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Personal choice and freedom of association are two fundamental and essential principles of any truly free society, and this includes a free market workplace. Unfortunately, the Obama Administration is spending taxpayer dollars to undermine those principles in other countries around the world.
The Washington Times reported on December 11, 2015 that the U.S. Agency for International Development (USAID) has organized a grant-giving contest for foreign labor union associations or other non-governmental organizations (NGOs) to “promote workers’ representation in policy processes; improve access to justice; advance the effective worldwide application of core international labor standards; and improve the welfare and livelihood opportunities of workers and their families and communities.”
The initial award (or “prize”) would be as much as $37.5 million, with possible additional funding of $32.5 million, for a total sum of $70 million for the best proposal to expand trade union power and influence over the labor market in a foreign country.
Governments in other parts of the world often manipulate and rig labor markets for the benefit of special interest groups close to the halls of political power. Not surprisingly, this is frequently the case when governments, themselves, own or have financial and other controlling stakes in some sector of an economy.
Free, competitive labor markets are as important and central to economic opportunity and prosperity as any free markets on which private enterprises may and are expected to compete for consumer business.
But what such programs as USAID’s grant contest is concerned with is a competition to devise ways to more effectively have labor union organizations control segments of the employment market somewhere else in the world. That is, the fostering of corners of labor union monopolies that restrict and limit real employment opportunity in less developed lands around the globe.
Principle of Freedom of Association
An underlying and fundamental principle in the American political and economic system is the idea of freedom of association. Individuals should have the personal liberty to freely associate with any others in society for lawful and commonly shared goals, purposes, and activities.
This principle also implies it’s opposite: that individuals may not be compelled or coerced into joining or participating in any association without their voluntary consent. The underlying premise of a free society is the right of individuals to say, “No,” whether this involves joining a church, entering into a contract, participating in any social club or group, or membership in a labor union.
Historically, the idea of a right to work outside of a membership in and control by a labor union emerged out of the medieval system of compulsory guilds, under which employment and training within various professions, occupations, and trades were strictly controlled and regulated by urban associations of “masters” who limited entry of “apprentices” into their corners of the market. The occupational guild system artificially narrowed employment opportunities, restricted supply of goods and services, and limited competitive alternatives for buyers.
Beginning in the sixteenth and seventeenth centuries, the guild systems were slowly weakened and abolished. By the second half of the eighteenth century, the ideal had become each individual’s right to work at any line of employment that he freely chose to enter. The idea was captured in the words of Adam Smith in his famous work, The Wealth of Nations, in which he spoke of “the obvious and simple system of natural liberty” under which:
“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.”
In general, three types of arguments have been offered as to why the individual worker is to “small” and “weak” to protect his own interests in the employment market and, therefore, needs membership in and the negotiating authority of a labor union on his behalf.
Supposed Superior Bargaining Power of the Employer.
The inferior position of the individual worker is claimed to be due to a number of factors. First, it is argued that the individual worker must accept the wage offered to him by the employer, since if he does not accept it, there are always many other workers looking for jobs ready to take his place. This ignores the fact that competition is two-sided in virtually every market, even ones far less developed that those in the United States.
Thus, any employer who fails to offer a wage that tends to reflect the anticipated value that the worker contributes to a company’s profitability runs the risk that the potential employee will search out alternative employment where his skills are more highly valued by another employer wishing to get ahead of his competition.
The same applies to a currently employed worker who, if he believes that he is not receiving a wage commensurate with his actual market value, will see the advantage of changing employers in the same or a related market. This will force any employer attempting to “low ball” his workers to raise his wage offers, or run the risk of losing a growing number of qualified workers without whom he may not be able to retain his market position relative to his rivals.
The Claim that Employers Can “Wait” But Workers Cannot
Another argument sometimes used to claim that the individual worker has the inferior bargaining position says that the individual worker cannot “wait” to look for a better job. First, if the worker does not earn wages he cannot eat. While the employer can wait to find a worker willing to take any salary he wishes to offer because, he has “capital” to live off until a worker comes along who will accept the lower wage the employer wishes to pay. Second, it is stated that labor is a perishable “commodity.” It cannot be “stored” to sell on another day. So if the worker does not take the wage offered, that lost day’s labor can never be regained.
However, there are limits to any such claimed “waiting” advantage on the part of the employer. Every day of less output produced because needed workers are not yet hired is a day with lost sales revenues resulting from less output than could have been produced and sold on the market. Thus, waiting to find workers who might be willing to accept wages less than their real market value imposes a cost on the employer in the form of smaller profits and less market share that could have been acquired, if a wage more in line with workers’ worth was offered and accepted.
The Claim that Unions Protect Wages from Unfair Competition.
It is argued that unions are able to collectively negotiate wages above what they would be in a market if workers were individually negotiating with prospective employers. If non-union workers could compete for union jobs, those union-secured, higher wages would be competed down. Thus, all workers will be better off with gainful employment in a market by being required to join and jointly negotiate through the representing union.
Labor, however, like every other good or service offered on the market, is subject to the law of supply and demand. If a union successfully negotiates a wage above the one that would have been competitively established on the market, fewer workers might be employed since the higher the wage the less profitable the number of workers potential employers find it attractive to hire (or retain). In other words, wages that compulsory unions may successfully impose runs the risk of pricing some workers out of the market.
In this instance, the “conflict” is not between “labor” and “management,” but instead between union workers and non-union workers. In effect, compulsory union membership serves as a mechanism to limit the available supply of workers willing and able to offer their services to potential employers in that unionized sector of the market. The union “locks out” members of the labor force who would have been willing to work for prospective employers on terms mutually attractive to the two sides.
This forces the locked out and displaced workers unable to find employment at the mandatory union-imposed wages to search out alternative gainful employment in jobs and with employers that are less well paying and not as attractive. The union members’ gains are, as a consequence, at the expense of other workers, who must enter other markets for employment and thereby pushing down wages in that alternative part of the labor market below what would have prevailed if the union had not locked them out, with the resulting “over-supply” of labor in the alternative labor market.
This process can and often does entail workers having to migrate out of the area where they had previously found work, or where they would have chosen to reside, if not for compulsory union membership rules pushing non-union workers out of that part of the labor market, and that part of the country in which “closed union shop” conditions prevail.
Claimed Need for Union Membership to Avoid Free Riders.
The argument for compulsory unionism also has been based on the rationale that the higher wages and better working conditions negotiated by the labor union benefits not only the union members but all other workers in the company or industry who are covered by the union terms of employment.
If non-union members are able to benefit from the “positive” results of union activities it is only reasonable that they should be required to bear a part of the costs of obtaining those favorable work conditions and wages. Thus, non-union workers should, if not required to join the union, to be at least obligated to pay union dues to assist in defraying the organizational and related expenses to provide those benefits.
At the same time, the potential for “free riding” reduces the incentive to belong to a union, and thus can result in fewer union members, and therefore weaker unions unable to effectively negotiate on behalf of workers’ interest.
The free rider problem can only arise when the gains from the actions of some cannot be prevented from benefiting others who have not participated in covering the costs that have generated those “positive” results. However, excludability is possible in the case of union-generated wages or work conditions by simply stipulating in the negotiated union contract that the terms of that contract only apply to union members.
If non-union workers are unable to obtain from the employers wages and work conditions equal to or better than those arranged by the union that will act as a positive incentive for non-union employees to find it in their own interest to, then, join the union.
If, however, non-union employees are able to negotiate for themselves wages and work conditions not much different from (or even superior to) those covered by the union contract that would, itself, be a clear demonstration that union membership and dues is superfluous.
A number of arguments can be made in support of a free market in labor:
The case for personal freedom
The hallmark of a free society is the extent to which the individual has the liberty to make decisions guiding his own life, including the occupation or profession he chooses to follow to earn a living and that gives meaning and enjoyment to his daily activities.
By definition, then, labor union exclusion of workers who would, otherwise, find gainful employment on the basis of free and voluntary contract between themselves and willing employers is a restraint not only on trade, in general, but a restriction on the personal freedom of workers to enter into consensual association with others for peaceful and lawful mutual benefit.
The same applies to compulsory payment of union dues as a “tribute” to a union for the right to work for a particular employer or in a specific industry. Indeed, it can be argued that it is a form of imposed tax for the privilege of working within the “jurisdiction” over which the union claims authority.
The union is asserting “ownership” over the jobs within the sector of the economy or industry in which they acquire compulsory membership. As such, it is not only an abridgement of the non-union members’ liberty of choice in employment, it is also an infringement on the freedom of the employer’s right to enter into contracts and hire any and all workers with whom he may reach mutually agreeable terms. Indeed, it implies that the union claims control over a vital element of entrepreneurial and managerial decision-making.
Compulsory unionism limits labor market competition
Compulsory labor unions historically have had one essential goal: anti-competitive and monopoly restriction on segments of the labor market. The purpose is to limit the supply in various occupations, professions, and trades as a means to raise the price of labor above the levels at which the free interactions of market supply and demand would have set wages.
As such, compulsory unionism directly raises the cost of employing workers within companies and industries, and as a result indirectly raises the prices of the goods and services bought by consumers on the market. Compulsory union-dominated industries, therefore, potentially limit the supply of consumer-desired goods and services and raise the prices consumers may pay for that more limited supply.
Companies or cartels that attempt to act monopolistically bear the cost of leaving a portion of their capital and equipment idle precisely to withhold potential output with the hope of deriving a sufficiently higher net revenue by selling less at a higher price. They must weigh the cost of underutilized plant and equipment relative to the higher price with the decreased output.
Compulsory unions however restrict entry into their market to reduce the supply and raise the price of labor – wages – but bear no such cost. Their responsibility and “costs” extend no further than a weighing of the advantages and disadvantages to the workers who remain employed under the union wage and work condition rules negotiated on the basis of collective bargaining. Those workers priced out of employment in the union-controlled sector of employment are no longer voting or dues-paying members, and therefore no longer of an element in the union leadership’s decision-making.
The burden of the compulsory union’s actions, therefore, falls on the shoulders of the excluded workers. They bear a cost they had not bargained for or agreed to. And, thus, the unemployment or less valued employment that these displaced workers now face are a negative “externality” that these unions impose on others without their agreement or consent.
The benefits from labor mobility and workplace flexibility
Compulsory unionism tends to reduce and limit labor mobility between industries and sectors of the economy. Competitive markets are, inevitably, experiencing constant change, and therefore require continual adjustment and adaptation to new circumstances.
Consumer demands change, resource availabilities are modified, and capital investments shift from one line of production to another, and technological innovations transform how and where goods and services can be profitably supplied and in what amounts.
Compulsory labor union restrictions retard the required adaptations and adjustments that must constantly be undertaken in different ways and different places if markets are to be continuously be moving in the direction of sustainable balance and stability.
In a free, competitive labor market, workers and employers have the flexibility and openness to find the “right” patterns of worker employment, to perform the tasks and types of work in and between industries that the shifting conditions of market supply and demand suggest are the most profitable and advantageous for both employees and employers.
The difficulty is that compulsory unionism prevents both employers and employees from using their knowledge and talents in ways that they discover are most advantageous. On the other hand, free and open labor markets offer the openness that permits workers to have the ability to find more gainful employment in less contractually restrictive ways.
Free Labor Markets Are Important for the Poor
It is in less developed countries that these arguments are most important and essential to appreciate. Precisely in economic environments in which standards of living are significantly lower than, say, the one we take for granted in the United States that all markets – including labor markets – just be kept as free, open, and competitive as possible.
The more regulatory rigidity or special interest favoritism and privilege in such lower income economic circumstances, the slower and more difficult the ability of people to find ways to employ themselves in productive, innovative, and wealth generating activities.
Compulsory trade unionism is one of those instances of what the French free market economist, Frederic Bastiat, referred to as the difference between “what is seen and what is not seen,” and the resulting, sometimes negative unintended consequences.
On the surface, labor unions make their appeal to society with rhetoric of claiming to want to better the conditions of all workers seeking gainful and income-enhancing employment. What is not as clearly seen are the indirect and usually unintended effects from compulsory unionism that end up keeping far too many in poverty and less remunerative jobs that the supporters of labor unions say they wish to help.