Collective Bargaining Increases Inequality

I recently pointed out that minimum wage regulations increase inequality. That’s not what the “Fight-for-15” activists intend, but it is the result they would achieve. Collective bargaining is another unintentional inequality-increaser. The reasons why are pretty similar, as Iain Murray and I point out on pp. 10-14 of our recent paper, “The Rising Tide.” This week there were two opposing developments in Washington related to the issue: the National Labor Relations Board issued a decision that strengthens the hand of unions seeking to organize workers for representation via collective bargaining, but the House Appropriations Committee voted to defund related regulations from being implemented by both the Department of Labor and the National Labor Relations Board.

Just as minimum wages benefit some workers, so does collective bargaining. Union members tend to earn higher wages than their non-union peers working similar jobs. And just as with minimum wages, these benefits come with tradeoffs. Fewer jobs for non-members, higher consumer prices, and more are all part of the collective bargain. Some people make more, because other people make less and pay more.

According to a recent report from the Council of Economic Advisors about declining labor force participation, the U.S. is in the 90^th percentile among OECD countries when it comes to union-friendly labor policies. But is only in the 62^nd percentile for entrepreneurship-friendly policies (p. 30). Those percentiles are a useful priority guide for policymakers.

Another CEI study by Ohio University economist Lowell Gallaway and researcher Jonathan Robe finds that in union-heavy states such as Michigan, per capita income is as much as $11,000 lower than what it could be without powerful unions and their exclusionary policies. That’s nearly $28,000 per year for an average-size household—money that could be spent on better schools, housing, food, clothing, and much else. Instead, that money is never made at all.

There is also evidence that many union members don’t even want to be members. When Wisconsin gave many government employees a choice on whether or not to join a union, many of them decided against unions. In a painful bit of symbolism, the very first AFSCME local, founded in Madison in 1932, saw its membership decline more than 85 percent within just a few years after the law passed.

Many politicians and activists want to reduce economic inequality, and collective bargaining is one of the most popular policies for doing so. But not only does it actually increase inequality—union benefits come at consumers’ and other workers’ direct expense—the proper goal is to make the poor better off. Iain Murray and I aim at that goal in our recent papers, “People, Not Ratios” and “The Rising Tide.” We encourage others to join us.