Ronald Goodman Paper #4 Eng111 Word count: 2066 Labor Unions once necessary now counterproductive With State

and Federal labor laws it makes sense to disband labor unions and free up capital for companies to reinvest into their workforce and infrastructure. Unions had their time and were necessary when first started but with Occupational Safety and Health Administration (OSHA) laws and regulations factory workers can feel secure in a safe working environment. Just because a person is in a union does not mean they have job security.

Labor Unions have a deep history in North America. In this part of the world they date back to the early pilgrims. They got their start with the early craftsman, carpenters, cordswainers (cobblers or shoe maker) and cabinetmakers. They were often referred to as guilds and many people interested in these trades would have to do an apprenticeship. Carpenters disguised, as Mohawk Indians were the host group at the Boston tea party in 1773.

The American Federation of Labor was founded by Samuel Gompers in1886 and in 1935 John L Lewis announced the creation of the Committee for Industrial Organization giving us the modern day AFL-CIO. According to the AFL-CIO website, the first formal union of workers sought to reduce their time on the job. One of the main jobs of the AFL was to protect the apprenticeship system that was in place, with the

introduction of modern machinery, skilled trades began to drop off significantly. To protect the skilled labor of America from being reduced to beggary and to sustain the standard of American workmanship and skill, the trade unions of America have been established(AFL-CIO web). So in its infancy, the AFL was an organization that only organized skilled workers.

Unions in theory would argue that they increase employees wages, but not many people understand how this is done. Unions are no more than labor cartels. What is a Cartel and how do they work? A cartel is no more than an agreement among competing firms, they work by restricting the flow of supplies to the consumer so he / she has to pay a higher price for said goods. The best-known cartel in the world is Opec (Organization of the Petroleum Exporting Countries). Opec will influence the increase in oil by producing less. According to George Borjas in the 3rd edition of Labor Economics labor unions try to monopolize the labor that is supplied to companies or industries in order to force companies to pay higher wages So in this respect they work like any other cartel and have some effect on the economy.

Just think if the big 3 automakers Ford, General Motors and Chrysler all agreed to increase the price of their vehicles by $3000, their profits would increase per vehicle as everyone who purchased a car would pay more. The adverse affect to this is that there would be less people who could afford to buy a new vehicle so they would sell fewer vehicles. If they sold less vehicles they would need and hire fewer workers, the stock prices of the automakers would rise but they would employ fewer workers and therefore

the economy would suffer. This is the exact reason we have federal anti-trust laws and automakers cannot collude to raise prices.

Now think about the UAW (United Auto Workers) in Detroit, every chance they got to go on strike they would unless the manufacturers paid what they were demanding. According to James Sherk, Until the recent downturn it was up to $70 an hour in wages and benefits. Top-notch health benefits for retirees would add $1200 per vehicle before it even saw the assembly line, Benefits, such as full retirement after 30 years of employment and the recently eliminated JOBS bank (which paid workers for not working), added an additional $2000(Sherk).

Unions functioning as a monopoly cartel explains their opposition to competition according to George Borjas. If a consumer can buy elsewhere, a company has to lower its prices or be forced out of business. This is what has happened to the UAW. Non-union workers for Honda, Toyota, Hyundai and Kia plants produce a high quality vehicle at a lower price than the Detroit counterparts. The UAW has been forced to make significant concessions that close the wage gap between Union and Non Union wages, now unions cannot force consumers to pay the higher prices of vehicles and therefore we are now seeing the American automakers sales make a resurgence.

Unions reduce investments and in effect reduce jobs. Unions make it very costly to make changes to the working environment. Employers cannot negotiate directly with the union employee so unions become employees exclusive bargaining reps. Any talks

in regards to pay, performance, promotions or working conditions must go through the union and the employer. An employer cannot change the working environment through proven techniques such as Kaizan or 5S or even give an individual a raise without negotiating with the union. This forces employers to pay several thousand dollars in lawyer fees and spend many months negotiation before any changes can be made. Most of the time the cost is not worth the benefit. Unions reduce profits through redistribution causing a union tax if you will. By forcing higher wages they lower profits and reduce a companies ability to reinvest back into the company keeping it stagnant. Take for example GM who a couple of years ago filed bankruptcy. The company could not invest in making a smaller more fuel-efficient vehicle and were left behind as Ford, Honda and Toyota were making huge strides in the hybrid technologies. If GM were able to spend more in their R&D to develop one of the fastest growing markets in vehicle sales the hybrid the UAW would not have had to make so many concessions. According to Barry Hirsch Economic research demonstrates overwhelmingly that unionized firms invest less in both physical capital and intangible R&D than non-union firms do According to David Card in his book the effect of unions on the structure of wages: A Longitudinal Analysis The best workers will not work under union contracts that put a cap on their wages, so union firms have difficulty attracting and retaining top employees. Bruce Fallick and Kevin Hassett have discovered that unionizing reduces capital investment by 30 percent the same effect as a 33 percentage point increase in the corporate tax rate.

Some economists do expect reduced investments, along with the intentional effort of the union cartel to reduce employment, to cause unions to reduce jobs in the

companies in which they organize. Economic research over the past 30 + years shows exactly this as unionized jobs have vanished. Barry Hirsch and David A. Macpherson compiled Data from Unionstats.com and the Bureau of labor statistics in 1977 their were 7.5 million manufacturing union jobs at the unions peak and with a steady decline to 1.9 million in 2008 and at the same time in 1977 12.5 million non-union peaking in 1998 at 16.5 million then declining back down to 13.3 million in 2008(Hirsch / Macpherson / Union Membership). Manufacturing jobs are not the only industry affected. In construction over the same time period unionized jobs dropped from 1.5 million to 1.2 million but non-union jobs have sky rocketed from 2.5 million to 6.4 million (Hirsch / Macpherson / Union Membership). Economic studies have shown that unions dont just organize firms with more layoffs and less job growth, they cause job loss. According to Lalonde, Marschke, and Troske using Longitudinal data on establishments to analyze the Effects of Union Organizing Campaigns in the United States Jobs drop at newly organized companies, with employment falling between 5 to 10 percent.

Unions also slow economic recovery by reducing the number of jobs in an industry in order to keep wages high for its members. Unions cut into a companies profitability and reduces business investment and employment over the long term. This does not help the job market in normal economic circumstances, and causes extreme harm during a recession almost like a snowball effect. The same research was used to show unions intentionally force job loss also shows that during the recessions of 1982 and 1991 that non-union states showed a considerably faster recovery than states had more union employees. The AFL has been pushing its members for years towards the

EFCA (Employee Free Choice Act), which really does not give all employees free choice. The EFCA takes away employees anonymity as they allow unions to form without a secret ballot therefore letting members who are pro union to pressure employees who are anti union. In the 1935 Congress enacted the National Labor Relations Act, which is credited in prolonging The Great Depression by encouraging union membership. President Roosevelt allowed industries to collude to lower output and increase prices, only if that industry unionized and paid wages that were above the market average to their employees. These policies allowed cartelizing both business and labor has caused over half of the economic losses in the 1930s as documented by Harold Cole and Lee Ohanian professor at University of California in their research memo New Deal Policies and the persistence of the Great Depression: A General Equilibrium Analysis.

Unions have had their place in our history. Once a very necessary entity and in many respects still a very needed organization, but not in its current form. The current goal of todays union is very individualistic for generalized labor but tends to hurt those individuals that they initially set out to protect the skilled craftsman the individual looking to stand out from a crowd. Looking at unions on an individuals base then the average salary is somewhere between 20-25% higher than non-union counterparts (Hirsh /Union) but this does not take into consideration of union dues and fees that all members must pay. On the whole they slow economic growth in the same way a 33percentage point corporate income tax would (Fallick/Hassett). Fewer investments mean less competitive, less competitive means fewer jobs. Unionized companies grow at 4%

lower rate than non-unionized companies. Over the last 30 years unionized manufacturing jobs have disappeared while non-union jobs has increased.

There have been no economic theories that cartels improve an economy, not in the United States or anywhere else. Cartels have been shown in the United States and abroad to slow economic growth and delay any country has from recovering from a recession. Unions may protect jobs today but are only mortgaging them for a later date. It is like the tortoise and the hare make a little more today or a little less for a much longer time. In a non-union environment the best employees will have a better chance of being recognized and rewarded for those efforts, and if you are not recognized then there will be more opportunities elsewhere because in a non-union environment there be more jobs available. In competitive markets unions cannot cartel labor and wages because in competitive markets companies with higher labor cost tend to go out of business. This is why the EFCA is not good for our economy and should not pass legislation it would abolish secret ballot elections and allow pro union employees to apply high pressure on non pro union employees to join unions. This is something the American people want, as proven in the recent elections where Michigan has now become the 24th state to pass right to work legislation putting the power back in the workers hands.

Resources Borjas, George. Labor Economics. 3rd ed. Columbus: Mcgrw-Hill, 2005. Print. Card, David. "Unions and the Wage Structure," inInternational Handbook of Trade Unions CIO, AFL. "Our History." AFL-CIO America's Union. AFL-CIO, n.d. Web. 2 Dec 2012. <http://www.aflcio.org/About/Our-History>. Cole, Harold L. New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis. 112. 2004. Print. Fallick, Bruce. Investment and Union Certification," Journal of Labor Economics. 3rd ed. 17. 1999. 570-582. Print. Hirsch, Barry. "Union Coverage and Profitability Among U.S. Firms," The Review of Economics and Statistics. 1st ed. 73. 1991. Print. Hirsch, Barry, and Macpherson. "Union Membership and Coverage Database from the Current Population Survey," Industrial Labor Relations Review. 2nd ed. 2. 2003. Print. Lalonde, Robert J, Marschke, and Troske. "Using Longitudinal Data on Establishments to Analyze the Effects of Union Organizing Campaigns in the United States," . 1st. 41-42. 1996. Print. Sherk,James, "Auto Bailout Ignores Excessive Labor Costs," Heritage Foundation WebMemo No. 2135, November 19, 2008