Unions and the Market

Union Theory

being paid above the market rate but, in the event that hotter heads prevail, and they decide to strike then we see the market auto-correct itself again.

If the workers strike and their wage is above the People often refer to themselves as being 'prorest of the market then there will be plenty of union' or 'anti-union', but what does that mean? Is it people who are looking for work or who work at possible to pro-free market and still be 'pro-union'? lower-paying jobs who will be eager to get the pay and benefits that the striking workers enjoyed. The answer is, yes. Unions can be an essential tool in a free market economy to balance the power Scabs come in to work at the business and the between workers and employers. company can continue without the striking workers. Some strikers go back and beg for their Here's how it works: old jobs and the company will be willing to accept key position workers who are already trained (at a A company treats their employees poorly. They reduced wage of course) and the others will reenter force them to work long hours, they pay them less the job market and move on to other jobs. than the market rate, there are few or no fringe benefits, working conditions are poor or unsafe. The strike has failed and the company is once more Some workers will leave for better jobs, but they safe from the threat of its workers eating all of its can't all find jobs elsewhere. profits from the inside out. So they form a union. They threaten to go on strike if the company refuses to negotiate better pay and benefits. If the company won't play ball then the workers strike. If the working conditions really are as poor as the workers have complained and especially if they are being paid less than market wage then the company will not be able to find enough scabs to keep their business running then they either choose to go bankrupt or close that particular business, or they have to give in to worker demands. This system maintains a balance in the market wherein workers are neither abused or exploited and companies can still make a profit. The problem with unions arises when the government passes laws 'protecting' unions or workers. This creates an imbalance in the system that ends up hurting the business, the workers, the consumers, and the economy as a whole.

Some laws prevent companies from firing union workers save in very specific conditions. Some If the strike succeeds then the workers conditions laws prevent companies from hiring scabs during a and pay increase and they have an advantage with strike. Some laws force the workers to join unions the company for the next several years as all they in order to work in that particular field or location. have to do is threaten to strike and the company will remember its defeat and is likely to give in. What laws like this do is tip the balance of power to the unions and effectively give them carte Eventually, if the union keeps pushing for higher blanche to abuse the company however they want. and higher pay and more and more benefits then it They can demand whatever wage they want from begins cutting into the company profit margins and the company without fear that the company will the company decides that the risk of strike is worth replace them with someone willing to work for less keeping their profits and finally they tell the union and they don't even need to strike. If the company no. is powerless to do anything during a strike then the mere threat of a strike will force the company to If the workers are smart then they will know that acquiesce. they cannot negotiate too hard if they are already

Many people think that government-protected unions are a good thing. That the more workers are paid the better the economy will be and they rationalize taking money from companies by demonizing the greedy 'fat cat' businessmen who are trying to line their pockets at any cost to the working class. Unfortunately this sort of thinking actually hurts the working class more.

and begin giving themselves huge pay increases or bonuses and as the company falls apart they each try to swindle, steal, finagle, and otherwise strip everything that they can from the dying company. Once the company files for bankruptcy the workers lose their jobs and the company is auctioned off piece by piece to its competitors to settle its debts.

When a company's profits begin suffering, whether More recently this sort of situation has resulted in due to a decline in sales or a downward turn of the 'bailouts' by the government where failing economy or for any other reason, they have a few companies argue that, if they go bankrupt then the choices. They can cut worker pay, lay off a few damage to the people who lose their jobs and to extra employees and 'streamline' the company. their families would be too great. There is no way They can close their least productive locations to to find jobs for all of those displaced workers and get rid of some financial dead-weight (which the unemployment rate will rise and the economy means that the workers at those locations lose their will continue to fall and we will be standing in soup jobs), they can cut executives pay and benefits, or lines again ala the Great Depression. they can raise their prices and hope that the consumers will be willing to pay the higher price to This thought terrifies people and they say make up the difference. 'Whatever they want, give it to them. We can't let them fail!' The company gets bailed out and The least attractive option is to raise prices because business as usual continues... until the bailout that hurts their competitiveness in the market and money runs out and then the company find itself they are likely to lose customers to competitors back in dire financial straights and has to be bailed which may end up hurting their profits even more. out again. The second worst option (from the company's point In Practice of view) is to cut executive pay for obvious reasons, so they usually try to streamline their Take for example the case of General Motors, lower level expenses. They may cut pay (until the whose workers belong to the United Automotive employees threaten to strike) they may lay off a Workers Union. In 2006 GM found itself in a few superfluous workers and spread their precarious situation. It had too many workers and responsibilities around the remaining employees its workers were overpaid. According to the United and they may shut the doors on a few of their less States Department of Labor's Bureau of Labor profitable factories. Statistics GM workers were being paid more than three times the market average. Including wages When pay cuts and layoffs are not an option due to and benefits GM workers received an average of union laws, the company will usually skip the $69 an hour in 2006 compared to the rest of the executive pay cuts and immediately go to raising manufacturing industry workers and the rest of prices explaining to their customers that it's not America who averaged $20 an hour including their fault that prices are higher. It is the greedy wages and benefits. unions bleeding them dry that is forcing them to charge more. GM was so desperate to shed workers (which it could not fire because of union laws) that it began If sales fall and profits drop too low or the offering to buy out the workers at $140,000 a piece company begins losing money then this is when if they would quit their jobs because GM estimated you see the 'golden parachute' mentality take over. that huge lump sum payments would actually cost The executives see that the company is going down the company less than if they continued to pay

them their salaries.

the car market and car prices drop, quality increases, and companies are forced to compete GM was suffering financially and had responded fairly for both workers and customers. Some will by raising prices on their cars but they were being succeed and some will fail and the cycle will beaten by companies like Toyota whose workers continue. aren't unionized. GM tried to stack the deck in their favor by getting the government to pass laws We have to allow for free and fair competition in enacting tariffs and fees on imported vehicles to our marketplaces and that means that we have to do force out competition and to try to make things like repeal 'pro-union' laws, drastically cut competitors prices closer to their own. import tariffs, and stop banning imports simply because they will compete with American products. It wasn't enough. GM posted losses to the tune of If we can do these things and manage to keep the tens of billions of dollars in 2006 and was being government from butting into our private eaten alive by both its workers and its competition businesses affairs then we could become a great and so, in 2008 the CEO of GM went to economic superpower again. Washington DC and asked for a bailout. He got it. If you want to know what will happen if we keep The next year the CEO of GM went back to going the way we are now with increased Washington DC and asked for another, bigger government regulation of markets, government bailout to try and save the company which they supported monopolies, the nationalization of also received. Later that year GM declared Chapter industries, and bailouts then go look the history of 11 Bankruptcy with $87 billion in assets and $172 Russia in the late 1980s. billion in debt. Government Workers Unions The company underwent perestroika was restructured, 33% is now owned by the U.S. There is one last issue to address here and that is Treasury Department and its stocks were gutted andgovernment workers unions. There has been a lot auctioned off. What this has done is tied taxpayer of talk recently about whether or not government money to the still floundering company and, if and employees should be allowed to unionize. when it fails again, the taxpayers will absorb a third of the loss. First of all, if the government is seriously abusing its workers then we might have bigger problems How to Fix It than unionization issues. Second, government workers are paid by the taxpayers and their jobs are If GM was not bound by the horrendous union laws not subject to the same market forces that privatethat hold it ransom then it would shed unneeded sector jobs are should be. Therefore government worker, wages and benefits would go back to worker unionization does not work (as it does in market levels, companies like Tesla Motors would the private free-market sector) as a market be better able to compete with their high regulating tool. performance all-electric cars that they are struggling to find space to manufacture or workers What happens with government unions is that the to build or a market to sell them in when they are workers demand higher wages or more benefits and facing an artificially biased market that favors the government has two options. companies like GM. 1. They can increase the workers' pay/benefits The workers leaving GM (if the union laws were but the money has to come from somewhere repealed) would find jobs at companies like Tesla so they either have to raise taxes or pull the Motors who could buy unused manufacturing space money out of another government program. from GM. Suddenly you have fresh competition in Of course, if the government wasn't 14

trillion in debt and was running a surplus instead of a massive deficit then we might have some savings to draw that extra pay from, but that's not likely to happen any time soon. 2. The government can not increase worker pay and risk a strike (many government employees are legally barred from going on strike so unionizing is pretty pointless for them anyway). Neither option (unless the government is debt free and running a surplus) is very palatable. Especially the raising taxes option. If the public service workers (like garbage men for example) go on strike and everyone's garbage starts piling up and stinking then the taxpayers are effectively held ransom and must vote for increased taxes to end the strike. This is coercion of the worst sort. In a private market you can choose not to pay for garbage service and dispose of your waste yourself, or you can opt to pay more, or you can go with a different company that charges less, or start your own garbage service. With government services this is not the case. Government utilities, schools, waste management services, and medical care are government sanctioned monopolies on their respective markets and they drive the private sector out of business and force the few remaining competitors to become luxury services above most people's price range (just look at private schools). The solution to this issue is not to make government unionization illegal. Rather it is to minimize the areas of our lives serviced by government workers. If government was reduced to its proper size then free market competition would be allowed to regulate many of the industries that the government currently monopolizes and unionization wouldn't really matter.