David R. Henderson  

Collective Bargaining "Rights"

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We're hearing a lot in recent discussions of Wisconsin's government workers' unions about how newly elected Governor Scott Walker plans to limit or end the unions' collective bargaining rights. Here is a discussion by an opponent of Walker's move that, as far as I can tell, gets the facts right. Except for one thing. It's not about rights. It's about power.

Almost everyone on both sides of the debate uses the term "collective bargaining rights" to mean the right of a union to bargain with an employer who must, by law, bargain in good faith. It also includes the right of a union to negotiate even for employees who don't want to be members of the union and don't want to pay dues to the union. So "collective bargaining rights" really mean the power to force others--to pay the dues and/or to join the union and/or to give up their power to negotiate with an employer. So the alleged right is really the "right" to monopolize the supply of labor to an employer. That's a phony right, not a real right. It's really a power.

Interestingly, even many economists who defend union monopoly power, recognize that it is monopoly power. Harvard economists and union defenders Richard Freeman and James Medoff, for instance, wrote, "Most, if not all, unions have monopoly power, which they can use to raise wages above competitive levels."

Economist Morgan Reynolds, who wrote the article on labor unions for the Concise Encyclopedia writes:

Many unions have won higher wages and better working conditions for their members. In doing so, however, they have reduced the number of jobs available in unionized companies. That second effect occurs because of the basic law of demand: if unions successfully raise the price of labor, employers will purchase less of it. Thus, unions are a major anticompetitive force in labor markets. Their gains come at the expense of consumers, nonunion workers, the jobless, taxpayers, and owners of corporations.


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CATEGORIES: Labor Market



COMMENTS (20 to date)
Richard A. writes:

When unions are successful in raising wages above the market clearing wage, fewer will be employed. This causes those excess workers to get a job somewhere else--pushing down the wage structure where they go. Net gain for labor--zero. Actually, there may be some dead weight loss to this causing the net gain for labor to be less than zero.

There is the flip side of the coin to this. Anytime an employer claims they have a labor shortage, they are admitting that they are underpaying their labor.

Ben Hughes writes:

I don't understand what makes unionized labor ("collective bargaining rights") theoretically different from a cartel or monopoly. We have laws against formation of cartels and antitrust laws against monopolies. With companies I think it's quite difficult to meet the burden of proof for a monopoly, but in the case of labor markets with the entire workforce unionizing it seems rather clear cut.

Why do people view the labor market as somehow special? How can those who oppose cartels and monopolization consistently be against laws against "collective bargaining rights"?

The economic justification against the former seems to hold up just as well as the economic justification against the latter.

aez writes:

Rights talk has been skewed by this confusion in a number of arenas. I think you've gotten a foothold on something crucial here.

KeithE writes:

Its more than the union conflict. The debate about budgets and spending is a power struggle too. Does a small minority in the nation (those who govern) have the power to take and spend a significant portion of the nation's income or do individuals have the freedom to keep and spend the income they create.

As so rightly observed, in the case of unions, the power of government is used to force people to join, force people to pay and force people to accept a contract they may or may not want.

The real conflict is between government and individual freedom.

John Goodman writes:

See Paul Krugman in the New York Times this morning. He also agrees that the issue is power. Except that he wants the unions to have power. Why? So they can counterbalance the oligarchs.

You didn't know about the oligarchy trying to take over the country? You must not be into conspiracy theories.

Joe Cushing writes:

Ben,

Unions ARE monopoly forming cartels. Your hunch is right. There was a time when they were successfully fought on legal grounds based on this idea. The difference between a union cartel and a business cartel is that a union cartel is one that "you" can join. Nobody hates the cartel they or their loved one/fellow man are in--we only hate the cartel we are not in or can't join. Also, the post mentions a whole list of people who pay for union rent but the perception of the public is that only the last one on that list, business owners (maybe managers too), pay the rent. Profits are seen as evil unions are there to take them from the owners. Because of these perceptions and the notion that unions are a cartel you can join, special laws have been made to carve out exceptions for unions to for cartels where businesses are still forbidden from doing so.


I suspect that ultimately, it's the consumer who pays most of the union rent and if we knew that, unions would be illegal. The reason for this is that there are plenty of non-union places to invest capital. If the investment in a union place doesn't pay as well, capital leaves. That means prices must go up to pay higher wages and pay for the wages of extra people who don't need to be working there. Imagine a guy down in Florida who doesn't belong to a union realizes that he is paying, say, $2500 extra for his car so somebody in Detroit can live better than he does. How long before he starts to complain that his standard of living is lower so that people in Detroit can live better than him.

I live in Metro Detroit. When the car companies make a profit, there is an immediate response from the union who want to take the profit. Ford is paying its employees above and beyond their current contract requirements. I wold guess they are doing so to keep the people from being angry that the company is making money and they took pay cuts.

It's worth pointing out that unionization wealth transfers only work when they can monopolize the labor for a whole industry. This worked in automotive for a while but now that we have non-union competition, the only organization that benefits from the union is the union itself. There is no, or at least less, rent to get when you haven't monopolized everything.

falk burger writes:

Morgan Reynolds is hallucinating. Labor is not a commodity since slavery was abolished, and the idea that business would go on a hiring binge if wages are low is an insane notion, like reading a strip out of a paper shredder, "this document proves..." I agree that collective bargaining is not a human right. As George Carlin thundered, "YOU HAVE NO RIGHTS!" We only have the power we are willing to take, and corporate power has grown to such abusive levels that the world is about to relearn an old lesson. All power is people power, and the elites are already beginning to feel the lash of new masters. Who would have thought just weeks ago that the way forward for democracy would be led by the Arab world?

falk burger writes:

seems I've blundered into a right-wing hive,buzzing with intoxicating notions like "monopoly". If unions are monopolies, what is their product, where is the market, where the demand? You're thinking inside a very tiny box of self-interest.

Ben Hughes writes:

@falk burger:

The answer to your questions seem quite evident:

1. "What is their product" - All markets are not for "products", so even the premise of this question is off-base. In fact we are overwhelmingly a "service" economy. Regardless, what's being provided is a person's *labor*. As a full time employee of a company, you are selling a fixed amount (denominated in time) of your labor, for a set price (yearly).

2. "Where is the market" - The market for labor exists everywhere, with segments of the labor market existing within specialties and within industries. Job advertisements and job applications represent tools to facilitate transactions in the labor market. An employment contract represents a successful transaction not unlike a service contract for providing a service for a set price. Of course, like many other imperfect-information markets, there are many unique aspects of markets in labor relative to product/service markets, but none of which I think shake fundamental economic principles.

3. "Where is the demand" - The demand for labor is evident from job postings and "open positions". Companies or government entities demand labor from people so they can accomplish a goal (and in the case of private industry, maximize profit by employing labor that is more productive in value terms than the cost they are paying for employment. Funny how such doesn't really have to be true for non-profit-seeking government entities.).

"You're thinking inside a very tiny box of self-interest" - What does this even mean? How does it contribute to your presumed economic argument presumably suggesting some fundamental difference between unions as monopolies and cartels as monopoly-forming enterprises?

It really really intriguing to me how people who readily understand basic economics and the laws of supply/demand/prices when it comes to product and service markets are so quick to dismiss this all in one breath when it comes to labor markets. The differences are simply not large enough to throw all of this away.

Ben Hughes writes:

@falk burger:

Also, I'm sorry but I need to call you out on this: "Labor is not a commodity". The argument "x is not a commodity!" is wildly trumpeted as a rebuttal against someone explaining the laws of economics applying in a market.

Why do people think something must be a "commodity" for the laws of economics to apply? This whole "but it's a commodity!" line of defense has got to stop.

Tracy W writes:

@falk burger:
All power is people power

I'm guessing that you didn't take many physics classes at high school.

Walter Sobchak writes:

Any right that is characterized by the term "collective", is inherently suspect. Rights, as they are understood in Amrerican law, inhere in individuals. Collectives, Societies and similar abstractions (ethnic groups, nations, etc.) do NOT have rights.

Eric Hager writes:

It has long struck me unfair that capital could combine together in the form of a corporation, but labor was seen as causing inefficiencies if it combined in a union. If we called labor “human capital” could it then combine into a labor corporation and meet libertarian values? What other characteristics would libertarians require for a labor corporation to meet their values the way a normal (i.e., capital) corporation meets them?

If labor is the supplier and a union is a monopoly, is not the hiring company the demander and therefore a monopsony? Economically, is a monopoly worse than a monopsony, or do both cause inefficiencies in the same manner but on the different curves (supply and demand)?

Tracy W writes:

@Eric Hager: Capital combining is also worrying to most economists.
To quote Adam Smith:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.

The Wealth Of Nations, Book IV Chapter VIII, p. 145, para. c27.

If we called labor “human capital” could it then combine into a labor corporation

As labour has been combining into corporation forms ever since those corporation forms were invented, I hardly think that a relabelling is necessary.

What other characteristics would libertarians require for a labor corporation to meet their values the way a normal (i.e., capital) corporation meets them?

Normal corporations (ie ones consisting of both capital and labour) have a horrible tendency to lobby for government handouts and protection, so they don't tend to meet libertarian values.

If labor is the supplier and a union is a monopoly, is not the hiring company the demander and therefore a monopsony?

It depends on how many hiring companies there are. If there is one then it's a monopsony, if there are a few then they're an oligopoly, if there are many then it's a competitive hiring market.

Monopoly/monopsony/oligopoly are in themselves descriptions. It is possible to have any combination on each end.

Economically, is a monopoly worse than a monopsony, or do both cause inefficiencies in the same manner but on the different curves (supply and demand)?

It depends on the particular nature of the market subject to the monopoloy/monopsony and how you value whatever resource is being restricted. So there's no general answer to that question.

Rick Martinez writes:

Sincerely, I read and see so much intelligence and passion in all the discussion points here. And, I really believe everyone is right! So, I think it's not a matter of who's right, rather "what's" wrong. We have to move beyond rights to "openness."

On the one hand in this great time of "social" communication, budget governors seem not to be communicating well. They must not be union busters, rather social adventurers who see America today as too narrow and must pave new ways and roads by which entire populations can profit and prosper. And people would follow their lead and loosen up, liberating themselves from personal and herd opinion once they understand "power movements" are social constraints to real progress. These budget governors will be leaders, statesman--teachers of openness.

On the other hand, perhaps it's time for the "persons" who comprise the unions to look inwardly also. The "look" and "methods" of yesteryear seem not to be resonating with today's thinkers and doers. The union is the organization and serving its members is the "goal" of the organization. Is the current look and method of the union serving the organization, or the "goal" of the organization? Are union demands for identity, or for universal rights? Power counted or respect as human beings? More than protected by America's Constitution--the rights of individual human beings [not groups like whites, blacks, yellows, Catholics, Protestants, Jews]? Are unions and union members perceived as givers or takers?

To budget administrators, union persons, and all of us--we are in the midst of dramatic world and American social and economic upheaval. What the world wants is "not" a voice that is right when the world is right, but a VOICE that is RIGHT when the world is WRONG!

People today are readied to be civilized, tamed, of the soul's raw passions--because they've learned and seen how selfishness (taking) becomes indignation. They are ready and seeking a leader, a statesman--a teacher of openness--to teach them how to see and to say "I SEE" (I Understand). These leaders inspire others to yearn for human completion...to be givers.

It's no longer the survival of the fittest: Today it's survival of the “wisest.” We must be champions of cooperation, not competition. We must help each other win. Otherwise, any shift from team effort will result in a struggle between the takers and givers. The takers will gorge themselves and the givers will be stuck with the check...until society falls apart in moral decay and material bankruptcy--perhaps like today--as the bill becomes unpayable and the takers become the majority.

Let's interpret our present and forecast our future! Thank you--Rick Martinez

David writes:

Richard A. writes:

"There is the flip side of the coin to this. Anytime an employer claims they have a labor shortage, they are admitting that they are underpaying their labor."
Not necessarily. It may also be a matter of not enough people out there with the skills necessary for the requirements of the particular job that the employer can't seem to fill.
Evert writes:

I agree with a lot of your comments. One thing though is that people forget that today it’s a global economy. The reason unionized membership is dropping in the privet sector is because the manufacturer has a choice. The local, state and federal governments do not. So Americans must make a choice, have unions or have jobs.
The other problem the US has is corporate taxes, at 35% I think is too high. As off this year the US has the highest in the world. If I was a manufacturer why would I come here if you are going to take 35% from me? And do not tell me that the US has experienced labor. Today you can find people that do the right work for you anywhere in the world. And you can always hire the very experienced engineer from the US. So Americans should get of their high horses and realize that the world has changed.
You know 50 years ago after WWII the US was the only country standing. It had the money to build factories. Europe and Russia where in financial ruin. Forget China, India and South America, at the time they were living in tribes. So at the time unions and the labor force had the upper hand they were able to ask and receive because there was nobody around to do the job. What would GM do go to Europe or India and build factories? They were still building roofs to put there children under. So the US was the only game around. Today on the other hand there is choice and guess who has the upper hand. That is another reason why government workers have been asking for so much. 40 years ago working at GM was the job of your dreams; GM was like a country, it was better to work for GM than working for your state. Today everyone wants the extra security that a State job offers.
Anyway I see it like this, the world has a big pie and until now the US was getting half of it, the rest of the world was sharing the other half. Now the world wants a bigger piece and who you think has to give up from there piece of the pie, US
We need to build our manufacturing and our exports that it. If we do that then there will be more money for everyone. Drop the corporate taxes, tighten the belt and start working hard, so we can start building stuff again.

MJ Foster writes:

Re: Rick Martinez note of 2/22
Rick, you haver too much free time.

The fact of the matter is, in my opinion, the unions and union members feel their "right to collective bargaining" is an entitlement. It's not, full stop. I suspect that many public sector unions, teachers for example, and others, reject such things as merit pay or incentive pay/performance bonus because it would bring to light the fact that mediocrity thrives in this environment. I have tremendous respect for teachers, but employees that are outstanding performers should be appropriately compensated; those that are not should be weeded out. That's the way it's supposed to work.
Those state Governors that support Wisconsin’s Governor understand that it’s not about a single concession as the union alluded to. It’s about the ability to deal with these very issues next year on a state, regional or local level, and in the years to come in order to keep the budget in check. In the absence of this, a single concession granted today becomes a negotiating point tomorrow, and what are you left with, less than what you started with.

mrrusss writes:

Ahh, so you're finally going to treat labor like a market. Uh oh, better not tell your drooling idiotic, uneducated right wing sycophants that if labor is part of the free market, the corporate scum, (by whom they have been pathetically taught to actually like being abused), have been introducing COMMUNISM and other dreaded, nefarious economic systems into our beloved free market every time they ship jobs to China, etc. Hence, we haven't had anything near a free market or capitalism since, hence, beloved WalMart is more of a communist than a hippie on welfare, hence, you can't EVER quote or mention or use capitalism as a reference until the outsourcing and manufacturing in non-capitalist, non-democratic or quasi-democratic countries stops. Why don't Bush's welfare bankers just give my tax money to the teachers? I'm sorry, they spent their guaranteed contracted bonuses on European castles, lavish office furnishings, etc.

Tsukasa writes:

From Wikipedia on Collective Bargaining:

Collective bargaining is a process of negotiations between employers and the representatives of a unit of employees aimed at reaching agreements which regulate working conditions. Collective agreements usually set out wage scales, working hours, training, health and safety, overtime, grievance mechanisms and rights to participate in workplace or company affairs.
The union may negotiate with a single employer (who is typically representing a company's shareholders) or may negotiate with a group of businesses, depending on the country, to reach an industry wide agreement. A collective agreement functions as a labor contract between an employer and one or more unions. Collective bargaining consists of the process of negotiation between representatives of a union and employers (generally represented by management, in some countries by an employers' organization) in respect of the terms and conditions of employment of employees, such as wages, hours of work, working conditions and grievance-procedures, and about the rights and responsibilities of trade unions. The parties often refer to the result of the negotiation as a collective bargaining agreement (CBA) or as a collective employment agreement (CEA).
The right to collectively bargain is recognized through international human rights conventions. Article 23 of the Universal Declaration of Human Rights identifies the ability to organize trade unions as a fundamental human right. Item 2(a) of the International Labour Organization's Declaration on Fundamental Principles and Rights at Work defines the "freedom of association and the effective recognition of the right to collective bargaining" as an essential right of workers.

Fullius Stopius.

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