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Easing Union Organizing Won't Fix the Economy

Most progressive policy makers view labor unions as the panacea that would address the problem of stagnate wages and disappearing middle class.

A proposal to increase union ranks has been offered up for years. Rep. Alan Grayson (D-Fla.) is the latest sponsor of the Orwellian-named “Employee Free Choice Act of 2016.”

Although the exact text of the legislation is not yet available on Thomas, Grayson describes the bill in a recent statement. It is fairly identical to past bills. Card-check union elections would replace secret ballot elections, harsher penalties against employers that commit unfair labor practices, and require binding arbitration when a company and union cannot come to terms on a first contract. (See here and here on the shortcomings of such legislation, namely reduces worker choice and further degrades freedom of contract.)

It is unclear at best how the EFCA or any other similar legislation that simply gives greater privilege to unions would benefit the economy or workers at large. Further, is a disappearing middle class and stagnate wages really as big a problem as you read about?

Let’s first address labor unions impact on wages. Labor costs in heavily unionized industries are higher than what a free market would bear. So, by putting a union premium on wages in those industries, there are less job opportunities. This increases the pool of unemployed in that industry and puts downward pressure on wages. Over the long term, the union wage premium hurts wages and reduces economic output. So in the short term, newly unionized workers may see a spike in wages, but it likely will cause problems down the road and could ultimately drive the employer out of business.  

Given that unions artificially increase the price of labor that ultimately harms the economy, it is bad public policy to give legal privilege to unions or provide greater incentive to unionize. However, outside of economics, there is anecdotal evidence that unions are not workers best hope for prosperity. 

A recent NLRB Board decision, which affirmed an administrative law judge’s order, required the Service Employee International Union Local 87 to “make whole for the loss of earnings and other benefits” for depriving union workers of job opportunities.

The workers in question provided janitorial services at a Zynga building in San Francisco. The SEIU denied jobs to union workers when the building operators awarded the janitorial contract to a new company. The new company told the SEIU of its preference to retain all union workers at the same pay and workers would keep seniority and benefits.

However, an SEIU official, told some employees they could not work for the new company and told the company it could not hire the union workers. According to the order, when the new janitorial company asked the union if it could retain all the employees to maintain uninterrupted service, a union official time replied, “you’re starting to piss me off and if you want to play this game, you’ll see what we are all about. And don’t try to circumvent me. You have to hire your own employees.”

Not sure, but it is unclear how unions denying individuals the opportunity to work strengthens the middle class. This is just one of many examples of unions putting its own self-interest over that of employees—see union lobbying efforts to exempt itself from minimum wage laws as to make union labor more competitive.

Not only should unions not be put on a pedestal, the concern over the disappearing middle class and income inequality may be greatly overstated.

Derek Thompson, a senior editor over at The Atlantic, says “many people are seeing rising real wages; yet its addition of low-wage and contracting jobs, combined with the retirement of older rich workers, is depressing overall wage growth.”

Pew Research Center analysis gives another reason why a shrinking middle class may not be so bad: more workers are succeeding and jumping into the upper class! A Reason article points out:

It is true that Pew’s analysis shows that the number of households that fit within their categorization of middle class has shrunk by 11 percentage points since 1971. It is true that the proportion of households that are classified as lower class has increased from 25 percent to 29 percent. But it is also true that the proportion of households that are classified as upper class has increased from 14 percent to 21 percent.

Instead of pushing legislation that focuses on protecting and promoting certain classes—unions or middle class—public policy should look to liberalize labor markets. Congress could go a long way of doing just that by blocking harmful regulations coming out of federal labor agencies.