Friday, November 23, 2012

Where Unions Go Wrong

I was absolutely amazed the when the baker's union refused to make a deal with Hostess, even after it was abundantly clear that everyone would lose their jobs if nothing was done.  I've been laid off twice before, so I tend to take stuff like this personally.  The baker's union appeared to have an all or nothing, "give us what we want or we're taking you with us," attitude.  Even the teamster's union was asking them to think it over.  When another union thinks your union is going too far, it's time to rethink your position.

Alas, the baker's union stood strong, and screwed 18,500 people.  I know that despite the sensational headlines that Great American Brands Are Dead, Twinkies and Wonderbread will probably survive.  They'll be sold to some other company in the liquidation.  The downside of this is that some of the potential buyers are not American companies, like Grupo Bimbo (I hope that means something less racy in Spanish) of Mexico.  So the brands may saved, but the American jobs may not be.

The dispute was in part about pensions and wages, but there were also unusual rules in the union contracts that forced the company to be inefficient.  The most often mentioned in the media is that Twinkies and Wonderbread can't be transported in the same truck.  This means that if you have a half of a truckload of Twinkies and a half of a truckload of Wonderbread, there must be two trucks, and therefore two drivers, two teams loading the trucks, etc.  And the loaders who load Twinkies cannot also load Wonderbread.  Any idiot can see that this is wildly inefficient.  Only one truck and one group of loaders is necessary.

So why would anyone do this?  It's quite simple.  Twice the number of union workers = twice the number of union dues.  This is where the goals of union management diverge from the needs of union workers.  The union bosses want to increase dues collections, so they need to increase the rolls of the union.  In slightly more than half of the states, even a non-union worker can be forced to pay a fee if they choose not to join a union.  They can also be fired if they don't join.  So any additional jobs automatically increases union revenue, even if those jobs are unnecessary.

What a worker wants is to make a living and to have job security.  Forcing inefficiencies on a company hurts job security, as we've just seen with Hostess.  The right way to produce jobs is for a company to be as profitable as possible and expand, hiring new workers for the expansion.  Jobs at a profitable company are far more secure than jobs at an unprofitable one.  I feel stupid for stating the obvious like that, but apparently some people still don't get it.

Now unlike many of my more conservative buddies, I don't think unions are inherently evil.  It is possible for them to benefit workers without burdening employers unnecessarily.  The problem is that the system is broken by giving the unions special treatment.  There is a reason to have a union putting upward pressure on worker pay.  It's because labor is sort of illiquid.

Take, for example, the words of Matt Patterson from the Competitive Enterprise Institute, as seen on Special Report with Bret Baier:

What your labor is worth is what you receive, and if your employer feels that you are worth more you'll get more, and for a lot of people who are complaining about their working conditions, they're perfectly free to go out and get another job or start a company of their own, and that's how the free market works, and should work.

I should note that he's not necessarily wrong, but he's not quite right either.  Going out and getting another job requires that one is available, which is not always the case.  Starting a company requires seed capital, which not everyone has or can borrow.  But most importantly, what we're worth and what our employers thinks we're worth aren't always the same thing.  Our employers will eventually realize what we're worth, but only every six months to a year when he hands out raises.  This is what I mean by illiquid.  Even then, they may lowball us on the raise.  And getting a new job, even if available, isn't always the preferred move.

Prices on an exchange update almost immediately and reflect the true value of what's being traded because there is constant trading.  In other words, these things are liquid.  But if a laborer constantly trades (read: gets a new job) as suggested by Patterson, he'll become known as a "job-hopper" and be considered unreliable.  This actually reduces a laborer's value.  A union can renegotiate pay more frequently, bringing the worker's wage in line with his actual value more frequently.  This introduces a form of competition, which is not an anti-capitalist idea.

The problem is unions are considered indispensable by some (which is an anti-capitalist idea), so they are given special treatment.  Regulations that permit unions to compel dues and membership stack the deck in favor of unions.  The truth is that unions, like any organization, don't have a right to exist.  We should make them constantly justify their existence.  That's what the free market is really about.  The answer to this problem is Right-to-Work.

Right-to-Work doesn't destroy unions.  Many of the greatest advances in worker rights happened long before there were any compulsory dues or membership.  There was a time where every state was effectively a Right-to-Work state.  Unions did fine without compulsory laws.  Right-to-Work does keep unions honest.  If there were no compulsory union dues, the absurdly inefficient clauses in union contracts would be unnecessary.  The extra jobs produced by separating Twinkies from Wonderbread would not necessarily result in new union dues.  So the unions would have no reason to weigh down contracts with these kinds of clauses, because it would produce no value for them. 

Let unions operate in every state, let workers join any union they want, but also make every state a right to work state.  This will result in union negotiations where the unions negotiate for the benefit of their workers, not just to increase their union rolls.  Unions will have to constantly justify that they deserve to exist, and will start to realize that they, like the workers they represent, cannot survive without employers.  Maybe they'll start to see that forcing an employer to be inefficient is a self-destructive act.

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