David R. Henderson  

Is Labor Law More Oppressive for Workers than for Employers?

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Sheldon Richman, with whom I seem to agree well over 90 percent of the time, writes the following:

Generations of government intervention have reduced workers' bargaining power in favor of employers. Any interference with the free market that suppresses competition -- occupational licensing, patents, subsidies, land-use restrictions, trade barriers, special tax treatment -- reduces the number of firms bidding for workers' services and also reduces self-employment opportunities. Even the labor laws reduce workers' influence by, for example, outlawing wildcat strikes, sympathy strikes, and secondary boycotts. Abolishing the vast edifice of federal labor law would be more liberating for workers than for employers.

I don't think his last sentence is correct. The main effect of the federal government's labor laws is to give monopoly power to groups of workers. So abolishing federal labor law would be more liberating for employers than for the unions.

Now, Sheldon could mean that individual workers have less power because of the power that unions have over them. If that's what he's saying, then I agree. When I worked in a nickel mine in Canada, for example, I had to pay dues to the United Steelworkers of America. I would have been freer had I not had to pay dues. But I'm pretty sure that's not what Sheldon is saying.

Two people who realized how badly unions treated their people were W.E.B. DuBois and Booker T. Washington. Although they disagreed on many other things, they agreed that unions made life much harder for black workers.

A good quick treatment of labor unions and their monopoly power is Morgan Reynolds, "Labor Unions," in The Concise Encyclopedia of Economics. Here are two key paragraphs:

According to Harvard economists Richard Freeman and James Medoff, who look favorably on unions, "Most, if not all, unions have monopoly power, which they can use to raise wages above competitive levels" (1984, p. 6). Unions' power to fix high prices for their members' labor rests on legal privileges and immunities that they get from government, both by statute and by nonenforcement of other laws. The purpose of these legal privileges is to restrict others from working for lower wages. As antiunion economist Ludwig von Mises wrote in 1922, "The long and short of trade union rights is in fact the right to proceed against the strikebreaker with primitive violence." Interestingly, those who are expected to enforce the laws evenhandedly, the police, are themselves heavily unionized.

U.S. unions enjoy many legal privileges. Unions are immune from taxation and from antitrust laws. Companies are legally compelled to bargain with unions in "good faith." This innocent-sounding term is interpreted by the National Labor Relations Board to suppress such practices as Boulwarism, named for a former General Electric personnel director. To shorten the collective bargaining process, Lemuel Boulware communicated the "reasonableness" of GE's wage offer directly to employees, shareholders, and the public. Unions also can force companies to make their property available for union use.

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CATEGORIES: Labor Market

COMMENTS (13 to date)
collin writes:

I am not sure what the writer is thinking as I would expect the union employees tend to attract people that not looking unlimited job freedom. These employees tend to look more for a stable job and in most cases probably willing to trade lower long term benefits for higher wages. (This would have been true for teaches in the 80's and 90's when private wages were rising. In the 21st century with stagant wages the public sector did not get the memo.) So in the long run union I don't see how employees would not feel better off abolishing labor laws.

I think this an libertarian elite thoughts on the average person.


Daniel Kuehn writes:

I am writing a paper write now on some economic policy views of Martin Luther King (people often ignore the very specific policy proposals he had). As everyone knows, unlike DuBois and Washington, he was very pro-union. Part of this may be that unions had simply changed a lot between the turn of the century and the 60s, and unions did not have quite the negative influence by mid-century.

Interestingly, though, King was not a fan at all of occupational licensing, and spent some time contrasting unions with occupational licensing. Of course the other public figure talking about occupational licensing in the 60s was Milton Friedman. There are a lot of little surprises like that from King, but I always like that one in particular.

Daniel Kuehn writes:

The other thing to remember talking about whether unions were "good" or "bad" for blacks that far back is that the picture is not very homogenous across unions. I don't know what Washington and DuBois had to say about unions, but it may be that their concerns were more targeted (although I can see Washington just rejecting the whole idea).

David R. Henderson writes:

@Daniel Kuehn,
Interesting about occupational licensing.
Re what Washington and DuBois didn’t like. They didn’t like two things: (1) that unions systematically excluded black people--see the Morgan Reynolds article that I referenced above, and (2) that some union goons murdered black people.

Ghost of Christmas Past writes:

Curiously, with all the advantages unions have (and they certainly do have them, as you pointed out), unions are no longer able to organize very many private-sector workers.

In 2011, 37% of American government workers were unionized versus 7% of private-sector workers. More union members overall worked for government (7.6 million) than in the private sector (7.2 million). (Source DOL/BLS.) The skew is worse than those numbers suggest-- unionized employees of General Motors and government contractors like defense firms are counted as "private sector" workers when they really aren't.

Contra Richman, I suspect government interventions which reduce market competition likely promote unionization, because it appears to me that the less competitive the market in which an employer operates, the more susceptible to unionization that firm is (although there appears to be a hangover effect which keeps firms like automakers which unionized long ago when they faced little competition under the union thumb even after their marketplaces have evolved).

Since unionized workers are rent-seekers and firms facing less competition (and governments) throw off more rents, perhaps such firms, plus governments, are easier to unionize simply because they won't go out of business even when saddled with extra labor costs. Perhaps workers won't even sign union cards if they recognize that their employers face real competition and might simply dissolve if unionized.

Unions cannot obtain above-market wages for their members if their employers can't afford those wages. Unions almost invariably reduce labor productivity, so the only real way to pay extra-high wages to union workers is to extract an unusually large surplus from the customers (or taxpayers) of the employer. That is unlikely unless competition in the employer's "market" is suppressed.

Ghost of Christmas Past writes:

I realize Richman was writing in "op-ed" mode, but his claim that government workers don't-really and therefore shouldn't-nominally pay taxes was perhaps oversimplified. Since American government workers don't all work for (and pay taxes to) the same governments, and some government workers have income other than wages to push them into different income-tax rate brackets, it probably does make sense to tax government workers like other people instead of simply paying them smaller-but-untaxed wages. Subjecting government workers to the general income-tax system obviates the need for a more complex government wage-administration scheme.

Another advantage of the "first pay them, then tax some of it back" approach is that private-sector workers can more easily see how overpaid government workers are. If government workers got tax-free pay* then it would be harder for voters to recognize how bloated that pay is.

Government workers have demanded monstrously excessive pay in "deferred" forms like pension and healthcare promises particularly because those are nearly invisible to taxpayers.

*Some government workers actually do get tax-free pay, may they go to the hot place!

Brandon Berg writes:

It seems to me that the industries that require that workers to be licensed are not particularly prone to domination by a few major players. Quite the opposite, they tend to support many independent producers, possibly because the protection afforded by licensure leaves room for inefficiency. Medicine, dentistry, law, optometry, hair care---all of these industries are notable for the lack of dominant firms.

Also, since the license is granted to the worker, not to the employer, it gives the workers who are able to obtain licenses more power, not less.

Joe Cushing writes:

What he is saying is that labor laws, including those about unions, reduce the workers choices of employment which reduces their power to walk away from a job they don't like and try something new. When employers know their employees are stuck in a job due to few options, they can make corporate policy without regard for how employees feel. (it's usually not about wages and befits) On the other hand, if dictating a rule that employees don't like means loosing 20% of the workforce, an employer will be less likely to make such a rule.

During this economic slump, we can see this happening. I suspect there is a build up of employees who are desperate to quit their jobs because they hate the company they work for. They only stay because of less options. If the economy ever takes off again, there will be lots of turnover at many--especially large--firms as people say "take this job and shove it."

Costard writes:

Better if he distinguished between workers and those seeking work. The greatest cost of unions and arguable loss of freedom - and it's the same with occupational licenses - is borne by those who can't find work.

Brandon - the state bar and medical associations thoroughly dominate their respective professions. Monopoly on labor tends towards the same effect as monopoly on production: shortage of supply and higher prices. The remarkable thing about the healthcare debates in this country is that the dominant institutions - the ones mandated by law, like the professional associations or the medicare-centric insurance galaxy - have largely escaped blame. Despite the fact that it is the poor who can't buy healthcare or afford the process of becoming licensed.

JKB writes:
The main effect of the federal government's labor laws is to give monopoly power to groups of workers.

This presumes easy inclusion in the "group of workers." If your uncle can't get you on down at the local union, you as a worker are damaged by reduced opportunity, regardless of your ability or expertise.

Look at the maritime unions. Declining industry due to high cost of workers. The young, say marine engineer, is forced to take jobs no one else wants just to get enough time to keep his union insurance and earn credits while the old guys take the plums. Those workers most hungry for work have to fight to stay employed because government regulation requires they work through the union hall.

So while forced monopoly works for the "in" crowd, it is not good for those not yet favored. But it works for the employers who offload a lot of personnel training and benefits.

Perhaps that last sentence should be:

Abolishing the vast edifice of federal labor law would be more liberating for [younger/productive/entrepreneurial] workers than for employers.

Ghost of Christmas Past writes:

But JKB, the problem with maritime jobs isn't really the unions, it's strong competition (from overseas). The few remaining US-flagged vessels sail only because of anti-cabotage or American-bottom-only defense-contract (or similar) requirements. Their owners are rent seekers and they share some of the rents with their crews. Sure, the unions freeze out new seamen, that's how it works when a only a few people can make a good living off a strictly limited resource.

Outside of the uncompetitive US merchant fleet (and some analogous small "first world" fleets) unions have no power. If the US deregulated, the union-wage US merchant fleet would just disappear because hardly any Americans would work for Bangladeshi wages and keep, regardless of unionism.

American shipowners and mariners' unions cooperate to milk a few rents from favorable regulation. If the unions disappeared their political influence would disappear with them and the shipowners might not be able to keep enough pressure on Congress to avert deregulation. If the regulation disappeared the unions would disappear the next day because they would would not be able to extract high wages from shipowners in a competitive environment.

Darwin writes:

Are workers environments required to the same labor law compliance as employees?

Bryan writes:

I've always seen unions as something that is for the good of the employees, so that employees would have a way to air their complaints or concerns because it would be more advantageous to them if they do it a s a group rather than as an individual. If unions have a negative effect to employees then that's really saddening because it would make us think who is then on the employees' side? Are they that alone when it comes to their rights as workers?

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