Monday, September 03, 2007

Happy Labor-Cartel Day

Today is Labor Day. It is not, as one might hope, a holiday to honor the dignity and meaning of work itself, but of a particular type of citizen who identifies himself as a “worker.” It is not a particularly helpful term in that, for example, an associate at a law firm who works 80 hours a week does not qualify as a “worker,” but it is a useful one in the political market. But it is not just workers but labor unions who, in the eyes of the media, have come to symbolize Labor Day. (See here for an example of the conflation of the holiday and the institution.)

The phenomenon of the labor union is troubling for both philosophical and economic reasons. The philosophical reason is not so obvious, but worth teasing out. Labor unions are about restricting the freedom to bargain, not just for their members but for those who would rather not be members. Federal and state law subsidizes labor-union growth in a variety of ways. For example, federal law prescribes a procedure whereby employers must negotiate with unions in some circumstances via the National Labor Relations Board. Some states have laws enabling the closed shop, in which workers who do not support a union are banned from offering their labor to a particular employer without not just joining but having their paychecks docked (i.e., their money stolen) to support it.

Neither consumers nor employers get legal benefits like this. The subsidy of union organizing is identical to procedures that would allow producers to cooperate in setting prices and wages, which is of course not only not protected but actually punished by federal antitrust law. Or consider consumers who are allowed not just to boycott individual producers (which they have every moral right to do), but to use the government to ban other consumers from patronizing them. This is what unions have achieved, and this legislative edifice clearly contravenes the idea of equality before the law, the principle that citizens should not receive special privileges or bear special burdens because of extraneous considerations - because they receive paychecks instead of write them, for example. Members of labor unions are simply treated better than the employers with whom they bargain and the consumers who contemplate buying the products the employers and workers produce together. The freedom to contract is asymmetric, applying to union members but not to those who want no part of a union, nor to employers.

And economically unions are simply a legal cartel – a group with legal sanction to limit competition in the market for labor. Their leaders have mixed incentives – to support their members’ interests so the leaders can continue to lead, but also to divert union funds in pursuit of the leaders’ own interests. A model of unions as legally protected cartel leads to several quick implications, all of which are borne out.

- Labor-cartel leaders should be somewhat corrupt. They should earn unusually high compensation, including benefits. The historical record of the Teamsters is the most vivid example, but others are legion. The tendency to steal – to advance leaders’ interest rather than members’ – is limited only by the competitiveness of union elections, which has historically also been restricted by the leadership, and the zeal of government prosecutors.

- Labor-cartel leaders should advocate restricting competition in product markets, so as to protect their members’ above-market compensation. And indeed they are among the greatest opponents in industrialized countries of trade liberalization, which benefits consumers immensely. They advocate union-only government contracting, along with limits on competition for labor in such contracting, all of which is bad for taxpayers.

- They should also advocate limits on competition in labor markets, just as producers will be in favor of limits on competition in product markets. The most disgraceful way in which this has played out is the largely unknown history of organized labor’s racial violence and enabling of racial discrimination. For a union, any set of criteria for limiting labor-market competition will do, and for American organized labor the expansion of government limits on minority participation in the labor market has been a favorite tactic. (For example, organized labor was instrumental in achieving provisions in the California constitution of 1879 banning California contractors and corporations chartered there from hiring Chinese workers.) Paul Moreno, author of a solid book documenting this history also has a Labor Day article in today’s Opinion Journal summarizing his findings.

The activities of organized labor significantly delayed economic progress for blacks in much of the post-Civil War era. And such movement notables as Samuel Gompers, Mother Jones and Eugene Debs engaged in actions or used language that would immediately be dismissed as racist if they emanated from a politician, especially now.

- Labor-cartel leaders should emphasize the interests of their current members at the expense of hypothetical future ones. And it is common for unions to oppose labor-saving technological innovations, to accept cumbersome two-tier wage systems under which newer hires earn less in lieu of everyone earning an intermediate wage, to be heedless of the cost of labor restrictions on job creation in other firms, and the like.

The good news is that despite their immense legal advantages, unions have been in decline for some time. Indeed, both Forbes and Mark Steyn have Labor Day pieces on the extent to which rising prosperity has made the stale efforts at cultivating “working class” solidarity obsolete – the “workers” would rather enjoy their weekend than march in some stuffy Labor Day parade. The only exception is government unions, which have been in ascent for some time. Since governments can limit competition for their services much more effectively than private employers, by simply passing off the costs to taxpayers, this is unsurprising.



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