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The pre-Kavanaugh Supreme Court ruling in Janus v. AFSCMEgave the rightwing a new victory in its long-term class war to destroy unions in the United States. In a 5-4 ruling, the Court said public sector unions could not charge fees to non-members in what are called “agency-shop” agreements with management. The Court determined that these agreements that non-members pay union dues violate the free speech rights of non-union employees. Public-sector union officials have predicted that 10% to 30% of their members will quit, figuring that they can get the same basic benefits without belonging to the union. In the wake of the ruling, “right-to-work” groups have already ratcheted up efforts to get public employees all over the country to quit their unions.
The question is: should we care? Some economists, pundits and politicians aver that just as we have become a post-industrial society, we are now a post-union society. Between modern human resource policies and laws regulating the workplace, many conclude that we just don’t need unions anymore to protect the interests of workers.
Moreover, there is no place for unions in current economic theory.
Under the rules of neoclassical economics, all that matters in creating and distributing wealth for a society is the unencumbered marketplace. The invisible hand of an efficient free market will produce a strong economy that gives opportunities to everyone. Any constraint on the market is a bad thing, including a unionized workforce wielding what economists label “monopoly” power. The theory goes that by virtue of their “monopoly” on labor, unions extract more money for their members than those workers would get if the “invisible hand” of the market were allowed to operate. Unions thus create market inefficiency, the terrible fear of all neoclassical economists.
But neoclassical economic theories and theorems focus solely on one outcome: optimization of return on capital. Somehow, some way, as if by magic, that single goal of maximizing return on capital will deliver a strong economy, keep society stable and help most people live a high quality of life.
During the last 40 years when neoclassicists have been in ascendancy, unionism has seen a precipitous decline, not just in the United States, but across the globe in virtually all industrialized and developing countries. In the United States, union membership has shrunk since the Second World War from a high of around one third of the workforce in the 1950’s to about 10% of all workers today, with private sector unionism down to under 7%. At the same time, inequality of wealth has increased in virtually all countries, although inequality of wealth between countries has flattened to some degree. Rich folk everywhere got richer.
With the rise of neoclassical economics came a wave of labor economists, starting with Richard B. Freeman and James L. Medoff in their seminalWhat Do Unions Do?, who proposed that unions have a role to play in a market economy: offsetting the monopsony power of corporations, especially large corporations dominating specific industrial sectors. A monopsony is the opposite of a monopoly: one business controls the market for purchasing a product or service and thus is able to drive down the price below what an unencumbered free market would theoretically produce. Some have accused Walmart of exercising a monopsony power over many of its suppliers.
According to Freeman, Medoff and their followers, unions combat monopsony by giving workers a “voice.” This voice speaks not just in negotiation over wage and benefits, but also in setting safety standards, work conditions, the firm’s grievance process, layoffs, work sharing and other aspects of the work world. Individually, all an employee can do was suffer in silence or quit. But collectively in a union, employees have a voice on these matters, both at work and in the public sphere. Freeman and Medoff proposed that unionism has two sides—the bad monopoly side and the good “voice” side.
A cottage industry soon developed that essentially attempted to minimize the necessity or impact of the union voice and maximize the market-distorting aspects of the union monopoly. Some free market economists proposed that a certain rate of union membership was of value to the overall economy and tried to ascertain what that level might be. Their responses ranged from “modestly higher than the current level” for the private sector (Bruce Kaufmann) to somewhere between the American and Scandinavian level (Richard Freeman). Others have proposed alternatives to unions to give workers “voice,” but these alternatives all slant towards management—company unions, arbitration, mediation, and labor-management committees.
Still others argue that even without unions, workers now have adequate “voice” in their workplace. But that’s certainly no longer true in the political sphere. The political “voice” that unions give workers has diminished significantly as the percentage of the workforce in unions has shrunk. The Democratic Party, which once supported unionization and could depend on the loyalty of union members on voting day, has frequently ignored workers’ needs in recent decades, e.g. negotiating free trade agreements that don’t impose safety and wage requirements and supporting the charter school movement, which to a large degree is a union-busting strategy. The results of the 2016 and 2018 elections show that unions have lost much of their sway over the larger working class.
The post-Vietnam War era in America is not the first time that union membership has shrunk in the United States. After the First World War, unions declined until the 1930’s. Government policy most certainly was in large measure responsible for both the weakening of unions during the pro-business, laissez-faire Roaring 20’s and their revival during the administration of Franklin Roosevelt. The beginning of the second decline of unions in the 20th century can be traced to the passage of the Tart-Harley Act in 1947, which restricted union activities. The downward slide accelerated considerably under the anti-labor policies and practices of the Reagan administration in the 1980’s.
Looking through rosy neoclassical glasses, most economists blame the decline of unions on structural changes in the economy. Industries that were highly unionized shrank, often as a result of the growth of global trade, while emerging industrial sectors were not unionized. This explanation conveniently ignores the fact that during the decades of expansion, unions gained most of their new members each year from industries not previously unionized. Others have pointed out that unions had stopped organizing as aggressively, and there is some truth to that assertion. Analyses reveal that the amount spent organizing per potential new member fell by 30% between 1950 and the 1970’s, but has stabilized since then.
The assertion that the biggest reason why unions have declined is the opposition of management is a subject of some controversy. Some economists have estimated that management opposition accounts for to 25% to 50% of union decline. Others point to the decline of unions in other countries in which there is little or no management opposition as proof that structural change in the economy is the main culprit. But economists like Robert J. Flanagan who blame structural change and the expansion of international trade conveniently forget that in the United States companies in emerging industries mostly fought unionization or settled in states with right-to-work laws, which give employees the right to opt out of belonging to the union and make it much harder to organize. Collectively, private sector companies spent hundreds of millions of dollars electing anti-union politicians and supporting anti-union legislation. Structural changes gave private companies an opportunity to diminish unionization, and they took full advantage of it, with the help of Republican administrations. Most of the decline in unions attributed to structural change should rightfully be assigned to management opposition; and when we do so, we recognize that management opposition is the major cause of the shrinking union share of the workforce.
That these past 40 years of union decline have seen an enormous decrease in equality of income and wealth in the United States is not a coincidence. The shrinking of union membership ranks has reverberated through the economy, leading to lower wages for most workers.
The consensus of research, as compiled and analyzed by the Economic Policy Institute (EPI), a pro-labor independent think tank, shows that in the United States unions raise the wages of unionized workers by somewhere between 15% and 20% and raise total compensation, including health care, retirement plans and other benefits, by 28%. Union workers are 22.5% more likely than nonunionized workers to receive pensions and 18.3% more likely to receive health care benefits. And the value of those benefits is greater for union members, 56% greater for retirement plans and 77.4% greater for health care benefits.
The largest difference between what union members and nonunion workers receive in compensation occurs in lower-paid professions and among those with less education. Unions help white collar workers, but help blue and pink collar workers even more.
Unions also help others in the workforce, including those at the unionized company, others in the same industry and workers throughout the economy. That union wages drive up what nonunion employees get at the same company is self-evident. When the union wins a nice pay increase, the company hands similar raises to everyone else, since most employers don’t want to give nonunion employees another reason to organize. Others in the same industry benefit, too. Nonunion employers will frequently meet union standards. It’s called the “union threat effect.” For example, a nonunion high school graduate in an industry in which unions cover 25% of the workers is paid 5% more than similar workers in less unionized industries. The higher the rate of unionization in an industry, the stronger the “union threat effect.”
A recent EPI study proves that the decline in unionism is one of the major causes for wage stagnation over the past 35 years. The wages of nonunion private sector men would be 5% higher today if private-sector union membership remained at the 1979 level of 34%. The wages of nonunion private-sector non-college graduate men has suffered even more; they make about 8% less than they would if the rate of private-sector union membership of men stayed the same as when Ronald Reagan assumed the presidency. The decline in unions has had less of an impact on the wages of nonunionized women, simply because not as many women as men were unionized in 1979. Weekly wages would be about 2% to 3% higher for all women today if the rate of union membership remained at 1979 levels.
A few years back, sociologists Bruce Western and Jake Rosenfeld took a look at growing wage inequality in America between 1973 and 2007. They found that the decline of unions explains about one-third of the increase in wage inequality among men and about 20% among women. Moreover, a study by economists William T. Collins and Gregory T. Niemesh found that from 1940-1960 the higher the level of union membership in a geographic area, the greater the decline in wage inequality. That period stands at the center of what historians now call “The Great Compression,” the period from roughly World War I through the 1970’s when equality of income and wealth increased in the United States and Europe, first because the rich got poorer during and after World War I, and then because the working class entered the middle class after the Great Depression. It’s clear that unions help the wages of all American workers, except for those at the top of the income pyramid. EPI cites studies that show de-unionization is responsible for from 20% to a whopping 50% of the increase in wage inequality since 1980.
As good as unions are for most Americans, they do lead to a decline in the profitability, which employers don’t like. Businesses want to maximize the return on their investment, or in the case of senior management, maximize their income from salary, bonuses, perquisites and stock options. As Marx said in Capital, “So far as capital is concerned, productiveness does not increase through a saving in living labour in general, but only through a saving in the paid portion of living labor.” And the research is very solid, and has been for decades: Even in industries in which unions increase productivity significantly, as in the construction industries and among nursing home staff, nonunion companies tend to turn greater profit.
The central question in the discussion of unions is whether they benefit the economy and society. If they do, government should foster their growth across the board and consider their needs in formulating trade, education and other policies. If unions hurt the economy and society, government should do what it has been doing for most of the past four decades—everything possible to kill the union movement.
As it turns out, the answer to the question, “Are unions good for America,” depends on your view of society and economics. To those who believe the job of government is to protect property rights and cultivate a free market for private enterprise, unions are always bad.
But if the goal of government is to foster a society with a large middle class in which virtually everyone has equal opportunity and inequality of wealth is minimized, then unions are a great public good and government at all levels should pass laws that foster the renewal of unionization.
An analysis of the impact of unions on employees and employers really cuts to the heart of the myth of the invisible hand of the market. The reason neoclassical economists give for fostering competition is their belief that an unencumbered market helps the most people. History proves otherwise. Since the rise of the American labor movement in the 19th century, equality of wealth and mobility between classes has always increased with the rise of unions and decreased with the decline of unions. Unionism improves the position of unionized employees, all workers and the economy, but hurts individual firms by reducing profit.
After decades in which the market has taken precedence in government policy, incomes at most levels have not budged, while chief executive officers have gone from making 20 times what the average worker made in 1965 to about 300 times as much. G. William Domhoff reports in the latest edition of Who Rules America? that the top 1% of the population has a mean household net worth of more than $18.5 million while the bottom 40% has a negative net worth of nearly $11,000. Wealth and income inequality is back to what it was in the Gilded Age.
The central issue should therefore not be the monopolistic power of unions to seek an unfair rent, but the limitation that unions place on the voraciously excessive profit-seeking by those who control capital. Neoclassical economics puts all the power to decide how to distribute the wealth created by economic activity into the hands of owners. Unions give workers the power to negotiate a bigger slice of the pie, leading to a more equitable distribution of wealth throughout society.
An analysis of the role of unions demonstrates that the left is right to support greater unionization. Moving forward, that support should include any number of individual and group actions. We can vote for pro-union candidates in primaries and general elections and demand that the candidates make their position on labor issues clear. We can contribute money to organizations that are fighting against existing and proposed right-to-work legislation. We can turn out at union-sponsored marches and protests. And we can start building and rebuilding bridges between unions and other left-leaning groups, such as groups representing immigrants, anti-nuclear and peace activists, minorities, women, LGBTQ, children and poor people.
Copyright 2019 Marc Jampole