The AFL-CIO: Renaissance or Irrelevance?
by
Charles W. Baird
Emeritus Professor of Economics and Former Director of the Smith Center
California State University, East Bay, CA 94542
The AFL-CIO's executive council held its annual meeting in Miami Beach during
the week of February 15th. As usual, the self-serving comments of union
officials during the meeting received widespread press coverage. To hear
them tell it, the union movement has reversed its decline and is at the
dawn of a renaissance because AFL-CIO president John Sweeney's new emphasis
on organizing workers (capturing new dues payers) has turned the tide. Among
all the puffery, three reported claims are especially suspect: (1) employers
routinely harass workers who want to organize; (2) in 1998 the number of
union members increased by 101,000; and (3) on average workers represented
by unions now make 34 percent more than union-free workers. Perhaps most
troubling of all were reports that clergy and civic leaders announced coalitions
with unions to promote justice in the form of improved living standards
and a heightened "sense of community." They ought to know better.
Worker Harassment
In reality, the decline of the union movement in the private sector continues
unabated, and it has nothing to do with employers harassing workers who
want to unionize. The principal reason for the unions' plight is that fewer
and fewer workers are interested in organizing. In a recent paper for the
National Bureau of Economic Research, Henry Farber and Alan Krueger concluded
that the demand for unionization among private-sector workers has declined
and continues to decline. Workers' bargaining power in employment contracts
depends on the quantity and quality of alternative employment alternatives
they have. Deregulation and globalization of competition have significantly
increased those alternatives in both dimensions. In this environment most
workers think the costs of unionization e.g., union-imposed initiation fees,
fines, assessments and dues, increased strife between workers and management,
lost productivity, and lost working time due to strikes far outweigh the
benefits.
The unions' claim that employers prevent unionization by harassment of workers
simply doesn't make sense. First, such practices are already illegal; and
second, intense competition for qualified workers prevents employers from
mistreating workers. In a 1998 study of the reasons for the continuing decline
of unions in the private sector, the Employment Policy Foundation found
that only 0.35 percent of the decline could be attributed to managerial
opposition activities involving "unfair labor practices" as defined
in the National Labor Relations Act. Astute private sector employers are
less likely to harass workers than to try to avoid the burdens of unionization
by treating their employees well. Such preventive labor relations are a
major reason for the continued decline in the demand for unionization.
New Members
The 101,000 additional dues payers captured by unions in 1998 were all in
the government sector. In 1998 government employee membership increased
by 158,000 while private employee membership fell by 57,000. The unions'
market share in government employment rose from 37.2 to 37.5 percent, while
in the private sector it fell from 9.7 to 9.4 percent. In terms of market
share government employment has provided the unions with the only good news
they have had since 1953.
This is easy to explain. Government employers don't resist unionization.
In fact they encourage it. They and the unions sit on the same side of the
bargaining table. They both seek to pick the pockets of taxpayers, and taxes
are not voluntary. The much ballyhooed February 23 win by the Service Employees
International Union of the right to represent 74,000 home-care health workers
in Los Angeles is a case in point. Those workers are employees of Los Angeles
County, and any union-imposed increases in home-care health costs in Los
Angeles County will simply be passed forward to the County's hapless taxpayers.
In the competitive private sector employers have no choice but to resist
unionization by all legal means possible. Union-imposed cost increases cannot
be passed forward in the private sector because customers can always take
their business elsewhere.
Union Wage Premium
The unions' claim of a 34 percent wage premium over union-free workers is
overblown. According to the Bureau of Labor Statistics in 1998 the median
weekly wage paid to union-free private sector workers was 79.6 percent of
that paid to comparable workers who were represented by unions. That figure
compares wages only. When total compensation packages are taken into account
the union-free to union ratio is 85 percent. Moreover, union representation
is not the sole source of the apparent union advantage. The BLS explains
that "The difference reflects a variety of influences in addition to
coverage by a collective bargaining agreement, including variations in the
distributions of union members and nonunion employees by occupation, industry,
firm size, or geographic region." In services, union-free wages were
90.1 percent of wages paid to workers represented by unions. In finance,
insurance and real estate the figure was 104.3 percent. Moreover, the ratio
of union-free wages to union wages has been steadily increasing. This another
reason for the decline in the demand for unionization.
Statistics will usually overstate the effect of unions on wages. The comparison
that should be made is wages paid to union-represented workers to wages
that those same workers would have received without union representation.
Of course that comparison cannot be made because there is no way of knowing
what unionized workers would be making if they were not unionized. As a
second best, wages paid to union-represented workers are compared to wages
paid to comparable union-free workers. But this comparison always involves
what economists call a spillover effect. Unions are able get above-market
wages for workers they represent only by restricting the supply of workers
on those jobs. When the workers who are shut-out of those jobs seek employment
elsewhere, they spill into the union-free market. This larger supply of
labor lowers union-free wages and thus exaggerates the effects of unions
on wages.
Unions argue that statistics are just as likely to understate their effects
on wages because of what they call the threat effect. Employers may raise
union-free wages just to avoid unionization a form of preventive labor relations.
However, there is an upper limit to what an employer is willing to pay for
workers' labor services. That limit, called a demand price, is based on
labor productivity and the prices that customers are willing to pay for
the goods and services produced with those labor services. In a competitive
labor market any margins between demand prices and wages actually paid will
be very slim. There will be little room for threat-based wage increases.
Preventive labor relations will take other forms. The threat effect on wages,
if it exists at all, will be much weaker than the spillover effect. Therefore
statistics will usually overstate the effects of unions on wages.
Justice?
Clergy and civic leaders ought to pause before they sign on to the unions'
agenda. Unions cannot raise living standards for anyone except their members
who continue to be employed at union-imposed above-market wages. The workers
who end up with lower wages due to the spillover effect certainly will not
have higher living standards. If union-imposed wage increases result in
customers paying higher prices, those customers will not have higher living
standards. If union-imposed wage increases cause investors and entrepreneurs
to decrease the rate of new job creation, the workers who would have been
hired for those new jobs will not have higher living standards.
Clergy and civic leaders also ought to consider the unions' well documented
history of getting their way through violence and intimidation before they
blindly accept the notion that unions foster a "sense of community."
Organizations whose survival depends on government-granted rights of coercion
rather than their ability to engage others on the basis of voluntary exchange
are bereft of merit. They deserve the scorn of all who seek genuine justice
for all rather special privileges for a few.
Still, in spite of the puffery of union leaders and the misguided sympathies
of the ill-informed, we can be thankful that Sweeney and his henchmen are
wrong. Unions are not at the dawn of a renaissance. At least in the private
sector they are on the edge of irrelevance.
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