Social Costs of Collective Bargaining
Updated December 7, 2012

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Since unions don’t increase production and income, they provide no economic benefit for society. At the same time, they are very costly. The savings that would result from the elimination of collective bargaining take many forms:

Unemployment

     Unions are the main cause of unemployment. As this is being written (April 2011), the national unemployment rate is 9.0%. If there were no collective bargaining and all employers paid the market wage, that rate would be much smaller. Let’s be cautious and say that recovery from the financial collapse of 2008 is still dragging on, and the unemployment rate is down only to 4.5%. In April 2011, the number of unemployed (at the rate of 9.0%) was 13.7 million. Half of that (at a rate of 4.5%) is 6,850,000. Average hourly compensation – wages plus benefits – in the U.S. is $30.07 according to this report from the Bureau of Labor Statistics. Multiplying $30.07 by 2080 gives an annual amount of $62,546. Let’s be conservative and say that those 6,850,000 workers who managed to get jobs in our free labor market did so at less than the average - at total compensation of $40,000. This means that 6,850,000 formerly unemployed people are now earning $40,000 a year (including benefits). 6,850,000 times $40,000 is $274 billion.

Social costs associated with unemployment

     Also costly is the administration of unemployment compensation and of food stamps and other welfare programs for those whose unemployment benefits have run out. Add to these the legal and incarceration costs for people whose idleness and poverty cause them to commit crimes.

Substandard schools

     Income increases as production increases, and production increases when more people are working. It also increases when those workers are more productive – when education and skill levels of those workers go up. That brings us to the most costly effect of collective bargaining. Our public schools are not performing as they should. Too few kids are graduating from high school and many of those that do are not ready for college. As numerous studies have shown, teacher unions bear much of the blame, blocking steps to improve the quality of teachers and interfering with attempts to find innovative solutions. There is a tremendous price to pay for a second-rate education system. This is from The Economic Impact of the Achievement Gap in America’s Schools, a report from McKinsey & Company, a global management consulting firm:

If the United States had in recent years closed the gap between its educational achievement levels and those of better-performing nations such as Finland and Korea, GDP in 2008 could have been $1.3 trillion to $2.3 trillion higher. This represents 9 to 16 percent of GDP.

And this is from a 7/24/11 NPR report on school dropouts:

  • The unemployment rate for people without a high school diploma is nearly twice that of the general population.

  • Over a lifetime, a high school dropout will earn $200,000 less than a high school graduate and almost $1 million less than a college graduate.

  • Dropouts are more likely to commit crimes, abuse drugs and alcohol, become teenage parents, live in poverty and commit suicide.

  • Dropouts cost federal and state governments hundreds of billions of dollars in lost earnings, welfare and medical costs, and billions more for dropouts who end up in prison.

Governmental agencies

     Numerous government agencies exist only because of collective bargaining. Here are some of the federal agencies:

National Labor Relations Board - From their website (www.nlrb.gov): The National Labor Relations Board is an independent federal agency created by Congress in 1935 to administer the National Labor Relations Act, the primary law governing relations between unions and employers in the private sector. . . The NLRB is organized into two major components: a five-member governing Board, and the Office of the General Counsel. . . The Agency's headquarters are located in Washington, D.C. It has field offices in 51 U.S. locations.

Office of Labor-Management Standards - From their website (www.dol.gov/olms): The Office of Labor-Management Standards (OLMS) of the U.S. Department of Labor's Employment Standards Administration administers and enforces most provisions of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA). The LMRDA was enacted primarily to ensure basic standards of democracy and fiscal responsibility in labor organizations representing employees in private industry. Unions representing U.S. Postal Service employees became subject to the LMRDA with the passage of the Postal Reorganization Act of 1970.

Federal Labor Relations Authority - From their website (www.flra.gov): The Federal Labor Relations Authority is an independent administrative federal agency that was created by Title VII of the Civil Service Reform Act of 1978 (also known as the Federal Service Labor-Management Relations Statute). The Statute allows certain non-postal federal employees to organize, bargain collectively, and to participate through labor organizations of their choice in decisions affecting their working lives.

Federal Mediation and Conciliation Service - From their website (www.fmcs.gov): The Federal Mediation and Conciliation Service was created by the Labor-Management Relations Act of 1947 (Taft-Hartley Act) as an independent agency of the U. S. government. The agency is given the mission of preventing or minimizing the impact of labor-management disputes on the free flow of commerce by providing mediation, conciliation and voluntary arbitration. FMCS’ Office of Arbitration Services maintains a roster of approximately 1,400 independent arbitrators who are qualified to hear and decide disputes over the interpretation or application of collective bargaining agreements.

There are also state agencies. Michigan’s include:

Michigan Employment Relations Commission (MERC) - This is from MERC’s website: The Michigan Employment Relations Commission (MERC) resolves labor disputes involving public and private sector employees by appointing mediators, arbitrators and fact finders, conducting union representation elections, determining appropriate bargaining units, and adjudicating unfair labor practice cases.  MERC, supported by the staff of the Bureau of Employment Relations, administers three statutes:

  • the Public Employment Relations Act (PERA)- a labor relations statute which grants all public employees within the state of Michigan, excluding classified civil service employees of the state and federal government, the right to organize and be represented by labor organizations of their choice.

  • the Labor Relations and Mediation Act (LMA)- a statute regulating collective bargaining relationships between private sector unions and small private sector employers not falling within the jurisdiction of the National Labor Relations Act.

  • the Compulsory Arbitration Act (312)- a statute providing for compulsory binding arbitration of labor-management disputes involving public safety employees.

Unemployment Insurance Agency - Formerly known as the Michigan Employment Security Commission, this agency could not be eliminated, but would be drastically reduced in size if the unemployment rate were reduced to the natural rate. From its website (www.michigan.gov/uia): The Wagner-Peyser Act (1933) requires states to maintain a national system of public employment offices, while the Social Security Act (1935) levies a federal tax on employers to provide for the payment of unemployment insurance (UI) benefits. . . The UIA's Tax Office maintains tax accounts for about 213,000 contributing employers and 5,300 reimbursing employers, and collects about $1.4 billion a year in Michigan unemployment taxes from employers. . . Today, the UIA pays out about $1.7 billion a year in regular UI benefits.

Office of the State Employer - From its website: The Office of the State Employer, in cooperation with Executive Branch Departments and Agencies, formulates, executes and administers labor relations policies for state classified employees. Centralized labor relations functions include the following:

·         Determine the policies of the employer with respect to matters subject to collective bargaining negotiations.

·         Represent the employer in primary negotiations with exclusive representatives and enter into collective bargaining agreements with exclusive representatives concerning negotiable matters.

·         Determine the issues which shall be the subject of secondary negotiations and review and approve all secondary agreements.

·         Represent the employer before the Civil Service Coordinated Compensation Panel addressing issues for non-exclusively represented classified employees.

·         Respond to and represent the employer with respect to unfair labor practice charges filed by employee organizations, and initiate such charges against employee organizations.

·         Coordinate employer responses to personnel policy and rule changes being considered by the Civil Service Commission, and initiate requests for modifications to the Civil Service Employee Relations Policy and Regulations.

·         Oversee contract administration and approve all contract interpretation documents and Letters of Understanding.

·         Make the management determination regarding which grievances should go to arbitration after consultation with the affected department, and approve the management advocate.

·         Supervise the training of all management personnel involved in the labor relations process.

Union dues

     A March 30, 2012 estimate from the National Institute for Labor Relations Research puts the annual total at $14 billion. It is the sum of two amounts. One is the amount unions reported to the U.S. Department of Labor in 2010, (apparently) adjusted to reflect total private sector union membership in 2011. That figure is $8,463,604,455.

     Since most state and local government unions do not report to the Department of Labor, the total of those public sector union members (6,547,500) was multiplied by their estimated annual dues average ($854.88) to come up with a total of $5,597,326,800.

$8,463,604,455

  Reported to Department of Labor

$5,597,326,800

  Estimated for public sector union members

$14,060,931,255

  Total

Release-time employees

     Union dues pay for the bulk of union activities, but not all. Union contracts often require the employer to pay the salaries of employees who devote all or part of their time to union functions. They are sometimes referred to as “release-time employees”. This is from a March 29, 2011 Mackinac Center report:

[In Michigan], there are 39 school districts that paid teachers to work at least half their time on union activities, with 25 of those districts paying for full release time. These 39 districts combined to pay at least $2.7 million to cover the costs of teachers who work on union business.

Strikes

     Strikes are costly because of lost production. Doing away with collective bargaining may not stop them entirely, but if the blocking and intimidation of replacement workers is no longer tolerated by law enforcement authorities, they won’t last long. Here are a few of the more costly strikes that have occurred over the years:

  • On May 1, 1949 in Hawaii, 2,000 members of the International Longshoremen’s and Warehousemen’s Union (ILWU) walked off their jobs over a pay dispute. The strike, which lasted 178 days, came as the state was recovering from a 1946 statewide strike by plantation workers.

  • On 12/6/1954 in Pittsburgh, 760 delivery-truck drivers and helpers belonging to the Teamsters agreed to end their walkout against five of the city's biggest department stores (Kaufmann's, Home's, Frank & Seder's, Gimbels, Rosenbaum's) after 52 weeks of picketing and violence.

  • The UAW strike against GM in 1970 lasted 67 days. It cost GM $1 billion in profits, the workers $765 million in wages, the federal government $1 billion in taxes – plus $30 million in state welfare benefits and some $375 million in retail sales in Michigan alone. (The Automobile Age, page 280)

  • Another Hawaii strike, the great West Coast dock strike of 1971 will be remembered by local residents as the year that toilet paper rolls went empty. The strike began on July 1, when 15,000 dock workers in 24 ports on the West Coast walked off their jobs. The work stoppage spanned 134 days. Store shelves slowly went bare, businesses crumbled and people lost their jobs. But one of the rarest commodities at that time was toilet paper because residents hoarded rolls as supplies began to dwindle.

  • The baseball strike of 1994 was the longest and costliest work stoppage in the history of professional sports. Many view the strike as a huge waste of time, since no real modifications were put into effect. It lasted 234 days, resulted in more than $1 billion in losses, and deprived the nation of a World Series.

  • Strikes in 1998 by 9,200 workers in Flint, Michigan forced G.M. to shut down almost all of its North American production and temporarily lay off 192,000 workers, while its outside suppliers laid off thousands. Wall Street analysts estimated G.M.'s after-tax losses at more than $2 billion.

  • The 2007–2008 Writers Guild of America strike, more commonly known as the Writers' Strike, started on November 5, 2007 and concluded on February 12, 2008. It cost the economy of Los Angeles an estimated $1.5 billion.

  • A 53-day strike against Boeing by 27,000 members of the the Machinist union in 2008 cost more than $2 billion.

  • In November 2012, 800 harbor clerks walked off the job at the ports of Los Angeles and Long Beach, and about 10,000 longshoremen refused to cross their picket lines. The strike lasted 8 days, taking an estimated $8 billion out of the region's economy.

     Production losses aren’t the only costs resulting from strikes. The employer is not the only one hurt. Customers and other innocent bystanders are often inconvenienced. Travelers are stranded when public transportation workers strike. Children’s education is set back when teachers strike. Shoppers are inconvenienced when grocery store workers strike. Public health is endangered when garbage collectors strike. And people die. This is from When Nurses Strike in New York, an article in the May 3, 2010 issue of Newsweek:

A new study published by the National Bureau of Economic Research shows that during 50 strikes at New York state hospitals between 1984 and 2004, patients were almost 20 percent more likely to die - a bump in mortality that translates to about 140 deaths.

Make-work schemes

     Unions occasionally succeed in placing provisions in their contract or in legislation that force employers to hire more workers than are needed. The classic example was the railroad industry regulation that required each train to have a fireman for 40 years after coal-fired steam locomotives were replaced by diesel. Here is a more recent example, described in a May 19, 2011 article on the website of the Labor Relations Institute, Inc:

A Case Study in Union Ordained Inefficiency

It’s a $20 gadget approved by the International Plumbers Code that routinely shaves thousands off the cost of a construction project -- in every state but Minnesota. And while to most it might seem trivial, the banning of “air-admittance valves” or AAVs by Minnesota lawmakers draws a disturbing picture of how labor unions routinely use political muscle to stifle innovation and institutionalize inefficiency and waste.

       AAVs simplify the venting of sewer gas, eliminating multiple vent stacks and slashing plumber man-hours from construction projects – something that sounds great to everyone but the Minnesota Pipe Trades Association, the state’s largest plumbers union. During court hearings in 2005, after AAVs were approved for interim use, Minnesota plumbers squawked because the invention would cost them work. “AAVs will eliminate traditional ventilation systems on which our livelihood depends,” said Timothy McQuillan, a member of the Minnesota Plumbing Advisory Council, in a signed affidavit.

       But since then the plumbers union has changed its tune and banning the valve is no longer about protecting jobs (and dues). Now the AAV is a silent stalking killer, hiding in the walls of nursing homes and kindergartens ready to strike with airborne e coli. The union’s prophecies, based on the conjectures of one unaccredited source without a scrap of credible evidence, fly in the face of years of AAV use around the world without one complaint, negative study or incident. Lawrence Justin, the only engineer on the Minnesota Plumbers Board, said AAVs are widely endorsed by engineering associations, including the American Society of Plumbing Engineers. “The valves have all the testing and approval that any other plumbing equipment has,” said Justin.

       Ignoring engineering research, Reps. Tim Mahoney and Tom Rukavina and Sen. David Tomassoni, all Democrats, instead latched onto the killer plumbing narrative of the MPTA and snuck a ban on AAVs into a 200+ page state budget bill in 2007 without notice or the expert hearings that are SOP for any changes to building code. Meanwhile, Minnesota union plumbing political action committees have contributed more than $235,000 to political candidates and causes since 2005, nearly $75,000 of which went directly to the House and Senate DFL caucuses.

       “These people are institutionalizing waste to their own economic benefit,” said John Diehl, president of Studor Inc. that annually sells 650,000 valves in North America alone.

       A ban on air-admittance valves is not exactly headline material or likely to attract the attention of even the most militant advocates of small government. And yet Minnesota businesses, homeowners and taxpayer are expected to absorb thousands per project in unnecessary costs only to maintain the bottom line of Minnesota plumbers unions. This also raises the question of how many other institutionalized inefficiencies are out there, protected by buried legislation or regulation, only to maintain a union boss’ lifestyle or punish an employer who wouldn’t play ball.

The bargaining process

     A May 23, 2011 article in the Lansing State Journal gave these figures for Lansing Community College legal expenses related to collective bargaining:

2008-08

$866,121

 

2008-09

$730,493

 

2009-10

$674,162

 

2010-11

$727,534

(budgeted)

The article reports LCC President Brent Knight’s comment regarding hiring a law firm to represent the college:

The Michigan Education Association, to which 3 of the [6] unions belong, “is a highly capable union,” he said. “It is important that the college equal them in negations.”    

And, of course, outside legal fees are only part of the bargaining expense. We must also include the time spent by LCC staff and any union negotiators who are on the LCC payroll.

 Squandered talent

     The pay and benefits of UAW assembly workers is very good, so those jobs often attract over-qualified people – people who have education, skills and/or creativity beyond the requirements of the work. And as the years pass and they get closer to the 30 years on the job required for retirement, changing jobs seems increasingly unwise – the phenomenon known as “golden handcuffs”. So they spend the best years of their life doing dull, repetitive work that doesn’t fully use their talents when they could have more challenging jobs or maybe start their own business. They could be more productive members of society. At the same time, they are taking jobs away from people who are not qualified for anything beyond factory work.

     This is an example of “misallocation of resources” and it is another way unions hurt the economy.

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Collective bargaining may benefit union members and politicians who receive union financial support, but it is at the expense of the rest of society. What we have here is an institution that provides no net benefit and costs hundreds of billions of dollars a year.

Home

Unions are Killing Michigan
The Wagner Act
What Economists Think
Why the Market Wage is Better
The Illogic of Collective Bargaining
Market Wage vs. Fair Wage
Imagining a Free Labor Market
Rights and Freedom
Destruction of the Middle Class
Employee Free Choice Act (EFCA)
Job Security
Collective Bargaining and Unemployment
Social Costs of Collective Bargaining
Ending Fringe Benefits
Democrats and Unions
Collective Bargaining in Government