Labor Unions and Outcomes

I found this gem in the news this morning:

“How States Taken Over by the GOP Have Been Quietly Screwing Over the American Worker” by Zoe Carpenter at The Nation: http://www.thenation.com/blog/176953/workers-are-under-attack-states#

Ignoring the title that implies some illegitimacy in their overlord-ship of these states (because who would elect conservatives), the article itself leaves out a few fun facts about Unions.  First, let’s point out that Ms. Carpenter studied environmental policy at Vassar, and is qualified to provide only anecdotal evidence of this “screwing.”  She has a history of writing for upstanding bastions of journalism, such as Rolling Stone, so we should take it seriously.

In reality, she is towing a hard fought line that Unions bring benefits to everybody.  Here is what she claims the results of this coordinated assault on unionized labor are:

“The results are wage and benefit cuts, poorer working conditions and fewer legal protections for all workers—unionized, nonunionized, [sic] public and private. Workers have lost overtime and sick leave. Others have been misclassified as independent contractors, losing unemployment insurance and workers’ compensation. While more than two-thirds of workers have some pay stolen from their paychecks each week by their employers, states have reduced support for the enforcement of wage laws.”

First, maybe wages were too high under the union contracts – creating stickiness in employment.  And I will concede that some evidence indicates that companies using unionized labor can see long-term upticks in their equity value, and do not generally (according to a French study) under-perform their counterparts in productivity (although they may have lower profits).  Sounds good?  Unions also support their members at the bargaining table, pushing up their wages.  Unions have a valid place in labor history, and may have supported middle-class growth in the middle of the century.  But that is a time when manufacturing jobs were more prevalent and supported greater diversity of industry.  As the world liberalized trade policies, companies sought labor markets where the returns to labor were greater.  Unions drive down the returns to labor, making capital more attractive.  The rise of unionization coincided with the rise of mechanization.  Union workers systematically negotiated themselves out of work by raising their costs to the point of bankrupting many companies (poor management can account for a lot of these failures as well).

Unions now have a greater tendency to create inter-industry wage differentials, a situation in which workers in one industry are over-paid, while workers in another industry are under-paid (not to mention intra-industry wage differentials).  Unions also drive up aggregate unemployment.  Want anecdotal evidence?  Look at France, which has significant unionization and much higher structural unemployment than the US has historically had.  In other words, it does me no good that you’re in a union if I can’t find a job.  The author also attributes some of these labor market changes directly to “right to work” policies.  I can just as easily tie the growth in contractor based work and wage suppression to the increased costs of employment buried in the Affordable Care Act.  In fact, I could write the paragraph I quoted above and precede it by an article on the pitfalls of Obamacare.  The decline in unemployment benefits is also interesting as I note the huge increase in unemployment benefits during the recession, which needs to be undone at some point in order to provide incentives for people to return to work.

We live in a knowledge driven economy now, characterized by the educated and uneducated, not the unionized and non-unionized.  Unions create inequality between industries and increase unemployment across the broader economy.  It may be time to rethink the equity versus equality arguments to see what would increase returns to labor enough to prevent off-shoring and extensive mechanization.

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