Saturday, April 21, 2007

Labor Unions: Solution or Problem?

I ran across this posting on the blogsite of the Ohio Civil Service Employees Association, the union representing folks who work for various Ohio state agencies. The thrust of their post was a conclusion that Bob Bernanke, the Chairman of the Federal Reserve had suggested that the American economy is suffering because we don't have enough unionized workers filling the middle class -- as though increased unionization of workers would solve the problems of our economy.

America seems to have become a nation of special interests. We don't know how to work for the common good anymore. There is an association for every big and little group, and they spend all their time carving out narrow positions that benefit their members, regardless of the impact on the whole. This writer for the public workers' union has become so polarized with his union rhetoric that he could grab these few observations from Bernanke and turn it into a call to embrace unions as the solution to our problem. Here is my response:

I believe you may be putting words in Dr. Bernanke’s mouth.

Another way to look at his statements is as an indictment of the unions. The failure of the unions to do their part to keep the American manufacturing workforce employed has resulted in the shrinking of the working class to the point that it is comprised mostly of public employees who now enjoy some of the best wages and benefits in our economy.

I grew up in a manufacturing town where many workers were members of the Oil, Chemical and Atomic Workers Union. My father-in-law was employed by the largest company in the area, and he was a member of OCAW. Repeatedly through our life, the union went on strike for better wages and better benefits. Sometimes the strikes lasted many months. During one particularly long strike, the company simply moved a significant portion of its manufacturing operations to a non-union facility in Texas, never to return. Eventually the issues were resolved, and my father-in-law went back to work because he had enough seniority. But the jobs that had been relocated to Texas never returned, and the younger workers lost some of the best jobs they could ever have.

Unions have a role; I'm not anti-union. There is little question that had the unions not fought for worker safety and decent pay and benefits, our country would be worse off. Nor do I deny that I individually benefitted from growing up in a union town, where my Dad could make a comfortable wage and have excellent benefits.

There aren’t many middle-class manufacturing jobs left in my hometown. My father and my grandfather both had 40 year careers with the same employer, but nearly all the kids of my generation had to leave to find work. So now instead of a viable manufacturing economy, my hometown has rich folks (mostly bankers, lawyers and doctors), poor folks (both the African-Americans of the inner city and those living in rural poverty), and lots of unionized public employees and health workers in the middle class.

The key to prosperity in any economy is the ability to bring in money from outside the economic zone. A city prospers when its commercial entities can sell a product outside the city. Not only are people put to work, but the public facilities and public services can be funded by reasonably taxing revenues on the sales of good shipped outside the region. That revenue is money from outside the economic zone – Other People’s Money.

To sell products outside the economic zone, the prices have to be competitive. During the first thirty years following WWII, the US had a virtual monopoly on the combination of manufacturing capabilities, a skilled work force, and the capital needed to be a global supplier of manufactured goods. We could charge premium prices for our exported products and in turn pay premium wages to our workers.

But in the last twenty years, other countries have developed all these things as well, and their labor force is willing to work for a lot less than the prevailing wage here. We also got sloppy and let other countries take our product quality edge away as well. Consequently, most manufactured goods can be made overseas with both higher quality and lower cost.

So we have a choice to make: regain our competitiveness in terms of quality and cost, or continue to shrivel into a welfare state where the only people working are those employed by the government.

Welcome to the Soviet Union. That worked out well. One would argue that the most successful communist country ever, the People’s Republic of China, understands that full employment for its workers still means being competitive on the world market. The middle class in China and India may never have the material wealth of the Americans of today. But they are coming from such poverty that even a low-paying job creates a huge lift in economic status.

The Golden Age for the US is over unless we step up to the challenge of competing with the Chinese and the Indians. American labor unions can either help lead our country back to manufacturing competitiveness, or drag us to third world status. It’s either take the pain now, or leave the mess for our children.


Barb said...

good post --ditto

There was a sense of entitlement by people who wouldn't crack a book in high school --thinking they should be paid as much in the assembly line as those who were delaying gratification, working their fannies off as students, and paying out money (incurring debt) to get an education for a good job. Jeep workers still make more than teachers, from what I hear.

It also seems wrong when corporate boards give mega salaries to CEO's and other execs. in companies that are downsizing.

seems to me we do need to work for the common good more --from top to bottom --through individual initiative by everyone. and let go of the nasty attitudes between management and labor.

Paul said...


Thanks for the comment. It's not just labor and management of course. The country is splintered into so many narrow special interest groups that to get anything done means building a coalition of such groups. That's what the two major political parties look like these days.


Fernando (Nerd Gaucho) said...

Higher wages translates into more consumption in the internal market, and more tax income due to the boost in sales.

Having a low-paid workforce does not make it more competitive.

Paul said...


I don't understand your comment.

A closed economy does not gain wealth by having everyone get high wages. It just makes everything more expensive. Zero sum game.

Wealth is generated by trading with other economic zones. How rich would the Saudis be if they didn't export oil, but instead only consumed it within Saudi Arabia? Would China be emerging as an important world power if they hadn't developed their electronics manufacturing capability, coupled with a low wage workforce? Would India be the world's call center if they didn't have people with high skills and low wage demands?

You're right, a low wage rate is not by itself a competitive advantage. The winning combination is as good or better skill and as low or lower wages.

For many traditionally unionized jobs in America (manufacturing, mining, etc), overseas workers are showing they have the education and skills every bit the equal of Americans, and a willing to work for a fraction of the pay. Therefore most such jobs have moved overseas.

Yes, executive pay plays into the cost of the products we manufacture here. The part of me that's more liberal agrees it has become excessive. In fact my college thesis was on this very topic. I think shareholders need to be more assertive about this, but in America, the most common posture is apathy.

Fat, dumb and happy will be the end of us.