| What Economists Think about Unions |
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Freeman and Medoff
In 1984, Harvard economists Richard B. Freeman and
James L. Medoff published a book called What Do Unions Do? It is an
extensive (251-page) quantitative analysis of the wage and nonwage effects of
trade unions. Their conclusion:
On balance, unionization appears to improve rather
than to harm the social and economic system. (Page 19)
However, they do acknowledge the negative effect of
unions:
Most, of not all, unions have monopoly power, which
they can use to raise wages above competitive levels. Assuming that the
competitive system works perfectly, these wages have harmful economic
effects, reducing the national output and distorting the distribution of
income. [The higher wage] causes firms to lower employment and output,
thereby harming economic efficiency and altering the distribution of income.
(Page 6)
As monopoly institutions, unions reduce society's
output in three ways. First, union-won wage increases cause a misallocation
of resources by inducing organized firms to hire fewer workers, to use more
capital per worker, and to hire workers of higher quality than is socially
optimal. Second, strikes called to force management to accept union demands
reduce gross national product. Third, union contract provisions - such as
limits on the loads that can be handled by workers, restriction on tasks
performed, and featherbedding - lower the productivity of labor and capital.
(Page 14)
The negative effects of unions are outweighed, the
authors say, by several socially beneficial effects.
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[U]nions alter the entire
package of compensation, substantially increasing the proportion of
compensation allotted to fringe benefits, particularly to deferred benefits
such as pensions and life, accident and health insurance, which are favored
by older workers. (Page 20)
My response: Fringe benefits certainly are good for union members,
but I see no benefit to society. They are a form of wages, and if they are
above competitive levels, they are harmful. See
Ending Fringe Benefits.
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[Because they] raise
blue-collar earnings relative to the higher white-collar earnings [and]
reduce inequality among workers in the same [and different] establishments .
. . on balance, unions are a force for equality in the distribution of wages
among individual workers. (Page 20)
My response: In a free labor market, there is nothing wrong with
having different wages for different jobs.
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[By providing a collective voice in dealing with
management, problems with individual workers are more likely to be worked
out and the workers are less likely to quit.] As a result, unionized work
forces are more stable . . . (Page 21)
My response: I do not disagree. However, a well-managed,
non-union business can set up non-threatening procedures for dealing with
personnel problems that would achieve the same result.
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Union workplaces operate under rules that are more
. . .explicit than nonunion workplaces. Seniority is more important . . .
management operates more "by the book", with less subjectivity . . .and in
more professional, less paternalistic or authoritarian ways. (Page 21)
My response: I do not disagree. However, a well-managed,
non-union business knows the value of contented employees and can make sure
all are treated fairly.
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Some nonunion workers . . . obtain higher wages
and better working conditions . . . because of the threat of unionism . . .
Some workers, however, may suffer from greater joblessness as a result of
higher union wages in their city or their industry. (Page 21)
My response: Workers may also suffer from
greater joblessness due to the excessive wages of those nonunion
workers whose wages are higher because of the threat of unionism. In a
12/20/2005 story about Toyota workers in Kentucky, National Public Radio
claimed that an assembly worker there made more than twice
the average manufacturing wage in the area.
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[Usually,] unionized establishments are more
productive than nonunionized establishments. [This] is due to . . . lower
turnover . . , improved managerial performance in response to the union
challenge, and generally cooperative labor-management relations at the plant
level. (Page 22)
My response: Maybe
they are forced to be more productive to make up for their high labor costs. They have to stay
competitive some way.
My response: Since workers outnumber
employers, they should already have the upper hand in a democratic nation.
Milton Friedman
Milton Friedman was awarded
the Nobel Prize in Economics in 1976 for his achievements in the fields of
consumption analysis, monetary history and theory, and for his demonstration of
the complexity of stabilization policy.
According to
The
Economist, Friedman "was the most influential economist of the second half
of the 20th century…possibly of all of it." Friedman died in 2006. (Source:
Wikipedia) Here's what he said about unions in his book Capitalism and
Freedom (page 124):
If unions raise wage
rates in a particular occupation or industry, they necessarily make the
amount of employment available in that occupation or industry less than it
otherwise would be - just as any higher price cuts down the amount
purchased. The effect is an increased number of persons seeking other jobs,
which forces down wages in other occupations. Since unions have generally
been strongest among groups that would have been high-paid anyway, their
effect has been to make high-paid workers higher paid at the expense of
lower-paid workers. Unions have therefore not only harmed the public at
large and workers as a whole by distorting the use of labor; they have also
made the incomes of the working class more unequal by reducing the
opportunities available to the most disadvantaged workers.
And from Free to
Choose (page 234):
A successful union
reduces the number of jobs available of the kind it controls. As a result,
some people who would like to get such jobs at the union wage cannot do so.
They are forced to look elsewhere. A greater supply of workers for other
jobs drives down the wages paid for those jobs. Universal unionization would
not alter the situation. It would mean higher wages for the persons who get
jobs, along with more unemployment for others. More likely, it would mean
strong unions and weak unions, with members of strong unions getting higher
wages, as they do now, at the expense of members of weak unions.
Albert Rees
Albert Rees, a labor
economist, was the chief inflation monitor in the Ford Administration,
provost of Princeton University and president of the Alfred P. Sloan
Foundation. He died in 1992. The following is from his 9/7/1992 New York
Times obituary:
Mr. Rees
influenced a generation of labor economists with his analyses of
wages, unemployment and labor markets. He was one of the first
economists to conduct studies that compared the relative wealth of
people in different eras. . . He graduated from Oberlin College and
received his master's degree and his doctorate in economics from the
University of Chicago. He became a full professor there in 1961 and
served as chairman of the economics department from 1962 to 1966.
During his tenure at the University of Chicago, he served on the
President's Council of Economic Advisers and the President's
Committee to Appraise Employment and Unemployment Statistics. . .
With George P. Shultz, the former Secretary of State and former dean
of the University of Chicago School of Business, Mr. Rees was author
of a landmark study, called the Chicago Labor Market Project, that
was one of the first to collect and analyze data on the wages and
employment conditions of individual workers.
This is from his book
The Economics of Trade Unions, third edition, 1989, page
191:
If the union is
viewed solely in terms of its effect on the economy, it must in my
opinion be considered an obstacle to the optimum performance of our
economic system. It alters the wage structure in a way that impedes
the growth of employment in sectors of the economy where
productivity and income are naturally high and that leaves too much
labor in low-income sectors of the economy. It benefits most those
workers who would in any case be relatively well off, and while some
of this gain may be at the expense of the owners of capital, most of
it must be at the expense of customers and the lower paid workers.
Unions interfere blatantly with the use of the most productive
techniques in some industries, and this effect is probably not
offset by the stimulus to higher productivity furnished by some
other unions.
I think Rees is being
generous here. He doesn't mention that unions actually increase
unemployment, the effect that causes the most acute human suffering. And
then he talks about two ways in which unions benefit society (page 192):
My response: The
reduction of abuse by managers is certainly desirable, but abuse is
mitigated in other ways in a free labor market. One is that an employee can
easily move from one employer to another without taking a big pay cut, and
he can do so to escape the abusive manager. Another is that when employers
compete for employees in a free market, a reputation for fair treatment can
give them an advantage.
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(T)he
organized representation in public affairs given the worker by the
political activities of unions. If, as most of us believe, America
should continue to have political democracy and a free enterprise democracy,
it is essential that the great mass of manual workers be committed to the
preservation of this system and that they should not, as in many other
democracies, constantly be attempting to replace it with something
different. Yet such a commitment cannot exist if worker feel their rights
are not respected and they do not get their fair share of the rewards of the
system. By giving workers protection against arbitrary treatment by
employers, by acting as their representative in politics, and by reinforcing
their hope of future gain, unions have helped to assure that the basic
values of our society are widely diffused and that our disagreements on
political and economic issues take place within a broad framework of
agreement. If the job rights won for
workers by unions are not conceded by the rest of society simply
because they are just, they should be conceded because they help
protect the minimum consensus that keeps our society stable. In my
judgment, the economic losses imposed by unions are not too high a
price to pay for their successful performance of this role.
My response: Maybe
things were different in 1989, when this edition of the book was published,
but I am not aware today of any free enterprise democracies where unhappy
workers are "constantly" attempting to replace the system with something
different. I
can't imagine that not having union representation in public affairs would
make workers a threat to democracy. Currently, 92.5% of private industry
workers in the U.S. have no union representation and there seems to be no revolution
brewing. Representation is provided by political parties and by elected
representatives at the state and national level. And in a free market, a
worker's "fair share of the rewards of the system" is determined - as it
should be - by the value of what he produces.
Henry Hazlitt
From
Wikipedia: "Henry
Stuart Hazlitt (November 28, 1894 – July 9, 1993) was an
American
economist,
philosopher,
literary critic and
journalist for such publications as
The Wall Street Journal,
The Nation,
The American Mercury,
Newsweek, and
The New York Times. . . Hazlitt was a prolific writer, authoring 25 works in
his lifetime." One of those books was
Economics in One Lesson, published in
1946. With a million copies sold and available in ten languages, it is
considered an enduring classic in
conservative,
free market and
libertarian circles. A recurring
theme in that book is "the fallacy of
overlooking secondary consequences." Hazlitt says there is a tendency for people
to see only the immediate effects of a given policy, or its effects only on a
special group, and to neglect to inquire what the long-run effects of that
policy will be not only on that special group but on all groups:
[I]t is easy . . . for
unions . . . to go beyond their legitimate functions, to act
irresponsibly, and to embrace short-sighted and antisocial policies. They do
this, for example, whenever they seek to fix the wages of their members
above their real market worth. Such an attempt always brings about
unemployment. The arrangement can be made to stick, in fact, only by some
form of intimidation or coercion. (Page 141)
[T]he moment workers have
to use intimidation or violence to enforce their demands - the moment they
use mass picketing to prevent any of the old workers from continuing at
their jobs, or to prevent the employer from hiring new permanent workers to
take their places - their case is suspect. For the pickets are really being
used, not primarily against the employer, but against other workers. These
other workers are willing to take the jobs that the old employees have
vacated, and at the wages that the old employees now reject. The fact proves
that the other alternatives open to the new workers are not as good as those
that the old employees have refused. If, therefore, the old employees
succeed by force in preventing new workers from taking their place, they
prevent these new workers from choosing the best alternative open to them,
and force them to take something worse. The strikers are therefore insisting
on a position of privilege, and are using force to maintain this privileged
position against other workers. (Page 142)
[T]hough [unions] may for
a time be able secure an increase in money wages for their members, partly
at the expense of employers and more at the expense of nonunionized workers,
[they] cannot, in the long run and for the whole body of workers,
increase wages at all. (Page 148)
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
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