Legal Commentary

Unions in the American Economy-Becker

By Gary Becker

Union members constitute a mere 7.5 percent of the private sector American labor force, only one third of its share 25 years ago. This is why the UAW is a dinosaur, a relic of times past when unions were much more important. The UAW 's membership has declined by more than one third since 1970, and its membership is still declining at a fast clip. GM had one quarter of a million UAW workers in 1994, but now has less than 75,000 workers who are members. It is rather easy to explain why in effect, the US has become a non-union private sector economy.

The rapid shift during the past several decades from manufacturing to services has been a significant contributor since the generally smaller service establishments have always been much less unionized than the larger manufacturing establishments, like steel mills and auto plants. Globalization has been crucially important in several dimensions. Increased competition from imports have undercut the higher prices charged by domestic competitors who are forced to pay large benefits to their unionized workers. In addition, if a union tries to raise worker benefits, and hence production costs, by a lot, companies often close these plants, and set up production in other countries where costs are lower. Government provision of unemployment benefits and rules about layoffs- including anti-discrimination legislation- and voluntary provision by non-union companies of health and retirement benefits, and codified rules about the treatment of employees in regards to hiring, layoffs, and discipline have greatly reduced the advantages of unions in providing such benefits.

Border and southern states discovered that they could be attractive to companies if they had more hostile environments to unions than other states. When companies like Toyota and Honda decided to set up auto factories in the US, they generally avoided states where unions were powerful, and instead mainly went to states where unions were not important. Now foreign companies produce more than one third of all cars made in the US. Much of the decline in UAW membership has been offset by the growth of non-union workers in plants owned by foreign companies. In addition, cars made abroad have been out -competing cars made domestically by GM, Ford, and Chrysler. As a result, cars made by foreign companies, whether in the US or elsewhere, now account for more than half the cars sold in this country.

These powerful forces aligned against unions imply that the UAW and other large manufacturing unions are essentially finished, perhaps unless they receive major financial and regulatory support from the federal government. This is why the AFL-CIO and Change to Win went all out to get Senator Obama elected president. Unions are said to have spent over $400 million during the presidential race, and had several hundred thousand volunteers make phone calls and house visits. They claim to have been pivotal in Obama's victories in closely contested states like Ohio and Pennsylvania. According to one poll, about 2/3 of the members of the AFL-CIO unions voted for Obama, and only 1/3 for McCain.

Unions strongly supported Obama not only because Democrats have traditionally been much more pro-union than Republicans, but also because Obama had been explicitly supportive of unions. He and Joe Biden as senators co-sponsored the so-called Employee Free Choice Act. This Act failed to muster enough votes in the present Congress, but unions have placed highest priority on its passing in the new Congress that has a much bigger Democratic majority. Such a bill would give workers the right to join a union as soon as a majority of those employed at an establishment signed cards saying they wanted a union. Under present rules, there must be an election by workers to determine whether they want a union, with votes of individual workers being secret rather than publicly expressed on cards.

Any substantial shift of federal and state governments toward pro-union regulations would harm the American economy and the position of the typical employee. As Posner indicates, unions want greater monopoly power so that they can raise the wages and other benefits of union members above their competitive levels. Unfortunately, the effects of this are to reduce earnings for non-union workers, shift production outside the US, or toward states with less pro-union laws, and shift production in unionized plants away from labor and toward capital. None of these changes are beneficial to the efficiency and performance of the American economy, especially in a global environment.

Although the union leadership believes the Employee Free Choice Act and related legislation could add several million members, the good news is that they are likely to be wrong. The forces I discussed earlier that contributed to the decline of unions in the US are very powerful, they will continue to operate, and they are extremely difficult to reverse. So while pro-union federal legislation might well slow down the decline of unions in the private sector of the economy, it is highly unlikely to greatly affect the downward trend.

Full post as published by Becker-Posner Blog on December 28, 2008 (boomark / email).