating wealth for everybody without causing anybody harm. If left to its own devices the market would efficiently allocate goods and services and the collective self-interest of workers and firms would naturally contribute to the common good. Insert government intervention into the market, in whatever form (except for a very few special cases), including unions, and the market has gone from a non-zero sum game to very much a zero-sum game: people can only profit at the expense of others.
To further aggravate the problem, unions, in an attempt to maintain their illegitimate market share, resort to coercive tactics in other businesses besides their own. Take a plumbing company that is controlled by the unions. If another plumbing company wants to open up their business, they could gain a competitive advantage in the marketplace if they used non-union workers. Their cost of production would be much lower, thus they could charge lower prices, and thus they could siphon business away from the union company.
Since union workers are guaranteed a very high wage and they cannot be fired, they have no incentive to work hard and their production goes way down (to say nothing of the union-mandated breaks and strict labor rules, i.e. a painter can only paint. If he needs to take off a light-switch cover to complete his job, he has to wait for the electrician to come and remove it. If the painter did it, he would be “stealing” work from the electrician.)
Therefore since the new plumbing company can offer much more efficient service at a lower price, unless the unions take action, their company would go out of business and they would find themselves without a job.
Thus, the unions use coercive measures to get the new companies’ employees to unionize, or they lobby very heavily to get the laws changed in their favor. These laws could take the form of mandating companies to unionize, or it could be getting congress to pass some type of law that makes it impossible for the new company to enter the marketplace.
Related to this, unions remove the incentive to innovate. For a real-world example of this, read this article. Refer above the first graph that shows the supply curve shifting left because of the increased cost of inputs. Another reason the supply curve may shift is due to a change in technology. If we improve our technology, producers can produce more with less, thus lowering their cost of production, causing them to supply more at every price. This is reflected as a rightward (or downward) shift of the supply curve, which increases output and lowers the price. Union tactics, such as in the article referenced to above, prevent this shift. In a very real way, unions prevent the economy from advancing and moving forward.
The result of all this is reduced competition, lower quality work, a restricted labor market and depressed GDP. Unions are very damaging to the economy. Their actual results to the economy are exactly opposite of what they claim to do.
I understand that it’s not apparently obvious that unions cause so much damage. Once you’re inside, you’re blinded by the “glamour” of high wages and a secure job; of course you would fight to keep it.
One final point about high wages. The argument typically goes something like this: "If a worker has more money in his pocket, his standard of living is increased, he has more to spend and everybody becomes wealthier." Sounds nice; if only it were true.
Money or wages do not equal wealth. Production equals wealth. How are we as an economy any wealthier if the union worker has a lot of dollars in his pocket, but because of economic impact caused by unions, the price of goods is higher as well? In fact, the union worker getting an artificially high wage is actively harmful as it comes at the expense of the economy. Are we better off if we have more dollars in our pockets but our production has gone down?
The idea that money or wages equal wealth is a huge economic misunderstanding. Unfortunately this misunderstanding has been used to justify stimulus spending on public works projects, unemployment and minimum wage. Only production equals wealth and we need labor to produce things.
By unions restricting and depressing the labor market and by stifling innovation, much less is getting produced than otherwise would be causing us all (even union workers) to be poorer, not wealthier.
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