Unions in the American Economy-Becker

Union members constitute a mere 7.5 percent of the private sector American labor force, only one third of its share 25 years ago. This is why the UAW is a dinosaur, a relic of times past when unions were much more important. The UAW 's membership has declined by more than one third since 1970, and its membership is still declining at a fast clip. GM had one quarter of a million UAW workers in 1994, but now has less than 75,000 workers who are members. It is rather easy to explain why in effect, the US has become a non-union private sector economy. The rapid shift during the past several decades from manufacturing to services has been a significant contributor since the generally smaller service establishments have always been much less unionized than the larger manufacturing establishments, like steel mills and auto plants. Globalization has been crucially important in several dimensions. Increased competition from imports have undercut the higher prices charged by domestic competitors who are forced to pay large benefits to their unionized workers. In addition, if a union tries to raise worker benefits, and hence production costs, by a lot, companies often close these plants, and set up production in other countries where costs are lower. Government provision of unemployment benefits and rules about layoffs- including anti-discrimination legislation- and voluntary provision by non-union companies of health and retirement benefits, and codified rules about the treatment of employees in regards to hiring, layoffs, and discipline have greatly reduced the advantages of unions in providing such benefits. Border and southern states discovered that they could be attractive to companies if they had more hostile environments to unions than other states. When companies like Toyota and Honda decided to set up auto factories in the US, they generally avoided states where unions were powerful, and instead mainly went to states where unions were not important. Now foreign companies produce more than one third of all cars made in the US. Much of the decline in UAW membership has been offset by the growth of non-union workers in plants owned by foreign companies. In addition, cars made abroad have been out -competing cars made domestically by GM, Ford, and Chrysler. As a result, cars made by foreign companies, whether in the US or elsewhere, now account for more than half the cars sold in this country. These powerful forces aligned against unions imply that the UAW and other large manufacturing unions are essentially finished, perhaps unless they receive major financial and regulatory support from the federal government. This is why the AFL-CIO and Change to Win went all out to get Senator Obama elected president. Unions are said to have spent over $400 million during the presidential race, and had several hundred thousand volunteers make phone calls and house visits. They claim to have been pivotal in Obama's victories in closely contested states like Ohio and Pennsylvania. According to one poll, about 2/3 of the members of the AFL-CIO unions voted for Obama, and only 1/3 for McCain. Unions strongly supported Obama not only because Democrats have traditionally been much more pro-union than Republicans, but also because Obama had been explicitly supportive of unions. He and Joe Biden as senators co-sponsored the so-called Employee Free Choice Act. This Act failed to muster enough votes in the present Congress, but unions have placed highest priority on its passing in the new Congress that has a much bigger Democratic majority. Such a bill would give workers the right to join a union as soon as a majority of those employed at an establishment signed cards saying they wanted a union. Under present rules, there must be an election by workers to determine whether they want a union, with votes of individual workers being secret rather than publicly expressed on cards. Any substantial shift of federal and state governments toward pro-union regulations would harm the American economy and the position of the typical employee. As Posner indicates, unions want greater monopoly power so that they can raise the wages and other benefits of union members above their competitive levels. Unfortunately, the effects of this are to reduce earnings for non-union workers, shift production outside the US, or toward states with less pro-union laws, and shift production in unionized plants away from labor and toward capital. None of these changes are beneficial to the efficiency and performance of the American economy, especially in a global environment. Although the union leadership believes the Employee Free Choice Act and related legislation could add several million members, the good news is that they are likely to be wrong. The forces I discussed earlier that contributed to the decline of unions in the US are very powerful, they will continue to operate, and they are extremely difficult to reverse. So while pro-union federal legislation might well slow down the decline of unions in the private sector of the economy, it is highly unlikely to greatly affect the downward trend.

Comments

[Handmaiden to the Sciences]

I would think that unions, by raising earnings for their workers, also raise earnings for non-union workers, contrary to what you say. Union workers with high earnings are removed from the competitive labor market. Also, employers of non-union employees can afford to pay only slightly less than union wages and still maintain a competitive advantage over their unionized competitors. The net effect is to diminish profits and transfer wealth to the unionized worker. The cost to the non-unionized worker is not in diminished earnings but in the higher price for goods produced in industries with unionized labor.

[Handmaiden to the Sciences]

I would think that unions, by raising earnings for their workers, also raise earnings for non-union workers, contrary to what you say. Union workers with high earnings are removed from the competitive labor market. Also, employers of non-union employees can afford to pay only slightly less than union wages and still maintain a competitive advantage over their unionized competitors. The net effect is to diminish profits and transfer wealth to the unionized worker. The cost to the non-unionized worker is not in diminished earnings but in the higher price for goods produced in industries with unionized labor.

[Jack]

Good god! Becker too? Ahh yes indeedy "The forces I discussed earlier that contributed to the decline of unions in the US are very powerful, they will continue to operate, and they are extremely difficult to reverse."

........... Like the Walmart heirs who had enough clout to change the estate tax laws while inheriting the most profitable company in history (sans a brief oil company windfall) while paying their "associates" so little that taxpayers chip in an extra billion per year in food stamps, low cost housing, and medical care. Well, as Becker laments, they may well NOT be as powerful in the new Congress or with the new admin. For the future of our nation let's hope so.

[Jack]

Good god! Becker too? Ahh yes indeedy "The forces I discussed earlier that contributed to the decline of unions in the US are very powerful, they will continue to operate, and they are extremely difficult to reverse."

........... Like the Walmart heirs who had enough clout to change the estate tax laws while inheriting the most profitable company in history (sans a brief oil company windfall) while paying their "associates" so little that taxpayers chip in an extra billion per year in food stamps, low cost housing, and medical care. Well, as Becker laments, they may well NOT be as powerful in the new Congress or with the new admin. For the future of our nation let's hope so.

[J]

Good god! Becker too? Ahh yes indeedy "The forces I discussed earlier that contributed to the decline of unions in the US are very powerful, they will continue to operate, and they are extremely difficult to reverse."

........... Like the Walmart heirs who had enough clout to change the estate tax laws while inheriting the most profitable company in history (sans a brief oil company windfall) while paying their "associates" so little that taxpayers chip in an extra billion per year in food stamps, low cost housing, and medical care. Well, as Becker laments, they may well NOT be as powerful in the new Congress or with the new admin. For the future of our nation let's hope so.

[Ryan]

I realize this is just a blog post, but this is a really on overly (ideologically) convenient and superficial analysis of these issues.

It is not at all clear from your simple use of Econ 101 principles that unions "harm the American economy". On the contrary, a unionized labor force may be more productive (healthier, happier, etc.) per dollar spent on wages.

Even if it's true than in an economy with both union and non-union firms the latter are more competitive, it does not follow that if unions disappear entirely everyone will be better off.

Your brief analysis of the EFCA is similarly shallow and facile. The current union election system is entirely distorted by powerful employers. While card-check carries its own problems, an intelligent analysis would weigh each against each other.

[Olavg]

Several of the other posters point to the fact that the conclusion Becker arrives at, is in fact not so obvious as the blog post concludes. One example of empirical data to the contrary is the State of Denmark.
Its one of the most highly unionized countries in the EU or the world, with almost 80 pct of the labour forced organized in unions across all types of labour, from lawyers to steel factory workers. Denmark is also among the top economic performers in europe, with a positive trade balance, 1,7 pct unemployment rate, and the most content workers in the EU according to eurobarometer.
Danish unions emphasise employer paid education of workers as one of their main goals, as well as decent pay and health at work. Therefore danish workers are highly educated, with a much larger output pr employee than the average american worker, better health at retirement, and have a willingness to quickly adopt to new conditions, like a more capital intensive production. Danish unions helped build the economic success that the country is experiencing today, by making the work force competitive by increasing output pr worker and being proactive in the face of cheaper foreign competition. I would say that unions certainly still have a role to play.
The reason why American unions are so much less successful, is because of their “French”style. Instead of working constructively with employers, they are always against change, and appeal to politicians for actions instead of negotiating with employers for fair and reasonable agreements. It resembles the French unions way of just shutting society down, if they dont get what they want, only the American unions have so little power in comparison.

[Richard]

I agree with Dr. Becker’s comments about unions seeking monopoly power. I think it’s instructive to look at an example of an entity that has had a monopoly on selling services to the public, in the way that unions have a monopoly in selling labor services to some employers.

The U.S. Postal Service has a government-enforced monopoly on some types of delivery services. Some of us are of the opinion that its monopoly status is fully reflected in the quality of its services.

No one can compete head-on with USPS. But pent-up demand for better delivery services has further spurred the development of alternatives such as email and electronic payments. Those have largely replaced traditional mail for the purposes for which individuals formerly used it. And Federal Express and others have taken over the deliver of larger packages.

Those developments are analogous to the alternatives that car buyers have found, to get around the UAW monopoly, including buying cars made outside the U.S., and those made in non-unionized American factories.

It’s very difficult to maintain artificial restraints on market forces in the long run.

[Richard]

I agree with Dr. Becker’s comments about unions seeking monopoly power. I think it’s instructive to look at an example of an entity that has had a monopoly on selling services to the public, in the way that unions have a monopoly in selling labor services to some employers.

The U.S. Postal Service has a government-enforced monopoly on some types of delivery services. Some of us are of the opinion that its monopoly status is fully reflected in the quality of its services.

No one can compete head-on with USPS. But pent-up demand for better delivery services has further spurred the development of alternatives such as email and electronic payments. Those have largely replaced traditional mail for the purposes for which individuals formerly used it. And Federal Express and others have taken over the deliver of larger packages.

Those developments are analogous to the alternatives that car buyers have found, to get around the UAW monopoly, including buying cars made outside the U.S., and those made in non-unionized American factories.

It’s very difficult to maintain artificial restraints on market forces in the long run.

[JLS]

"The reason why American unions are so much less successful, is because of their “French”style."
How can union in USA could be like in France, they are obvisoulsy English style ?
By the way in France 3% of workers belong to Union in private sector.

[neilehat]

Regional Unions having problems? Imagine that! Unions in the U.S. had problems until the Courts decriminalized Unionizing and those said Unions grew by leaps and bounds. Until various Courts and Legislatures passed and supported "Right to Work" laws or outright banned unionizing. Putting a damper on unionizing.

Are we now back to the days of, "Workers of the World Unite"! "You have nothing to lose but your chains"!

If the World believes in "Free Markets/Free Trade" it also means it needs to recognize the Right of the Worker to "FREELY Organize and Unionize" in their own self Interest.

[Peter Wimsey]

@Olavg

There is a lot to admire about Denmark, but it is not correct that they are more productive than US workers, who still lead the world in productivity.

See, e.g., the ILO report here - http://tinyurl.com/2ppzhn

[blake]

do those productivity numbers count the investment banks as having produced some absurd amount of money rather than destroying it?

[Anonymous]

Richard sez: "I agree with Dr. Becker’s comments about unions seeking monopoly power."

........... but the unions and collective bargaining arose because without the unions it was the companies that sought and maintain monopoly power.

Need we more examples than Walmart? A company that to its credit developed a very productive distribution network, enjoys one of the fattest bottom lines in history, yet pays there hard working "associates" so little that Unc Sam must supplement Walmart's miserly pay with over a billion/year in housing subsidies, Earned income credits, food stamps and H/C.

Peter: It's interesting to note that after adjusting for the fewer hours worked that the French worker produces more than does the US worker. Amazing, eh? with their having something of a worn out country by comparison to the rich natural resources of the US. Instead of the traditional chest thumping its time for America to take a close look at why it's doing so poorly by comparison to countries whose economic assets are much poorer than ours.

[Jack]

Richard sez: "I agree with Dr. Becker’s comments about unions seeking monopoly power."

........... but the unions and collective bargaining arose because without the unions it was the companies that sought and maintain monopoly power.

Need we more examples than Walmart? A company that to its credit developed a very productive distribution network, enjoys one of the fattest bottom lines in history, yet pays there hard working "associates" so little that Unc Sam must supplement Walmart's miserly pay with over a billion/year in housing subsidies, Earned income credits, food stamps and H/C.

Peter: It's interesting to note that after adjusting for the fewer hours worked that the French worker produces more than does the US worker. Amazing, eh? with their having something of a worn out country by comparison to the rich natural resources of the US. Instead of the traditional chest thumping its time for America to take a close look at why it's doing so poorly by comparison to countries whose economic assets are much poorer than ours.

[Richard]

Unc Sam must supplement Walmart's miserly pay with over a billion/year in housing subsidies, Earned income credits, food stamps and H/C.

In my opinion, that's not a bad thing. It's generally less expensive for government to top up the incomes of the working poor, than for government to restrict the setting of wage rates by supply and demand.

If public assistance is eliminated, or substantially reduced, when the recipient takes a job, that is, in effect, a high rate of tax on their newly-earned income.

Ideally, public assistance should be structured so that a recipient is not penalized for taking an entry-level job. That is not as easy as it might sound, but it should be a public policy goal.

[Jim]

Igor Panerin, a respected Russian political scientist and former KGB analyst, has been predicting the economic collapse and de-federation of the United States by the end of 2010. His predictions are based on modeling with the main funtional dependencies being the collapse of the (worthless) dollar, the loss of individual assets, bankrupt states asking a bankrupt federal government for worthless dollars and increasing moral decay.

Before you sneer, might I suggest you google him.

And we are worrying about the unions?

[Jake]

Before taking Panerin seriously, Jim, please get up off the sofa, kick the empty pizza delivery boxes out of the way, step out of your front door, and say hello to America. Should you decide to move off your doorstep, visit your local library and read about American history, 1855-1865.

[اس ام اس عید نورز]

thanks

very very good

[اس ام اس عید نوروز]

thanks

very very good

[jim]

Jake, do you mean that period of de-federation when there were two separate currencies, two separate cultures, two separate trading systems, two separate governments, two separate armies and from which ole Abe was murdered and from which there are still hard feelings. Great!!! I am really looking foreward to a repeat of that. I might be missing your point. The United States is a completely different animal now; divided in any one of a number of ways and should disaster strike, I seriously doubt its ability to recover. But maybe the unions will survive and help us out.

Btw, I will make sur to hire a union person to clean up the pizza boxes. Thanks for the suggestion.

[emeryitty]

Áûëî áû èíòåðåñíî óçíàòü ïîïîäðîáíåå

[neilehat]

Jim, Just as all humans are born to die; so States grow, reach maturity, decline, then die.
The Panerin analysis closely shadows Eddie Gibbon's analysis of the Roman Empire which reached it's zenith in the Antonine dynasty and then declined and died, but it took some three hundred years.

I think we're flexible enough to last some four or five hundred. And in my case, another fifty years or so, who cares!

[neilehat]

Jim, Just as all humans are born to die; so States grow, reach maturity, decline, then die.
The Panerin analysis closely shadows Eddie Gibbon's analysis of the Roman Empire which reached it's zenith in the Antonine dynasty and then declined and died, but it took some three hundred years.

I think we're flexible enough to last some four or five hundred. And in my case, another fifty years or so, who cares!

[Jack]

Richard: Perhaps we need to look more closely into the example of Walmart. For one it HAS one of the fattest bottom line profits the world has ever seen.

You make the case that created the Earned Income Tax Credit and many other low wage subsidies well.

However, what ARE we doing here? Do we no longer believe in capitalism as that efficient "invisible hand" that directs productive resources to those companies that use them most efficiently and productively??

Often in my travels I drive past a McD's, a Taco Bell and a Wendy's on my way to a small, locally owned cafe at which the the people working there earn enough that they don't qualify for low wage subsidies. Now, why, I wonder, am I as a taxpayer subsidizing McD's and Walmart to the disadvantage of the places I choose to reward with my business? So, Walmart with it's billion buck wage subsidy CAN come in a bulldoze local businesses that WERE paying a living wage? And their owners were pillars of the community?

You see the stone truth IS and you can find it in chapter six of most Intro to Econ texts, is that "supply and demand" does not accurately set wages in the lower quartiles, for the reason that organized capital is FAR stronger than an individual coming in to escape being one of the one in ten who is completely unemployed and must accept what is offered. "Go down the street?" Same story. That IS why unions and collective bargaining came about.

Oh! and as we've recently had confirmed (in spades!) wages are not set accurately by "supply and demand" at the top levels either. CEO pay has soared from 50 times worker pay circa 1980 to over 400 times today. Is that possible to explain by any "supply and demand" model? Has the pay selected the best in terms of excellence? and or ethical behavior? Protected the long term future of the company, its products and position in the world market?

Lastly? Were companies unwilling to pay the costs of their rent, vehicles they "need?" would you be as willing to pony up taxpayer's money to make ends meet?

Neil, Hi! and dare we hope that a sustainable economy that doesn't destroy the environment is possible?