When even historically progressive Wisconsin adopts a right to work law—making employee payments to a union voluntary instead of mandatory—it’s a sign that compulsory unionism’s inherent flaws are catching up to it.
Unions have long claimed to be the champions of “the working man” (and women)—protecting and advancing their interests against mean, greedy employers. While fully admitting that employers frequently pay workers less than they want and not disputing that employers may be mean and/or greedy, labor unions in America have persisted in their present form only due to a combination of political privilege and popular ignorance of economic truths.
Unions have received privileged treatment by law ever since the passage of the Clayton Antitrust Act of 1914, which specifically exempted unions. The underlying reasoning behind the Clayton Act is economically sound: In the absence of competition, monopolistic firms can give less value to customers and charge them unfairly high prices because the customers have no alternatives.
The same economic dynamic holds true for unions: With unions enjoying monopoly status, rank-and-file members can’t opt for an alternative representative in dealing with management, and union dues tend to be higher than they would if the union had some competition.
Opponents of Republican Governor Scott Walker in Wisconsin forced a recall election after he pushed to change the collective bargaining process for public employees in the state. (Photo by Andy Manis/Getty Images)
Another law that has helped to empower unions for decades was the Wagner Act of 1935—the law that took away a worker’s right to work for unionized companies without paying dues to his employer’s monopolistic union even if he disagreed with the goals, agenda, and tactics of the union. In the long run, Americans have come to realize that the Wagner Act isn’t consistent with our rights and freedoms. (Some historical context: In 1932, Congress passed the Norris-LaGuardia Act which, though not perfect, at least recognized workers’ right to associate and form a union if they wished. Then, just three years later, the Wagner Act dictated that workers had to join a union if the employer’s business was unionized. True freedom would mean that each worker be free to join a union if he wants to and not to join a union if he doesn’t want to.) It is to escape from the straightjacket imposed on workers and businesses by the Wagner Act that Wisconsin has joined 24 other states in passing its right to work law.
Unfortunately for workers, the combined force of the Clayton and Wagner acts made labor unions politically powerful but economically destructive entities. Unions used their monopoly privilege against both their own employers and against other workers. Indeed, all the union rhetoric about “the solidarity of labor” is a cynical fraud, because unions have been cannibalistic, enriching some workers while devouring the jobs of other workers. This happens in two ways, both of which ignore the laws of economics.
First, unions have prevented willing workers from replacing them when they are on strike. They use the ugly term “scabs” to denigrate and revile people whose only “fault” is that they want what union members profess to want—a job, a source of income. Because of unions’ monopoly privilege, these would-be workers are denied the right to hire themselves out at a wage mutually agreeable to the worker and employer.
Second, by using their monopoly power, unions often extract above-market compensation from employers. This is a victory for some (we all like raises) but is devastating for the union members who subsequently are laid off because (a) their productivity is lower than their new, higher wage; (b) the company has to shrink (or in extreme cases fold) to stay alive; (c) the higher wages incentivize the employer to replace human labor with machinery. Indeed, historically, the pockets of high unemployment in the U.S. have tended to be in union strongholds.
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For much of the last century American unions have been engaged in an unwinnable war against the law of supply and demand. The union movement in this country was born when Andrew Carnegie was earning massive profits while paying his workers a relative pittance—somewhat similar to what Nike and other contemporary multinationals are doing today in Third World sweatshops. Look, personally, if I were Master of the Universe, I would have every person who wants a job working for a high wage, but as I wrote several years ago, “It isn’t the Carnegies’ and Nikes’ fault when wages are low. They aren’t responsible for an area having a large pool of labor, nor are they to blame when there aren’t more capitalists competing to employ those workers. Where wages are low, the cause isn’t the presence of exploitative capitalist employers, but precisely the opposite: there aren’t enough capitalist employers to tilt the law of supply and demand to labor’s advantage.” Union leaders often claim that right to work causes wages to fall in a vicious race to the bottom. No, they only fall to the market-clearing price; then, with everyone employed, they begin to rise because any employer that wants to add a worker must outbid other employers—the supply/demand dynamic then works to the advantage of workers.
Another fundamental flaw in unionism is the insidious idea that a worker’s employer is his enemy. A more benign view would recognize that the employer is, if not a friend, at least an ally of the worker, for he provides the worker with an income. Why doesn’t the employer pay higher wages? Part of the reason is that consumers ultimately decide how much workers can be paid. The employer in that sense is but a middleman between consumer and worker.
Another important factor is the productivity of labor. An employer can pay a higher hourly wage to a worker who produces ten units per hour than, say, eight units. A deeply entrenched American value is the conviction that the more one produces, the higher the compensation should be. Unfortunately, a prevailing ethos in American unions has been that workers should be paid more even if they produce less. I can still remember, several decades ago, working a summer job as a janitor for Chrysler. The union rep would ride over to me on his golf cart and tell me to rest on my broom. I politely declined, telling him that I’d go crazy just standing around looking at a clock. That attitude of believing that workers are entitled to be paid even if they don’t produce is economically unsustainable. In the case of the auto industry, this helps to explain why the Big Three lost so much market share to foreign producers and why there are so many fewer UAW jobs today than in earlier decades.
There is only one way for private-sector unions to thrive going forward, and that is to recognize that they are subject to inexorable, impersonal economic laws that exist independently of any and all employers. I recall reading over 30 years ago about a union that arranged for financing to buy the plant they worked in. With ownership, they were free to pay themselves whatever they wanted. Their first step was to cut their own wages by 25 percent. They did this out of self-interest, understanding the economic reality that working 40 hours a week at, say, $15/hour (alas, I don’t recall the exact figures—and if anyone out there can remind me of the name of the company, I’d be grateful) than zero hours per week at $20/hour.
The protests we hear about the right to work law in Wisconsin come from the union brass, whose lucrative monopoly privileges are being revoked, and from Democratic politicians who have long benefited from the massive flow of forced-union dues into their campaign coffers. For the workers of Wisconsin, brighter days are ahead, and that is as it should be.
Editor’s Note: This column was originally published March 13, 2015 at Forbes.com.
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Self-Educated American Contributing Editor, Mark Hendrickson, is Adjunct Professor of Economics at Grove City College, where he has taught since 2004. He is also a Fellow for Economic and Social Policy with The Center for Vision & Values, for which he writes regular commentaries. He is a contributing editor of The St. Croix Review, sits on the Council of Scholars of the Commonwealth Foundation, and writes the “No Panaceas” column in the Op/Ed section of Forbes.com.
Mark’s published books include: America’s March Toward Communism (1987); The Morality of Capitalism (editor, 1992); Famous But Nameless: Inspiration and Lessons from the Bible’s Anonymous Characters (2011); and God and Man on Wall Street: The Conscience of Capitalism (with Craig Columbus, 2012).
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