Tuesday, July 28, 2009

Flawed Arguments For Unionization From Maine

In a recent editorial, the Portland Press Herald has endorsed pending legislation in Congress that would purportedly make it easier for employees to form unions, against the wishes of their employers. Here is a link to the Op-Ed.

Here is the core of the paper's argument for this legislation:

"For decades, middle-class wages have been stagnant and union membership has been in decline. The trends are connected. America has been losing the industrial manufacturing jobs which were once the stronghold of organized labor. The result can be felt throughout the economy. Union members are better paid and are more likely to have employer-supplied health insurance and pension plans than non-union employees. Non-union workers in communities with strong unions are better paid than similar workers in other areas. The importance of unions has been recognized in federal law since the 1930s. But organizing today's workers in service sectors, like high-tech and medical industries, will take some changes to the rules that were put in place to govern organizing factory workers many decades ago."

In other words, unionized workers earn more than non-unionized workers, so "reform" that encourages unionization over the objection of employers is a good thing. This is a very common argument for unionization and legislation that facilitates it.

There are, however, several flaws in this all-too-common argument. Here are three.

First, the observation that unionized workers earn more than their non-union counterparts may simply reflect the fact that unions are more likely to organize workers in high wage industries. Campaigns to unionize a workforce can be expensive, and unions can only recoup their expenses by charging workers who choose to organize union dues, dues that are presumably higher in high wage industries, where workers can afford such levies. As a result, unions may choose not to unionize low wage industries in the first place, thereby explaining the gap between wages for union and non-union workers.

Second, the data invoked do not, contrary to the editorial's assertion, indicate that unions make workers in unionized industries better off than they otherwise would be. While unionization may raise the wages (and benefits) of some workers, such wage increases will cause employers to substitute capital for labor, thereby employing fewer workers now and in the future and reducing overall employment. Such adjustments will be more pronounced in the longer run, as capital wears out and firms thus have more flexibility to adopt capital-intensive production processes. In some cases, industries may shut down altogether because of competition from foreign firms with lower labor costs. (Indeed, the editorial does not seem to recognize that America has been losing manufacturing jobs precisely because unionization of such industries artifically raises the cost of labor. Instead, the editorial seems to treat the failure of these industries and resulting reduction in manufacturing employment as an argument for encouraging unionization elsewhere !) Thus, while the wages of some workers may rise as a result of unionization, the wages of others may fall to zero, at least until these laid off workers obtain less remunerative employment elsewhere. Studies purporting to show that unionized workers, who are by definition employed, earn more than others, do not account for the negative impact of unionization on those who, because of unionization, are now former employees.

Third, even if additional unionization will increase the overall welfare of some employees, one still needs additional argumentation to support such legislation. Higher wages and benefits are not free. Firms and/or their customers must pay for such additional labor costs. Thus, legislation that encourages unionization may simply transfer income from one set of middle class workers and business owners to others. To be sure, unionization may in some instances increase the productivity of employees by, for instance, facilitating the negotiation and enforcement of efficient and complex contracts between labor and management. However, if the efficiency benefits of unionization entirely offset the increased wages resulting from unionization, then employers would embrace unionization, thereby obviating the need for such legislation. Absent some convincing argument that unionized workers deserve increased wealth more than employers and their customers, the editorial's argument fails on its own terms.