Magazine article The American Enterprise

Vanishing Unions

Magazine article The American Enterprise

Vanishing Unions

Article excerpt

Are America's unions committing suicide? The organized labor movement as we know it started shortly after an 1842 Massachusetts court decision declared that strikes were not criminal conspiracies. Over the next 80 years, the unions could command considerable sympathy. When almost 400,000 workers went on strike in 1919--shortly after the American Federation of Labor organized much of the iron and steel industries-the conditions the workers sought to improve were appalling. Many worked 12-hour days, seven days a week, often in hot and dangerous conditions. While one can object to the actions of the famed Molly Maguires, a group of Irish coal miners who terrorized Pennsylvania's coal companies in the 1800s, the fact that working conditions could lead men to such desperate acts should disturb any observer.

Against this sobering backdrop, the latest United Auto Workers strike at GM is pure farce. Most of GM's North American production has ceased, following a strike at their Flint, Michigan metal fabricating center. One of the chief disputes is GM's objection to outdated piece-work rules that, combined with improvement in assembly-line efficiency, mean that workers often quit after a half-day of work with full pay--which averaged $69,000 last year, plus $29,000 of fringe benefits, the New York Times reports.

GM argues that such expensive labor practices drive up the cost of GM cars, which in turn could eventually drive the company out of business. Historical evidence suggests GM has a point: Firms and industries where organized labor has significant power have experienced a steady decline since the 1950s, while those sectors not controlled by unions have blossomed, benefiting labor and management alike. The net result has been one of the more dramatic reversals in U.S. economic history. According to data from the U.S. Bureau of Labor Statistics, the percentage of the private workforce that is unionized climbed from about 6.8 percent in 1930 to about 27 percent in the early 1950s, but then declined to below 10 percent by 1997. Twenty more years of this trend would, as the nearby chart shows, take the percentage of private workers unionized to zero! (Unionized government workers are another story. In this sector, not known for watching costs or improving efficiency, union membership is growing.)

So why has unionization in the private sector declined? Economists who study unions point to several factors. The first piece of the puzzle is the effect of unions on the way workers are used and paid. Unionized workers earn, on average, about 15 percent more than nonunionized workers, according to a National Bureau of Economic Research study. Unions also negotiate with firms to create rules that are intended to improve working conditions. The piece-rate rules at the Flint plant are just one example.

Many union supporters argue that this negotiating power is valuable, because otherwise large firms would hold disproportionate power over workers. In the blind pursuit of profits, the argument goes, capitalists wring every last ounce of effort out of workers, without regard to the workers' welfare.

On the other hand, higher wages and stricter work rules put an enormous burden on firms. Labor costs are a very high share of total costs for most firms. Take the average U.S. firm, increase its labor costs by 15 percent (as unionization typically does), and almost all of its profits would be eliminated.

What happens to a firm if unions force it to pay more for labor than its competitors pay? If the firm has a monopoly on its product, then it can simply pass the higher costs on to consumers. But if many other nonunionized firms sell exactly the same product, then the unionized firm may well go bankrupt quickly. In the real world, most unionized firms are, like GM, somewhere in between. They have significant market power, so there is some chance they can survive even when their costs rise; but they do not have so much market power that they can ignore the possibility of losing sales to competitors. …

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