- The Labor Shortage Is a Government-Contrived Scarcity - June 14, 2021
- Free Market Liberalism and the Israeli-Palestinian Conflict - June 9, 2021
- Jacques Novicow, Sociologist of Peace and Freedom - June 4, 2021
We have now entered the Joe Biden presidency in the United States. Calling for a restored unity among the American people, the new president has come out of the starting gate with a plethora of executive orders and legislative policy proposals being sent to the Democratic Party-controlled Congress. Virtually all of them involve increased government spending, regulation, and planning over wider areas of economic and social life.
Among these are political interventions in the workplace. During his first day in the White House, Biden formally announced his intention to have Congress increase the national minimum wage from its current $7.25 an hour to $15 per hour. That raising an employer’s expense of hiring workers may result in some existing or potential workers being priced out of the market, especially among the unskilled and inexperienced and young, is ignored or rationalized away by those determined to follow a more interventionist policy course. (See my article “Freedom and the Minimum Wage”.)
Joe Biden Will Push for Increased Union Power
The new president also made it clear in his campaign promises that a Biden administration would do all that it could to strengthen the pervasiveness and power of labor unions in the American economy. His campaign literature insisted that everything good that has happened for the ordinary worker in America has been due to “workers who organized unions and fought for worker protections.” Union organizing and collective bargaining, it was said, have been the basis of labor betterment in the United States. The problem is, it was stated, “there’s a war on organizing, collective bargaining, unions, and workers.”
To remedy this, “Joe Biden believes the federal government should not only defend workers’ rights to organize and bargain collectively, but encourage collective bargaining.” Thus, Biden’s agenda includes pushing union organizing in non-union workplaces and limiting employer attempts to argue and persuade against it to their employees. This would also include preventing even-handed deliberative processes before a union vote is taken, limiting worker privacy from the prying eyes of union organizers, undermining secret balloting, and forcing workers to pay union dues even when they would like to opt out of union representation and support.
Biden Wants Unions Everywhere, But Workers Do Not
Indeed, if Biden’s vision for expanding and intensifying union power were to come to fruition, the entire U.S. economy would be transformed into union-controlled “closed shops,” with few escape hatches for those who want to be free of union dictation of their conditions of work and earned wages. When looking over the decades, however, it is fairly clear that many if not most workers either do not want to be represented by unions or are sufficiently indifferent that they show no interest in going out of their way to push for union representation and determination of their work conditions and wage negotiations.
Fifty years ago, in the 1970s, union membership among the U.S. workforce as a whole was about 30 percent. In 2019, according to a Bureau of Labor Statistics 2021 report, union membership was barely above 10 percent, representing a two-thirds decline over the last five decades. Indeed, in the private sectors of the labor market, overall union membership only came to 6.2 percent of that part of the workforce in 2019. The only thing sustaining American unionism at all is the government sector, where union membership totals 33.6 percent of those employed by the federal (25.6 percent), state (29.4 percent), or local (39.4 percent) branches of political power.
For well over a hundred years, the rationales and reasoning in defense of unionization and collective bargaining have been the presumption that workers as individuals and as groups are at an inherent disadvantage in their dealings with employers. “The bosses” will underpay, cheat, and exploit those they hire at unfair wages and undesirable workplace conditions. No doubt, these types of arguments will be made once again by those in the Biden administration and then echoed by many in the mainstream press and social media.
Freedom of Association vs. Union Forced Membership
It seems to be worthwhile, therefore, to challenge the premises and presumptions in the labor union case for making America a labor market “closed shop.” To begin with, an underlying and fundamental principle in the American political and economic system has been the idea of freedom of association. Individuals should have the personal liberty to freely associate with any other members of society for lawful and commonly shared goals, purposes, and activities.
This principle also implies its 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.
Broadly, the arguments against an individual employee’s right to work without membership in a union have been of three general types: (1) only unified union membership can protect all workers against the superior bargaining power of the employer; (2) only compulsory union membership can protect other workers from the “unfair” competition of non-union members that may result in the wages of all workers in that industry being pushed below their “fair market value;” and (3) only mandatory union membership (and dues paying) prevents non-union members from a “free ride” at the expense of union workers in a company or industry. Let us look at each of these arguments, in turn.
Supposed Worker Bargaining Disadvantage with Employers
First, the supposed superior bargaining power of the employer. The inferior position of the individual worker is claimed to be due to a number of factors. 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 modern, developed market, and especially in a country like the United States. Any employer who fails to offer a wage tending to reflect the anticipated value that the worker contributes to a company’s profitability runs the risk that the potential employee with useful and productive skills 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 forces any employer attempting to “lowball” 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.
Another argument claims that the individual worker has an inferior bargaining position because the individual worker cannot “wait” to look for a better job. First, if the worker does not earn wages he cannot eat. 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 such 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 reduced 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.
Financial capital may be “stored” rather than invested in hiring workers and producing output. It can be held as cash or loaned out (short-term) for some interest return. But delaying the hiring of workers who would otherwise have gladly worked at reasonable market-valued wages results in the prospective employer earning neither profit nor interest if a part of his financial capital is held as cash. And even if lent out to earn short-term interest, the potential employer loses every day the difference between the interest he may earn and the greater profits that could have been his if he had not delayed hiring needed workers for productions that could have been manufactured and sold.
The Claim of “Unfair Competition” from Non-Union Workers
Second, it is claimed that unions protect wages from unfair non-union competition. It is argued that unions are able to collectively negotiate wages above what individual workers could negotiate on their own. 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 if 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 may 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 run the risk of pricing some workers out of the labor market.
In this instance, the “conflict” is not between “labor” and “management,” but, instead, between union members and non-union workers. The union “locks out” others in 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 to search out alternative gainful employment in jobs and with employers that may be less well-paying and not as attractive. The union members’ gains are, as a consequence, at the expense of other workers, who must find employment in other markets and thereby pushing down wages in that alternative part of the labor market below what would have prevailed if the union had not resulted in an “oversupply” of labor in the alternative labor market.
This process can and often does entail locked out workers having to migrate out of the state 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 shop” conditions prevail.
Asserted Need for Compulsory Union Dues to Prevent Free Riding
Third, the need for union membership to avoid non-union free riders. It has been argued that the higher wages and better working conditions negotiated by a 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, 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 may result in fewer union members and 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 employers the 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 are superfluous.
Free Labor Markets and Personal Liberty
This, now, gets us to the opposite argument; that is, the case for freedom of association and the individual’s right to work and negotiate the terms of his employment without union interference or compulsion. Among the arguments for a free, competitive labor market, are: (1) The case for personal liberty; (2) The gains from competition; (3) The benefits from labor mobility and workplace flexibility; (4) An efficient use of scarce resources for improved productivity.
First, the case for personal liberty. 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, 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 liberty 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 and employment control.
Compulsory Unions Restrict Market Competition
Second, compulsory unionism limits labor market competition. “Closed shops” have historically had one essential goal, that being anti-competitive and thus 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.
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 wages of some workers, but bear no such similar 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 closed shop are no longer voting or dues-paying members, and therefore no longer 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.
Free and open labor markets reduce the unions’ anti-competitive and potentially monopolist practices. The number of workers employed in an industry, occupation, and trade reflects the consumer demand for the products workers can produce. As long as the value of the product is greater than workers’ opportunity costs of being employed in some other way of earning a living, the supply of workers will increase, the output of the desired goods and services will expand in supply, and the prices at which those goods are offered to consumers on the market will decline.
Free Labor and Market Mobility and Flexibility
Third, the benefits from labor mobility and workplace flexibility. Compulsory unionism and the closed shop tend to reduce and limit labor mobility between industries and regions of the country. Competitive markets normally experience constant change requiring continual adjustment and adaptation to new circumstances. Consumer demands change; resource availabilities are modified; 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.
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 moving in the direction of sustainable coordination and balance.
With free labor markets, 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.
Free Labor Markets Foster Efficiency and Productivity
Fourth, more efficient and productive are workers under free labor markets. An open labor market environment enables workers and other resources and capital to be effectively allocated and employed where best business judgments suggest, in a world that is always changing and in which, therefore, that is an irreducible amount of uncertainty and risk.
It is not that businessmen never get it “wrong” or workers never have second thoughts about jobs they’ve taken. It is rather that given the inescapable fact that some decisions will always turn out to be wrong, what labor markets, as well as all other resource and capital markets, must have is the greatest potential to readjust and transform what, how, and where production is undertaken and job opportunities are found to exist.
It has become a cliché to say that America now exists in a far more competitive, global economy. It is nonetheless very much true, even in a pandemic global setting. This requires the ability for the competitiveness and creative adaptiveness for those living and working in the United States to be able to make the most of opportunities that they discover and wish to take advantage of. For this to be possible and profitable, people must have the liberty to work where, at what, and on the terms that they, as individuals, find most lucrative, based on the mutual gains from trade into which they may decide to enter.
Joe Biden’s pro-union labor agenda, if implemented, would rob all those working for a living the liberty and latitude to do so freely and of their own choosing. They would be reduced to servants and supplicants to those controlling the unions and who possess the power to allow or prevent people from working in various walks of life, while determining the wages and conditions under which they may accept and find employment. That would be a high price to pay just so Joe Biden can fulfill his promises to the labor unions to whom he and the Democratic Party are beholden for campaign contributions and votes on Election Day.
[Originally posted on American Institution for Economic Research (AIER)]