Freeman on Unions

I am under the general impression that unions are, on the whole, not good for an economy.  In “Barro on Public Employee Unions and Collective Bargaining,” I drew from Robert Barro’s article “Unions vs. the Right to Work” to express something close to my opinion.  Barro’s most significant paragraph read

There is evidence that right-to-work laws—or, more broadly, the pro-business policies offered by right-to-work states—matter for economic growth. In research published in 2000, economist Thomas Holmes of the University of Minnesota compared counties close to the border between states with and without right-to-work laws (thereby holding constant an array of factors related to geography and climate). He found that the cumulative growth of employment in manufacturing (the traditional area of union strength prior to the rise of public-employee unions) in the right-to-work states was 26 percentage points greater than that in the non-right-to-work states.

I am not a labor economist nor have I spent many hours poring over the economic literature on unions so I will my opinion with a little humility and offer a second, more favorable evidence-based opinion on the impact of unions.  Richard B. Freeman is labor economist who, with colleague James Medoff, wrote “What Do Unions Do?”  They come to the conclusion that unions are a net benefit to society.  Freeman explains their conclusions in “Richard B Freeman on Labour Unions.”

[We] looked at unions from two perspectives: first, what we called the monopoly face of union – unions acting as raisers of benefits for their members – and second, the voice face of unions, or how unions represented labour in the workplace and in the body politic, giving voice to people who otherwise wouldn’t have had much say. I think, in the long run, this is the stronger and more important face of unions.

The first thing unions do is to raise wages for working people, and that obviously benefits the working people. They also increase the kind of benefits that workers want. So, if workers want pensions, the unions negotiate for that. If workers want maternity leave, that’s what they bargain for…>

Because unions make working life better for workers, they lower turnover in unionised workplaces. Employers with unions traditionally have workers who stay longer and contribute to raising the productivity of the enterprise. Employers also get more credible information about what workers really want in the workplace, because the union representatives are democratically elected and they really speak for the workers. So a good, functioning union is a real positive…

Often, a union that exercise market power is a bad thing, but not always.  For example, professional athletes need a union to protect their interests from owners.  I might add that job protection through unions may allow union members to acquire skills that are specific to a certain employer and not easily transferable to another job.  This protection also increases productivity.  Public unions may be differently placed.  Freeman continues 

Public sector unions are different in an interesting way. Private sector unions can do very little to raise the demand for their services. But public sector unions can try to convince voters that we need more police and better education. By politicking, they can help public sector employers raise the funds to provide more and better public services. They have that unique attribute.

I might add that public officials have less incentive than private employers to limit union gains in wages, benefits and number of jobs available.
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Barro on Public Employee Unions and Collective Bargaining

The dispute in Wisconsin between Governor Walker and the teachers union has brought a lot of  political heat but little economic light with both sides claiming moral high ground but offering little evidence why that ground is theirs.  In “Unions vs. the Right to Work,” published in the Wall Street Journal, Robert Barro makes four contributions to the debate:  He offers a statement of economic theory concerning unions, a brief history of state law regarding collective bargaining, evidence of the impact of collective bargaining, and future battleground states between unions and state governments trying to impose fiscal discipline.  I will summarize Barro’s first two points and use quotations to summarize the remaining two.  The article is well worth reading.

Collective bargaining through unions gives its members market power in setting wages and for this reason was considered an antitrust violation.  As time passed, unions were granted exemptions from antitrust laws by the Clayton Antitrust Act of 1914 and the National Labor Relations Act of 1935.  Currently, 38 states allow union shops and 22 recognize the right to work. 

Barro presents evidence that unions impede economic growth.

There is evidence that right-to-work laws—or, more broadly, the pro-business policies offered by right-to-work states—matter for economic growth. In research published in 2000, economist Thomas Holmes of the University of Minnesota compared counties close to the border between states with and without right-to-work laws (thereby holding constant an array of factors related to geography and climate). He found that the cumulative growth of employment in manufacturing (the traditional area of union strength prior to the rise of public-employee unions) in the right-to-work states was 26 percentage points greater than that in the non-right-to-work states.

Barro predicts states that will witness battles over collective bargaining.

In general, the most likely arenas are states in which the governor and both houses of the state legislature are Republican (often because of the 2010 elections), and in which substantial rights for collective bargaining by public employees currently exist. This group includes Indiana, which has recently been as active as Wisconsin on labor issues; ironically, Indiana enacted a right-to-work law in 1957 but repealed it in 1965. Otherwise, my tentative list includes Michigan, Pennsylvania, Maine, Florida, Tennessee, Nebraska (with a nominally nonpartisan legislature), Kansas, Idaho, North Dakota and South Dakota.  

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The Employee Free Choice Act (Repost)

Labor Unions are cartels like OPEC that have been granted legal privileges by the government. They are free from taxation and antitrust law. They can compel their employers to provide property for union use and nonmembers to pay dues.

Union workers earn higher wages by limiting employment at unionized facilities, forcing others with skills similar to union workers into nonunionized jobs. The increased supply of workers in the nonunionized facilities suppresses wages. Because the union wage is above the equilibrium, there are surplus laborers, and the unions must decide who is employed and who is not. Often race was used to exclude workers from unions.

Noncompetitive markets allow unions to thrive and often governments protect them from both domestic and foreign competition. If the protection disappears, the higher wage paid to union workers also disappears, or the industries that hire them fade away.

For generations, unions have supported Democrats over Republicans. Now that the Democrats hold the White House and large majorities in both chambers of Congress, the unions are expecting advantageous legislation. The Employee Free Choice Act (EFCA) is an example.

The "card-check" provisions of the EFCA have been widely debated. George McGovern appearing in a YouTube video for employeefreedom.org explains that he opposes the bill because it takes away the rights of workers to express their preferences for representation through a secret ballot, permitting union organizers to sign-up workers through forms authorizing union representation, the "card-check."

Groups like American Rights At Work, in "Lies and Distortion on the Secret Ballot," claim that charges made by McGovern and others about taking away the secret ballot are false.

Business special interest groups have launched a $120 million campaign to derail reform of the nation's broken labor law system by lying about the Employee Free Choice Act. Their only line of attack - that the bill somehow takes away so-called "secret ballot" elections for joining a union - is blatantly false.

The Employee Free Choice Act not only strengthens the current process for workers forming unions, but also provides for a more fair and democratic method for men and women to join unions.

By clicking the link, "more fair and democratic method," in the quote above the American Rights At Work explains their differences with groups complaining of the loss of a secret ballot.

Careful Democratic majority sign-up procedures are the most effective way to determine the wishes of a majority of employees. Under majority sign-up procedures, employers are only allowed to recognize a union if a majority of employees has signed valid written forms authorizing union representation. Any employee who does not sign an authorization form is presumed not to support union representation.

They believe that the card-check is more democratic than a secret ballot and go on a length explaining why.

For the curious, I have included wording from the Employee Free Choice Act of 2007 (Engrossed as Agreed to or Passed by House), which is presumably similar to the bill that will soon be introduced in Congress. The key paragraph of section 9 dealing with card-check supplanting secret ballots reads,

(6) Notwithstanding any other provision of this section, whenever a petition shall have been filed by an employee or group of employees or any individual or labor organization acting in their behalf alleging that a majority of employees in a unit appropriate for the purposes of collective bargaining wish to be represented by an individual or labor organization for such purposes, the Board shall investigate the petition. If the Board finds that a majority of the employees in a unit appropriate for bargaining has signed valid authorizations designating the individual or labor organization specified in the petition as their bargaining representative and that no other individual or labor organization is currently certified or recognized as the exclusive representative of any of the employees in the unit, the Board shall not direct an election but shall certify the individual or labor organization as the representative described in subsection (a).

The Congressional Research Service describes this portion of the EFCA.

Employee Free Choice Act of 2007 - Amends the National Labor Relations Act to require the National Labor Relations Board to certify a bargaining representative without directing an election if a majority of the bargaining unit employees have authorized designation of the representative (card-check) and there is no other individual or labor organization currently certified or recognized as the exclusive representative of any of the employees in the unit.

There are several reasons I don't like the bill. It supports cartels, who will demand higher wages that consumers will pay for through higher prices or lower quality goods. It supplants a secret ballot with a procedure that opens union formation to intimidation, and can anybody doubt that unions would fail to utilize that tool? It takes from entrepreneurs the management of labor, and how it will interact with capital and other resources, with scant empirical support for the notion that labor is somehow disadvantaged compared to management in wage negotiation. Does anyone doubt that research and development, innovation and product quality will decline? Finally, it places the federal government at the wage negotiating table. I do not want to see a presidential or senatorial campaign centered discussing the appropriate wage that should be granted by the National Labor Relations Board. Both Democrats and Republicans would bid up union wages to win votes. Wages would be based on political power and not productivity. Does anyone really want to see the politicization of wage negotiation?
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California Wins Standoff with Obama Administration

Peter Nicholas writes in the Los Angeles Times ("U.S. backs off threat to withhold California stimulus money," May 20, 2009),

Reporting from Washington -- The Obama administration has backed off its threat to withhold billions of dollars in stimulus money from California, telling Gov. Arnold Schwarzenegger the state did not violate federal law in cutting pay for home healthcare workers in a bid to help balance the budget.

In a letter that was given to the governor this morning, the U.S. Department of Health and Human Services said the state remains eligible to receive another $8 billion in stimulus money for its Medicaid program, a ruling that may offer some solace for state officials coping with the resounding voter defeat Tuesday of five ballot measures aimed at closing California's huge budget shortfall.

The decision resolves a bitter standoff between the Obama and Schwarzenegger administrations, in which California officials questioned the involvement of an influential union -- the Service Employees International Union. The Obama administration set up a conference call on April 15 to discuss whether the state had violated the new stimulus law by cutting the pay of unionized home healthcare workers from a maximum of $12.10 an hour to a maximum of $10.10. California officials took the step to save $74 million and move closer to narrowing the state's multibillion-dollar budget gap.

This is a good outcome.

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Labor Unrest in France

Do we really want more unions?  (HT Drudge) From TIMESONLINE, "EDF strikers cut power to French homes,"

At an electricity substation on a bleak industrial estate north of Paris a masked union militant is preparing to deprive a neighbourhood of power.

His colleague is outside, dragging nervously on a roll-up cigarette while keeping a lookout for police or security guards. “Get a move on,” he says. “And then let’s get out of here.”

A switch is pulled down, the door of the sabotaged transformer is locked and the two activists — employees of EDF, the French state electricity supplier — drive off.

In their wake hundreds of houses and a handful of businesses in Montigny-lès-Cormeilles are left without electricity for much of the morning.

It was the second time in a week that blackouts had hit the Paris region as striking gas and electricity workers adopted radical tactics to support their call for a 10 per cent pay rise and an end to outsourcing of jobs.

They are denounced as industrial saboteurs by the Government and face disciplinary action and prosecution, but say they are determined to press ahead with what they portray as a struggle against free-market forces.

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A Union I Could Support

Richard Vedder and Matt Denhart propose a union that I could support in "The Real March Madness," (Wall Street Journal, March 20, 2009). The NCAA is a cartel that was organized in part to establish rules across universities that exploit its most productive workers--male athletes. Using NCAA basketball as an example, the authors explain,

In a competitive market, companies cannot exploit workers in this way for long, as rival firms will hire them away at higher salaries. In basketball, however, the NCAA cartel prevents that, dictating limits on pay (essentially college costs) and even penalizing transfers to other schools. Strict rules also prevent college athletes from signing lucrative endorsement deals or accepting gifts beyond a certain amount.

Amazingly, the NCAA convinces its fans that athletes are treated fairly. In particular, male college athletes are paid remarkably little for the revenue they bring to their universities.

Take Kevin Durant, for instance. After a stunning freshman season with the Texas Longhorns in 2008, Mr. Durant elected to forgo his final three years of college and entered the NBA draft. Selected by the Seattle Supersonics (now the Oklahoma City Thunder), he agreed to a contract paying $3.5 million in the first year. By contrast, his yearly compensation (in the form of room, board, books and tuition fees at Texas) amounted to about $33,120, less than 1% of what was offered by the Supersonics...

Soon after entering the NBA, Mr. Durant further augmented his earnings by signing a $72 million deal with Nike; he inked other endorsement contracts with Gatorade, EA Sports and Upper Deck.

Of course, most athletes don't end up signing big contracts to play in the pros. But these athletes don't make out well either,

They may not even end up with the basic skills necessary to succeed in other workplaces, since only a minority of student-athletes in major sports even graduate (25% in top-ranked University of Connecticut men's basketball, for example). Long practices and missed classes make it difficult to succeed academically. A recent study funded by the Andrew W. Mellon Foundation shows the academic performance of athletes is lower than non-athletes even at Division III schools.

Why don't college athletes organize?

First, the "workers" are around for only three or at most four playing seasons, making it hard to build up much of a movement. Second, coaches control playing time and enormously influence career success, so it is the rare college kid who will incur the coach's wrath to form any kind of insurrection. Finally, most players don't have a lot of contact with the members of other teams. But if you see them whispering before the tipoffs this weekend, you'll know why.

An Additional Observation

The authors note that coaches' and administrators' salaries account for 32% of total athletic department expenses. Without presenting empirical support, I believe that a few profitable sports subsidize the others, both in men's athletics and women's. Are cross country teams money makers? As a former cross country runner, most parents don't even show up to meets.

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Elaine Chao on Labor Rights

Elaine Chao, the 24th U.S. Secretary of Labor, wrote "Two Steps Back on Labor Rights," for the Wall Street Journal. In various posts, I have expressed concern that the Employee Free Choice Act would strengthen unions through a mechanism that will allow intimidation (The Employee Free Choice Act). Chao has similar concerns. She begins by describing several steps the Obama administration has taken to support unions, including possible budget cuts to the agency that oversees union conduct.
Efforts are also underway to cut the budget of the lone federal agency charged with protecting union members' rights and ensuring union integrity. In January, the Department of Labor's Office of Labor-Management Standards implemented a rule requiring that relevant information on union finances be provided to rank-and-file union members to better ensure transparency and accountability, as required by the Labor-Management Reporting and Disclosure Act of 1959. In the rush of actions after the inauguration, the Obama administration delayed the effective date of this rule. It remains to be seen if other union transparency and accountability rules will be gutted or revoked.

She expresses a second concern--that traditional U.S. support for free trade will be compromised in order to strengthen unions.

Americans should also be concerned about the protectionist impulses -- as evidenced by the "Buy American" provision of the stimulus package -- of those now in charge, which run counter to one of the painful lessons of the Great Depression. Impeding international trade will ignite retaliation by America's trading partners, deepening and prolonging the economic downturn. Policy makers should also resist closing America's doors to skilled workers from overseas, many of whom are educated in our universities and whose talent can help make our economy stronger. Yet provisions like the "Employ American Workers Act" in the stimulus package limits banks that receive government funding from employing skilled foreign workers.


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Union Violence

Stan Maddux writing for The News-Dispatch in "Olive Garden picketing escalates," describes union violence against a firm that won a bid against union workers.

MICHIGAN CITY - Union members Monday continued picketing an Olive Garden restaurant construction site, and again things turned ugly...

Since the picketing began about five weeks ago, vehicles have been dented and some tires have been slashed, he said...

Derek Engineering General Contractors, Cincinnati, was awarded the contract to build the restaurant.

"The unions bidded on this job and their bid was too high. Don't take it out on us," said Dolata...

Recently, Campbell vowed the demonstrations would continue until the union tradesmen are working jobs at the site.

"They got to do what they got to do and we got to do what we got to do. We're just exercising our rights," Campbell said.

Do we really want to see noncompetitive bidders intimidate the businesses that would hire them or the workers that would compete against them? Do we really want to pay higher taxes to support police who now must supervise work sites? Do we want to pay higher prices for products that must be made by union workers or products that have higher prices because nonunion firms must protect workers from union violence?

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The Employee Free Choice Act

Labor Unions are cartels like OPEC that have been granted legal privileges by the government. They are free from taxation and antitrust law. They can compel their employers to provide property for union use and nonmembers to pay dues.

Union workers earn higher wages by limiting employment at unionized facilities, forcing others with skills similar to union workers into nonunionized jobs. The increased supply of workers in the nonunionized facilities suppresses wages. Because the union wage is above the equilibrium, there are surplus laborers, and the unions must decide who is employed and who is not. Often race was used to exclude workers from unions.

Noncompetitive markets allow unions to thrive and often governments protect them from both domestic and foreign competition. If the protection disappears, the higher wage paid to union workers also disappears, or the industries that hire them fade away.

For generations, unions have supported Democrats over Republicans. Now that the Democrats hold the White House and large majorities in both chambers of Congress, the unions are expecting advantageous legislation. The Employee Free Choice Act (EFCA) is an example.

The "card-check" provisions of the EFCA have been widely debated. George McGovern appearing in a YouTube video for employeefreedom.org explains that he opposes the bill because it takes away the rights of workers to express their preferences for representation through a secret ballot, permitting union organizers to sign-up workers through forms authorizing union representation, the "card-check."

Groups like American Rights At Work, in "Lies and Distortion on the Secret Ballot," claim that charges made by McGovern and others about taking away the secret ballot are false.

Business special interest groups have launched a $120 million campaign to derail reform of the nation's broken labor law system by lying about the Employee Free Choice Act. Their only line of attack - that the bill somehow takes away so-called "secret ballot" elections for joining a union - is blatantly false.

The Employee Free Choice Act not only strengthens the current process for workers forming unions, but also provides for a more fair and democratic method for men and women to join unions.

By clicking the link, "more fair and democratic method," in the quote above the American Rights At Work explains their differences with groups complaining of the loss of a secret ballot.

Careful Democratic majority sign-up procedures are the most effective way to determine the wishes of a majority of employees. Under majority sign-up procedures, employers are only allowed to recognize a union if a majority of employees has signed valid written forms authorizing union representation. Any employee who does not sign an authorization form is presumed not to support union representation.

They believe that the card-check is more democratic than a secret ballot and go on a length explaining why.

For the curious, I have included wording from the Employee Free Choice Act of 2007 (Engrossed as Agreed to or Passed by House), which is presumably similar to the bill that will soon be introduced in Congress. The key paragraph of section 9 dealing with card-check supplanting secret ballots reads,

(6) Notwithstanding any other provision of this section, whenever a petition shall have been filed by an employee or group of employees or any individual or labor organization acting in their behalf alleging that a majority of employees in a unit appropriate for the purposes of collective bargaining wish to be represented by an individual or labor organization for such purposes, the Board shall investigate the petition. If the Board finds that a majority of the employees in a unit appropriate for bargaining has signed valid authorizations designating the individual or labor organization specified in the petition as their bargaining representative and that no other individual or labor organization is currently certified or recognized as the exclusive representative of any of the employees in the unit, the Board shall not direct an election but shall certify the individual or labor organization as the representative described in subsection (a).

The Congressional Research Service describes this portion of the EFCA.

Employee Free Choice Act of 2007 - Amends the National Labor Relations Act to require the National Labor Relations Board to certify a bargaining representative without directing an election if a majority of the bargaining unit employees have authorized designation of the representative (card-check) and there is no other individual or labor organization currently certified or recognized as the exclusive representative of any of the employees in the unit.

There are several reasons I don't like the bill. It supports cartels, who will demand higher wages that consumers will pay for through higher prices or lower quality goods. It supplants a secret ballot with a procedure that opens union formation to intimidation, and can anybody doubt that unions would fail to utilize that tool? It takes from entrepreneurs the management of labor, and how it will interact with capital and other resources, with scant empirical support for the notion that labor is somehow disadvantaged compared to management in wage negotiation. Does anyone doubt that research and development, innovation and product quality will decline? Finally, it places the federal government at the wage negotiating table. I do not want to see a presidential or senatorial campaign centered discussing the appropriate wage that should be granted by the National Labor Relations Board. Both Democrats and Republicans would bid up union wages to win votes. Wages would be based on political power and not productivity. Does anyone really want to see the politicization of wage negotiation?

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The Informants Are Guilty, Not A-Rod

Selena Roberts and David Epstein of Sports Illustrated, reported in an article titled, "Sources tell SI Alex Rodriguez tested positive for steroids in 2003," that Alex Rodriguez used two types of steroids in 2003 while playing for the Texas Rangers.

The evidence of steroid use came from four independent and anonymous sources who said that his name was on a list of 104 players who tested positive for performance enhancing drugs as part of a survey by Major League Baseball (MLB) of their players. The players union agreed to the testing so long as names of participating players remained anonymous.

The MLB Players Association (MLBPS), the union representing the players, confronted with questions of Rodriguez steroid use, issued a statement which read,

Information and documents relating to the results of the 2003 MLB testing program are both confidential and under seal by court orders. We are prohibited from confirming or denying any allegation about the test results of any particular player[s] by the collective bargaining agreement and by court orders. Anyone with knowledge of such documents who discloses their contents may be in violation of those court orders.

Roberts and Epstein have an economic incentive to protect sources violating a court order. It is similar to the position of a player considering the use of steroids. A player can improve his game and future income being just a bit stronger and faster. If the player doesn't use steroids, another will. If Roberts and Epstein hadn't run with the story, another would, and the other reporters would have earned the big pay check.

I don't blame Roberts and Epstein just as I don't blame Rodriguez, unless they paid their informants to violate the court orders, and I have no evidence to suggest they did. But if they did not, only the informants are guilty. I recommend Senate hearings in order to protect MLB and the integrity of our courts.

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