Res Judicata: Union Wages Hold Back Job Growth

November 21st, 2011 at 1:02 am | 44 Comments |

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The Department of Labor recently enacted a new rule requiring employers to post a notice advising employees of some of their rights under the National Labor Relations Act. I say some, because the notice gives a one-sided presentation.

Employees are told only what unions want them to know: they can’t be fired for efforts to unionize. Employees should know their rights. But if the Department of Labor wants them to know those rights, it might have prepared a more balanced notice.

The notice should also say that the Act protects the right of workers in so-called “right to work” states not to join a union. This means even if an employer is operating under a collective bargaining agreement the employer cannot make joining a union, and paying union dues, a condition of employment. The corollary to this rule is that in non-right-to-work states employers and unions can adopt what is known as an “agency shop clause,” a requirement that employees must pay union dues. And those dues can be deducted from paychecks.

This is one of the unsavory aspects of unionization that the Obama Labor Department would rather not raise. Its notice is designed to present not only a one-sided pro-union statement of rights, but also to suppress the costs of unionization. This is roughly the equivalent of a notice telling car buyers that you have the right to eight air bags instead of the mandatory two in a vehicle but not telling them that this is an option with a $800 price tag.

The Obama Labor Department wants to promote union drives even though unionization means supra-competetive (above market) wage rates. Basic economics teaches that the demand for anything is roughly the inverse of its cost. So as the cost of employment rises, as with unionization, the demand for employees will fall. This is contrary to the President’s stated objective of “creating jobs.” Unionization reduces the number of people working by making employment more expensive than it needs to be.

One area where labor laws reduce employment is in public construction projects, a big source of new jobs if you listen to calls for rebuilding the infrastructure. The Davis-Bacon Act requires workers on all such public projects to be paid “prevailing wages” in the community. Under Department of Labor rules this is skewed heavily toward union wages rates, which are significantly above what the market (non-union employers) pay.

Here in Chicago, for example, union construction workers earn a minimum of $75,000/year excluding benefits. But the median family income is only $50,000. So government construction jobs are costing too much of the taxpayers’ money, are inefficient, and correspondingly, will reduce the number of workers who get hired. If the construction workers were paid non-union wages, like 90% of the private sector workforce, wages would be much closer to the median, projects would be cheaper, and more could get done.

In addition, many states, like Illinois, have their own “prevailing wage” laws doing the same thing on state and municipal construction projects. This is such a racket the Chicago construction unions boast that they cannot legally be underbid by non-union firms for state public works projects. So the government has sided completely with union labor and against non-union labor even though the effect of doing so decreases employment.

The Ohio referendum to curtail collective bargaining for public employees was defeated because Governor Kasich failed to make the argument that unionization lowers employment. Instinctively, the public has some idea that union wages are high and their pension programs are expensive. But if the public knew that construction workers are making a minimum of $75,000 excluding benefits (I realize this is in Chicago, a high-cost of living metropolis, but the bloated wages apply everywhere), there would be a taxpayer revolt. It’s bad enough that we are living through an endless period of persistently high unemployment. The fact that labor laws aggravate the situation is intolerable.

Readers will note that I deplore the depressive effects of illegal labor in the economy. This is not inconsistent with the view I express here that supra-competetive wage rates are also bad. My point is that wages that are below the market level, or above the market level, are undesirable.

American citizens with high school educations should be able to earn a living wage. Republicans can speak to that constituency by advocating strict enforcement of immigration laws. Republicans can also appeal to small business owners, overwhelmingly non-union, by opposing the tilt in favor or union labor. And those Americans in between want the unemployment crisis to be over. We thus have an opportune time to make the case for higher employment by cutting the ties to unions.

Recent Posts by Howard Foster



44 Comments so far ↓

  • Bobby McGee

    You actually have no idea how economics works, do you?

    Unions provide higher wages to a larger amount of workers. These people have a higher marginal utility of their money, so the impact of their spending has a larger impact on aggregate demand. More demand leads to more production, which requires more hiring. That’s how jobs are created, not through tax cuts. This is also why increasing minimum wage has no impact or lowers unemployment rates, instead of raising it like you claim. The impact on individual businesses is completely separate from the long run effects on the overall economy.

    Get a clue.

    • Rabiner

      Well not exactly. Unions do tend to have a few impacts on that particular company or industry. The difference is that profits decrease and wages increase typically at a 1:1 ratio. Productivity doesn’t increase specifically because of a union or decrease due to one, but the unionized worker should have better wages due to an increase in negotiating power and the company either eats the cost or tries to pass it along to customers (typically eating the cost since that company is competing against others). However most unions aren’t just at one company within an industry and instead are industry wide so all of them pay the same so there is no competitive disadvantage.

      • Frumplestiltskin

        Actually, Union workers are more productive than non-union workers (for the most part). Compare the turnover rate at union versus non union shops. Employees who feel they have either a stake in the company or who feel that their labor has value are more productive. Union states are far more productive than non union states in America.

        • Rabiner

          Union states are more productive than non-union states but saying that is because of Unions would be overstating their impact considering the % of workers in those states who are of Unions.

  • Houndentenor

    Explain to me what’s wrong with a construction worker making $75,000 a year.

    • Crime Dog

      The same reason why it’s wrong for teachers to be making $50,000 a year…that’s money that should be going to no-bid contracts for defense contractors and oil companies.

    • LauraNo

      Indeed.

    • Traveler

      Depends upon the job. A skilled operator of heavy equipment is worth every cent of that. But a rote skill (say sheet-rocking) which takes maybe a couple of months to master is another thing. I see automobile manufacturing somewhere in the middle, which is where new car jobs are priced now. But the older carmakers got well over that $75,000, and frankly, it was too much. It takes years before engineers get that money now. While management is to be blamed for going along with union wages since there was so much profit when cars were simple, there is no doubt that the pay was not commensurate with the training and effort. So when competition came, the industry was woefully handicapped.

  • Rabiner

    So many stupid things from a supposed ‘smart guy’.

    “Basic economics teaches that the demand for anything is roughly the inverse of its cost.”

    By basic you mean where supply = X and demand = -X? No economics course I know of teaches that demand for anything is roughly the inverse of cost, it wouldn’t make sense. demand curves differ for every product, the same with supply curves. They eventually converge to form a market equilibrium however.

    “Here in Chicago, for example, union construction workers earn a minimum of $75,000/year excluding benefits. But the median family income is only $50,000″

    Why use a statistic for all wage earners and compare that to only union construction workers? Are we expected to think that all jobs are created equal and thus should be grouped together? Maybe if you were paid more for this article you’d of spent more time to find a good statistic which frames the point honestly.

    “If the construction workers were paid non-union wages, like 90% of the private sector workforce, wages would be much closer to the median, projects would be cheaper, and more could get done.”

    Why are you again using the median income of all workers when looking at construction workers specifically? Next you’ll say McDonald’s employees are underpaid since their salary of 16,000 is far below the median income of 50,000. Also salaries for infrastructure projects don’t take up 80% of the cost of building something as opposed to most businesses where labor takes up 70-80% of cost. The material costs are the most expensive aspects of building a bridge so if say wages were 10% lower, the overall costs may only be 2-3% lower. Depending on how the union’s contract determines wages and job security, higher wages could reflect higher productivity and thus the higher costs are borne out with no increase in overall costs of the project.

    “Readers will note that I deplore the depressive effects of illegal labor in the economy”

    You railed against legal immigration too actually.

    I understand you may have a law degree but maybe you must write the worst closings to your cases if you’ve ever argued in front of a jury. The ease at which people can pick apart your argument is stunning.

    Considering under 10% of all private sector employees are unionized makes me think that the problem with unemployment is not closely related to unions and rather other factors such as liquidity in the economy, a Euro debt crisis which many US banks have exposure to, a dysfunctional federal government who has one political party that wants to enact fiscal contraction among other things.

    • Reflection Ephemeral

      Maybe if you were paid more for this article you’d of spent more time to find a good statistic which frames the point honestly.

      Alas, you misinterpret the incentives of right-wing pundits.

      A fine comment, thanks for bringing a tiny bit of rationality and sound empirical thinking to a column entirely devoid of both.

      ADDED: Over at David Frum’s “When Did the GOP Lose Touch with Reality” article at NY Magazine, they have a Michele Bachmann quote: “If we took away the minimum wage—if conceivably it was gone—we could potentially virtually wipe out unemployment completely.” I don’t blame FF for running Howard Foster’s columns– it’s a self-consciously big tent– but it is fair to point out that Howard Foster is the Michele Bachmann of Frum Forum.

  • AKINR

    During the past economic expansion (The Bush Years), Non-Union jobs were shipped overseas along with Union jobs. I think the world has moved beyond the whole pro / anti union bit.

    Why doesn’t the author just say that he’s anti union because they back the other party. That’s the fundamental reason behing Wisconsin, and Ohio’s anti labor push this year.

    Also, why does the author fail to mention that the highest unemployment in the US, outside the states where there was a housing bubble, is in the right to work states, where they take great pride in being anti-union.

  • djmeph

    “Basic economics teaches that the demand for anything is roughly the inverse of its cost.”

    You can pretty much stop reading the article here, because the author does not have a clue what they are talking about, and definitely did not learn that in an economics class…. unless they teach economics at Tea Party rallies.

    If that were true, there would be absolutely no demand for banking CEOs who have failed at their job. These CEOs are costing their companies hundreds of millions of dollars in bonuses. Yet, they seem to still be in pretty high demand, keeping their jobs and still receiving bonuses with tax payer money. Even when the bank takes a bailout, they are adamant about keeping these failures in their positions, and continuing to give them their golden parachutes. What a paradox you have created, Mr. Foster.

    What you have to understand is that the system is currently setup to reward wealth and punish poverty. The American dream is almost completely dead. Banking executives receive these gigantic bonuses because they have the resources to negotiate the terms of their compensation. Do you think they do that themselves, or do you think they hire someone to negotiate for them? Why is it ok for a banking executive to bring in a team of lawyers, accountants, politicians and whomever else they need to squeeze every last penny they can out of their company, but it’s not OK for laborers to do the same? Your logic is severely flawed.

    I am not comparing laborers to failure CEOs, because that would be an insult to our nation’s labor force. What I’m saying is that everyone needs to have a negotiating team behind them to make sure they aren’t getting taken advantage of. Minimum wage is a joke. These are not the rantings of a person who wants to bring well-needed reform to unions, it is the mantra of someone who wants to abolish collective bargaining altogether and turn this country back to slavery.

  • hisgirlfriday

    Readers will note that I deplore the depressive effects of illegal labor in the economy. This is not inconsistent with the view I express here that supra-competetive wage rates are also bad. My point is that wages that are below the market level, or above the market level, are undesirable.

    What you fail to comprehend is that unions empower workers to play a role in setting market wages. A market is a meetingplace – a meetingplace between buyer and seller or labor and capital or employer and employee.

    If employers just set the wages without workers having any say in it, that’s not a functioning market. It’s wage slavery. Not market wages.

    You are right that politicians setting prevailing wage standards is an interference in the marketplace. Just as politicians imposing prohibitions on worker strikes is an interference in the marketplace. That doesn’t necessarily mean that these interferences are bad for society. Market forces are powered by people who are often irrational or greedy of deceitful which means that markets are capable of self-destruction and sometimes it is appropriate to place some limitations or monitoring on these markets to keep them functioning as society sees fit.

    Allowing for collective bargaining rights is NOT INTERFERING WITH MARKETS however. It’s empowering them!

  • SteveThompson

    In addition to stubbornly high unemployment, the wages paid for many jobs in America have not grown in real terms for decades. Here’s an article that shows how little incomes have risen in America over the past 30 years:

    http://viableopposition.blogspot.com/2011/02/working-in-america-once-again-poor-dont.html

    Over the thirty year period in the study, the median wage for men rose only 8 percent after inflation, a rather paltry raise compared to those seen by the executive ranks.

    While America desperately needs more jobs, it also needs more jobs that provide a reasonable living wage.

  • Fart Carbuncle

    Union greed and extortion created the Rust Belt, encouraged the outsourcing of jobs to India and China for cheaper labor, and is now sucking the life out of communities by dipping into the public till through government jobs.

    Period.

    Look at the stark examples: California, Detroit, Harrisburg, Cleveland, East St. Louis…

    • D Furlano

      Prove that unions caused auto businesses (or any industry) to do bankrupt. Unions did not cause the bad management decisions that drove poor quality, out of date designs and massively inefficient organizational structures.

      • Fart Carbuncle

        The Big 3 auto companies pay nearly 3 times as much in wages to their employees than the foreign automakers. Because all Big 3 autoworkers are members of the union rackets, the Big 3 had no choice but to continue paying off the collectors from the unions “for protection” from strikes and shutdowns. In addition to the $80 per hour wage of an average union auto employee, the unions also demanded that the Big 3 provide extremely generous benefits, such as full medical coverage and a requirement that the Big 3 must pay all laid-off union members up to 80% of their full employment wages while idle. Of course, once the huge pensions and benefits enjoyed by union members can be added to this mix, and you have a recipe for disaster. These unsustainable costs to the auto makers, when added to the overbearing benefits to the unions, have essentially priced Detroit’s vehicles out of the market. The high costs of paying the artificial wages and benefits “protection” demanded by the unions have almost destroyed the City of Detroit and, to a larger extent, the economy and image of Michigan.

        • LauraNo

          Which can be directly attributed to the burden of providing health insurance that foreign firms don’t bear.

        • Frumplestiltskin

          prove that US union workers make 3 times what Japanese autoworkers make…oh wait, you can’t because you made it up. Now if you want to talk about Chinese autoworkers, go ahead, but US autoworkers are 5 times more productive (it is obvious you have never set foot inside a Chinese auto factory, whereas I have)

        • D Furlano

          Its a mute point. The differential in payments isn’t between union paid workers and non union paid workers it is between first world and third world countries.

          Both Japan and Germany pay their workers very well with full benefits. The greed, mismanagement and lack of any type of import regulations in this US far exceeds any other first world country.

          People that make claims against unions are using unions as a Trojan to create cost shifting from the middle class the the top 1%. Companies stop paying health care benefits and costs shift but businesses do not increase workers pay. Companies do away with pension and retirement plans but again workers pay does not increase companies take the benefit costs and distribute them at the highest levels of the corporation.

          Unions are the only effective way to balance the greed. Just ask the NFL, NBA, and MLB players associations.

        • Traveler

          Its more like $35 an hour now. Your legacy costs are right though, and I agree that they were out of hand. The discrepancy between union and nonunion construction wages can be huge. And unions here in South Jersey can be thugs. Besides picketing (their right), they vandalize non-union jobs so nobody can compete in union territories. So there are a ton of companies hungry for work that don’t get it, because the fixed source of funds is allocated to the select union few at much higher wages. Would you rather have one plumber getting a midmanagement engineering salary with a house at the shore and a couple of boats, while another starves? Isn’t it better that both pull down a living wage? It is not all cut and dried.

        • D Furlano

          If there is corruption then fix it. Don’t think that you can attribute activities that are essentially organized crime the fault of unions.

        • NRA Liberal

          When a big company does whatever it has to do to ensure market dominance–that’s just business.

          When unions do whatever they have to do to survive, all of a sudden everyone is running around squeaking “union THUGS!…redistribution of WEALTH!!” in agitated high pitched voices.

        • Traveler

          I never said anything about redistribution, more about keeping jobs for all. And vandalism is thuggery, pure and simple. Picketing is not, and I completely respect that. There is a need to respect both sides on this issue.

        • shediac

          American CEO’s on an average make 10 times more money than Japanese CEO’s but then who’s counting.

  • baw1064

    Still upset about that extra $500 it cost to move the law office, I see.

  • Stan

    At the present time the upper 1% of the country in terms of net worth has more assets than the bottom 80% and the upper 1% in terms of income earn as much as the bottom 50%. The result is a political system in which the rich call the shots, an economy in which low and middle income people have too little discretionary income to sustain consumer spending, and economic mobility more akin to England in the time of Charles Dickens than to the America of my youth. The American Dream is all but dead, and people like the author of this wretched article are the reason.

  • Watusie

    “Where free unions and collective bargaining are forbidden, freedom is lost.”
    Ronald Reagan, Labor Day Address, 1980

    “Unions, fuck yeah.”
    62% of Ohio voters, November 8, 2011

  • Graychin

    “Employees are told only what unions want them to know: they can’t be fired for efforts to unionize. Employees should know their rights. But if the Department of Labor wants them to know those rights, it might have prepared a more balanced notice.”

    What a silly argument! Employees won’t have any difficulty finding out what management wants them to know.

    If lower wages for union workers is a good thing, then so must be Bachmann’s idea of solving unemployment by eliminating minimum wage laws.

    Profit!

  • mikewaz

    Howard, how do you explain Sweden? Over 80% of their workforce is unionized, but they have a lower unemployment rate than America, a country with about 10% of their workforce unionized.

    • Traveler

      Sweden wasn’t trashed by banksters. They bailed out of mortgages early, just like they have bailed out of the Euro already. That is the real difference. I don’t believe it has anything to do with unions per se.

      Another thing to consider is that many European workers all took lighter work weeks in exchange for less unemployment. So it may be underemployment, but at least everyone is still getting a check. I know this happened in Germany, and likely happened in Sweden but to a lesser extent. Others can correct me on this.

      Not like here.

  • cryptozoologist

    news flash! union jobs hold back worker exploitation!

  • ottovbvs

    Shocking… workers are told they have the right to unionize. Outside of totalitarian dictatorships where would this be considered unusual?

  • Alex

    Oh what a silly silly man Mr. Foster is. I’ll dispense with trying to reason with a dinner table here. For those actually interested in the role of prevailing wages in stabilizing and advancing the construction industry and the men and women who build our public works just check out the fantastic http://www.smartcitiesprevail.org (to which i contribute). SCP is a clearinghouse for information and empirical about prevailing wages and while the focus is on California everything at SCP is applicable throughout the rest of the U.S.

  • Frumplestiltskin

    Poor Foster, the guy obviously never reads the comments section because he never learns a damn thing. He really must be utterly clueless living in a narcissistic little bubble. He consistently gets completely shredded by posters here. It is starting to get sad, doesn’t anyone he knows tell him he is making a damn fool of himself?

  • andydp

    In full disclosure I’m a member of the Mail Handler’s Union. I also work in New York which is an “at will” employer state. Translation: A manager can fire you for any reason at any time.

    Lets look at reality using Counselor Foster’s example of a steelworker. To become a union steelworker require years of apprecticeship, classroom and on the job training, blueprint reading and interpreting. Basically, these are intelligent people with skills to equal any profession. They do extremely hard work in very dangerous conditions.

    What in the world makes you think union workers do NOT know they can “opt out” of a union if they want to ?

    This is the same as the BS about using union dues for lobbying: It has been illegal for over 30 years. Unions must have a separate fund and ask for donations to the lobbying fund. Every so often the spectre of Unions using union dues for lobbying rises up from the dead and people who do not know anything about unions eat it up.

    • Traveler

      You raise good points. But I think the nature of the tasks should determine the nature of the pay. No offense, but mail handling sounds like a pretty quick learning curve, after which you are pretty much doing the same thing with a skill set acquired in months. I may be wrong, if so, please disabuse me. :)

      OTOH, steelworking is a trade taking perhaps a decade to learn and perfect. So I see no reason why they are treated any different than a profession such as engineering that takes a similar time of training and experience before being effective.

    • NRA Liberal

      If you’re talking blueprint reading, then you mean ironworker.

      Steelworkers work in steel mills making iron into steel.

      Ironworkers take the steel made by steelworkers and build stuff with it.

      –a union ironworker :)

      • Traveler

        Yeah, a good friend of mine was an ironworker. I was very impressed with his level of skill and training. And when you like at the erecting trades, those dudes have some serious responsibility. Same with steelworkers too. Maybe a little faster on the learning curve, but a heck of a dangerous job. All excellent reasons for union training and certification, which is what one poster above uses as the reason for prevailing wage laws. Same goes for cops, firefighters and teachers.

        I just have a different opinion when it comes to frame building trades such as plumbers, carpenters and electricians. Sure, these tasks take time to learn properly, but there is no reason why union training is needed there. All of these trades are thoroughly inspected, and nonunion workers do them quite effectively. Nonunion workers are well represented in the construction industry, as are equipment operators. Otherwise the cost of construction would be substantially higher. So nonunion shops get the little jobs, while the unions go after the higher priced jobs, often obtained by less than free market means. This needs to be addressed.

  • shediac

    Slavery! Slavery is the answer! No unemployment, no occupiers, no left libbies running around! Yes Newt is right no minimum wages, child labor is ‘OK’ women stay at home and take care of the husband’s needs sons and daughters are whipped on a regular basis. NO UNIONS! Ahhh for the “Good Old Times’!

  • NRA Liberal

    I had a feeling when I read the first paragraph of Foster’s inane maunderings that the FF comment crew was going to be beating his ass like a pinata and rabiner, djmeph and girlfriday do not disappoint.

    The book “Reactionary Mind” which I am enjoying currently, gets to the root of Foster’s animus towards unions. It has nothing to do with the immutable laws of economics and everything to do with resentment at the proles having the temerity…the audacity…the impertinence…the unmitigated gall to gang up on the boss.

    • Fart Carbuncle

      Yes, the Obots definitely dominate this place.

      I wonder if David ever reads the responses.

  • nvrbl

    I live in Nevada which is a right to work state. Every single person in this state knows they can’t be forced to join a union so your arguement that they should be informed of their right to not join a union is absurd. We get it. You are anti union. Why are you making up non issues? It makes you sound silly and unserious.

  • Arewethereyet

    Ok, so lets say unions agree to a paycut. How much pay cut should Management take so there is free cash flow available to operate the business?