Public Sector Unions

According to our friends on the left, the reason we need unions is because without them, employers would grind employees into the ground. Were organized labor to disappear, wages would plummet; workers would have to work on Sundays ("If you don’t come in Sunday, don’t bother coming in Monday"), tip their hat to their bosses, and suffer all sorts of other indignities, including losing virtually all improvements in working conditions made over the last century.

Of course, this is all wrong. Wages and working conditions are not set by firms. Rather, they depend upon the productivity of labor, more technically on the marginal revenue product of the worker. This can be defined as the extra amount of revenue brought in by adding one more person to the payroll. For example, if there were 1000 workers creating an item that sold for $x, and then the 1001st employee came on board and the firms sales rose to $x + $7, then the marginal revenue productivity of the last person hired would be $7 per hour.

Wages cannot long be higher than this amount, or the company will lose money on every worker it hires. For example, if compensation is $10, and revenue taken in due to the efforts of the worker is $7, then the firm loses $3 every hour the man is on the shop floor.

On the other hand, a situation cannot endure where wages are lower than this amount. For example, suppose pay was $2 per hour, while productivity remained at the $7 level we are considering. Then, the employer would earn a pure profit of $5 every hour. This cannot last for two reasons. First, other companies would have incentive to hire such a worker away from his employer. Assuming that the productivity of the latter would be the same $7 on the premises of any member of the industry, a competitor could offer, say, $2.25. This would be a substantial increase over and above the present salary of $2, and yet would allow the newcomer to earn a profit of $7—$2.25 = $4.75. But if this would work, so would a bid of $2.50, $2.75, $3.00, etc. Where would this process end? As near to $7 as allowed by the costs of finding such "underpaid" workers and convincing them to switch jobs for higher pay. Second, workers talk to each other. An employee worth $7 but paid less than that would be tempted to quit if he found out that his associates at other stores or factories were earning more. Thus, wages for workers of this skill level will tend to earn $7. This does not mean that under free enterprise there will be no deviations from this amount. There will be. The market is continually changing. But there is an inexorable tendency for wages to continually move in the direction of this equilibration.

If wages were really set by employers, why is it that employees such as Shaquille O’Neal, Brad Pitt, Brittney Spears and Bill Gates all earn mega bucks? Generosity? No, the reason they do is because their productivity (ability to fill seats in sports arenas, movie theaters, concert halls in the case of the first three, and manage a large company for the latter) is very, very high. Did their present employers not pay them satisfactorily (that is, in accordance with productivity) others would gladly jump in and do so.

When unions artificially boost wages above this stipulated $7 productivity, they look good in the short run. But in the long run they create business failures and rust belts. Just as you cannot shove the water in the bathtub in a downward direction without slopping some of it out onto the floor, it is impossible for any substantial length of time to maintain wages above productivity levels. (Actually, the former is a mere physical impossibility; the latter, in addition, violates the economic laws of logic, or praxeology.)

What determines the level of productivity, and hence the wages that are dependent upon it? This is based on how hard and how smart people work, and the amount and sophistication of the tools and capital equipment they are given by their employer to work with. This, in turn, depends upon how much saving occurred in the previous periods, and, even before that, how economically free and law abiding is the populace. The more reliance on private property rights and free enterprise, other things equal, the better in this regard.

If organized labor is really the only institution that stands between the workingman and abject poverty, how is it that real wages have been increasing, while the rate of unionization has been declining over the last half century (see table 1)? Why is it the some industries that have never come within a million miles of unions (computers, banking, accounting) pay very high wages, often in excess of that earned by the rank and file? Given that they are at the mercy of the capitalist pigs, should they not have been ground into the dust? How can it be that the south, which is the least unionized part of the country, is the fastest growing? In what way account for the fact that countries where western style unionism is all but unknown (Hong Kong, Singapore, Japan) are economic powerhouses, with standards of living envied in many places on the globe?

Be this as it may, it is all dismissed by professors, pundits and politicians on the left side of the aisle. Let it never be said that the present writer has no empathy for these sorts of people. In order to demonstrate this, I shall now assume, arguendo, that everything the opponents of free enterprise say about the employer’s relationship with the employee is true. The former is a blood-sucker, always ready to pounce on the hapless worker. The bosses have cash registers for hearts, and dollar signs on their eyes; no pity for the downtrodden masses ever bestirs them. Had they their way, and the situation of the worker would be hopeless indeed.

As part of this present touchy feely analysis of mine, I must also acknowledge the benevolent role played by the government in labor relations. Were it not for magnificent pro organized labor legislation such as The Clayton Act, the Railway Labor Act, the Davis-Bacon Act, the Norris-LaGuardia Act, National Industry Recovery Act, The Wagner Act, The National Labor Relations Board Act, the Byrnes Anti-Strikebreaker Law, the Walsh-Healy Act and Fair Labor Standards Act, the firm would not have been taken down a peg or two, and the workers plight would have been horrific.

Okay, okay, enough with the economic illiteracy. Instead, let me ask proponents of these sentiments just one single solitary question: if the government is such a great institution, that totally eschews profiting from the blood, sweat and toil of the working man, from whence comes the justification of, wait for it, public sector unions? My point here is that these sorts of labor organizations are simply incompatible with the leftist case (articulated above) to the effect that the capitalist is an exploiter, and that the government has rescued the worker from the baleful influence of the corporation. If the state is so wonderful as all that, why the need for a public sector union, all of whose members have the benevolent government as their boss?

Look at table 2 accompanying this article. As can be clearly seen, if present trends long continue, private sector unions will all but disappear. The only thing propping up over all union membership percentages are those organized against the government. Organized against the government? That wonderful institution that protects the working stiff from the evil capitalists? The one responsible for the plethora of pro union legislation mentioned above? This can only make sense to those entirely innocent not only of elementary economic reasoning, but of basic logic as well. It is time, it is long past time, for all public sector unions to be disbanded.

Or is it?

Let us turn to one last issue in conclusion. When a public sector union (firemen, garbage men, post office workers, librarians, teachers, bus drivers, civil servants, etc.) goes on strike, whom does the libertarian favor? They are in effect both of them criminal gangs, only one is usually far stronger than the other. One stance is, at any given time, root for the weakest one. That virtually always implies the public sector union. Of course, this means to the extent the rooting is effective, higher wages, and ultimately an increase in taxes will result. This can be obviated when the government bears down and does not accede to the wishes of these labor organizations, but the downside is that the state, the source of union power in the first place, emerges even stronger. Perhaps the best reaction is "A pox on both your houses." In which case it is unclear we libertarians should champion an end to public sector unions.