Down With the Unions

The crucial thing to understand about labor unions is that they are quite incapable of raising wages in the long run for all those eager to earn wages. Although unions can in principle serve the legitimate functions of 1. disseminating the knowledge of the true market price of their services and 2. preventing entrepreneurial errors of the employer’s providing working conditions so poor that they actually hinder productivity, they are typically today as in the past menacing and antisocial institutions. As Robert Murphy quips, "Unions are among the few groups to issue formal ‘demands.’ Some of the others are hijackers, kidnappers, and bank robbers." What he means is that unions are allowed to act like criminals, using violence against the employer and the replacement workers eager to be hired by him.

It is sometimes suggested that unions seek monopoly over their labor. This is not entirely correct. For there is a difference between a monopoly price of a factor or commodity and the restrictionist price achieved by a union. To obtain a monopoly price the entrepreneur sells only part of his commodity and withholds the rest, which, if unsold, becomes his loss. But labor cannot be so monopolized. The reason is that each individual is free, a "self-owner" and cannot be owned by anyone else, including the union. Thus the labor services not made use of belong actually to people who are not members of the union, and these unfortunates do not, unlike the supply of the monopolized good left in the hands of its owner, affect the actions of the union. Indeed, the union does not care about these workers and benefits precisely from their loss, which is why even if demand for labor is elastic, it is no impediment to union restrictionism (demand is elastic in a given range when a lower price yields a greater total outlay than a higher price). In sum, some workers end up earning higher than market wage, while other are excluded from the industry altogether.

But so what, one may ask? The displaced workers, being a fairly nonspecific factor of production, will simply find a job in another industry. That is, of course, true, but the problem is that they are less suited to work in that other industry, which means that they will contribute less there to consumer well-being. Moreover, as a result of entering that industry, the wage rates of the workers already employed in it will go down. Thus a union grants artificially higher wages to its members only at the expense of lowering the wages of the workers elsewhere in the economy. Finally, the greater the scope and reach of the unions, the more difficult it will be for any given laborer to shift to another line of work. Institutional unemployment results. The same effect occurs even if unions accept almost everyone into their ranks without discrimination but insist on the minimum wage higher than would be achieved for the given labor factor without the union.

The restrictionist wage rates of the unions can also destroy potential jobs which would have been added as a result of expansion of the unionized industry. The expansion never occurs or occurs slower than it would otherwise, because the unions impose a higher wage rate from the beginning, thereby checking it. The structure of production becomes distorted in either case. For example, if Wal-Mart had had to deal with unionized labor force when it was still a start-up, it would have had a much harder time succeeding as well as it did.

Perhaps it is supposed that the unionized shops can pass the expenses to their customers in the form of higher prices. This may or may not be so. If they can, then the consumers, who may well be the union members themselves, are worse off. If they cannot, then capital is in a way "exploited" by labor. But not for long: future investment in the industry will cease. Thus labor unions tend to destroy or cripple marginal (least efficient) companies in which they work both by making them non-competitive and by checking investment.

Further, as Ludwig von Mises writes,

If the unions were really bargaining agencies, their collective bargaining could not raise the height of wage rates above the point of the unhampered market. As long as there still are unemployed workers available, there is no reason for an employer to raise his offer. Real collective bargaining would not differ catallactically from the individual bargaining. It would, like individual bargaining, give a virtual voice to those job-seekers who have not yet found the jobs they are looking for.

Even if collective bargaining is not violent, it nonetheless makes it difficult for the union to find the approximately correct market rate, something which happens much more smoothly and harmoniously with individual bargaining. The reason for that is every worker’s labor is, in fact, unique and can be priced differently. For example, folks who are extremely skilled, such as computer programmers, receive different compensation depending not only on their niche but on their competence, as well, which can vary greatly. I doubt, however, that many unions care for finding the market price of their members’ labor; invariably they impose various "rules" of wage determination which have nothing to do with the way the market sets wage rates.

Union activity is also marred by all kinds of featherbedding and make-work practices. The idea is that there is a limited amount of work available which must be carefully managed. This is, of course, abject nonsense. As I have pointed out in the previous article, the amount of work to be done is virtually unlimited. Thus, instead of focusing on efficiency, companies with unionized workers are forced to subsidize unproductive activities. The workers themselves, rather than being useful to society, become parasites.

Unions are enemies of any individual who is willing to work at market wages. That unionists are concerned with the welfare of children, for example, is laughable. That they care about Chinese workers is even more absurd. They simply resent the competition. I say, therefore, way to go, kids and "our Chinese brothers and sisters." Kick some lazy unionized American butt.

Lastly, there is the idea that unionism has improved the "working conditions." Without unions, the story goes, people would still labor in unsafe and unhealthy environments. There are two errors here. First, it may be in the interest of the employer to make the workplace less dangerous, if the costs of doing so are offset by an increase in productivity and a decrease in lawsuits. Second, the employer is indifferent as to whether to boost wages directly or to provide benefits such as a better working environment. To him, both are costs of doing business. Whatever the workers have gained in the latter has been at the expense of the former.

It is therefore a delusion to imagine that the increase in real wages throughout the years has come about due to union activity. The rise in real wages has been entirely due to the increase in the productivity of labor through capital accumulation, more "roundabout" (interpreted properly as longer but still most direct) production processes, and technological progress. This is so even for individuals whose work is mostly not capital-intensive, for their employers have to compete for them with the potential employers who are capital-intensive.

A lot of emotion is still invested into unionist doctrines. Much of this investment is vain, and the remedy is the knowledge of economics. What economics does is change one's parochial attitudes. Perhaps all that you care about is your own family. No one else's welfare matters. That would be Tony Soprano's way of thinking. As a result of his actions, his family benefits but everyone else loses, because the man is a thief and a murderer. On the net, there is a loss, too. Similarly, perhaps all you care about is yourself or, at best, your fellow union members. In that case, you have nothing to worry about. Who cares if labor unionism hurts the interests of non-unionized workers and makes the country as a whole poorer! But if you broaden your horizons and desire to promote not any special interest but the general interest, the common good, the welfare of everyone without privileging any particular person or group, you find that economics is of great help. It teaches how to look beyond the immediate future and into the long-run and beyond the welfare of any particular group and into the welfare of all, even ultimately the entire world.

And so, for example, if we examine the long-run consequences of labor unionism for everyone, we find that it makes the society as a whole worse off, even as it redistributes wealth from non-unionized workers (and those who are unemployed because of the unions) to unionized workers. As a result, we conclude that labor unionism is a vicious development in the history of civilization. It hinders economic progress. It is in the general interest that unionism comes to a complete end.

July 4, 2006

Dmitry Chernikov [send him mail] is a graduate student in philosophy at Kent State University.

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