Sunday, April 03, 2011

Unions Should be Stronger, not Weaker

In Wisconsin, in Massachusetts, in my home state of New Hampshire, and indeed, across the country, a battle over the rights of unionized labor is playing out in state legislatures. In the last half century, as we have moved from a manufacturing economy to a service and information economy, union membership has fallen from 40% of the workforce to barely 10%...and these members are highly concentrated in certain industries - automakers, steelworkers, mining, health care, and public services such as firefighters, police, and teachers.

It has been fashionable in many political circles to blame unions for the nations economic woes: when auto makers sought government bailouts, unions were blamed for the company's poor cash flows, and Tea Party advocates have criticized the success of public employee unions for obtaining pay and benefit packages that they claim are better than most Americans get. When workers show up to protest legislation aimed at eliminating their right to negotiate the terms of their employment contracts, their detractors call them 'union thugs' and 'mobs,' and often throw in cheap shots about the power of 'union leaders.' This name-calling and rhetoric does little to add to objective public debate about the proper role of unions.

Others have more reasonably questioned the status of unions, suggesting that since the days of sweat-shops and dangerous working conditions are over, unions are no longer needed. It is to these 'thinking people' that I would like to respond, drawing on basic economics.

Any one of us knows that when driving about, even in unfamiliar territory, about what to expect to pay for a cup of coffee at a roadside coffee shop or gas station. No one expects to pay a quarter, but no one expects to pay $5.00 either. I recently took a quick survey of 30 students, and asked them to write down what they'd expect to pay in such a situation for a medium-sized coffee. With a single exception, everyone wrote down a number between $1.00 and $2.00, with an absolute majority between $1.25 and $1.75.

This, in spite of the fact there is no law anywhere dictating the price of coffee. It is the result of the natural interplay of the forces of Supply and Demand: thousands of consumers, and thousands of sellers of coffee interacting in the marketplace, with the natural result that a functional price exists. Consumers know that if they stop in a coffee shop and the price is outrageous, they can go elsewhere; and if the price is too low, they may suspect the quality of the product. There is much transparency in a market such as this, as even my students who are not coffee drinkers were aware of the general price level of the product. This is an example of a market that functions well, and it functions well because there are many consumers, with much information, and many suppliers in competition with one another.

But what happens when these perfect market conditions do not exist?

Consider a hypothetical case where hundreds of farmers sell their chickens to any number of processing plants, which in turn package the meat and then sell it to supermarkets. But now consider the results if all the processing plants decided to merge, so that only one chicken processor existed.

If there was only a single Processor, they would constitute a Monopoly insofar as they would be the sole seller of packaged chickens to supermarkets. As most consumers know, when you desire a product that is sold by only one firm, that firm can demand a price far higher than they would be able to if they had to compete with other producers. Consumers paying electric bills to Monopolistic providers know this all too well. However, in our example, we shouldn't presume that the higher prices paid by the supermarkets means that the chicken farmers will get a higher price for their chickens.

In fact, the truth is just the opposite.

The relationship between the Processor and the farmers is called a Monopsony - not a word that is as popular in the public mind as Monopoly. A Monopsony - rather than being the sole provider of a product - is the sole Purchaser of a product. In other words, with only one Processor, the chicken farmers can only sell their product to one buyer. If that buyer should say, "We're paying .25 per chicken - take it or leave it," the farmers have no place to turn. In such a case, the price the farmers receive will be less than under normal market conditions where there are a variety of both producers and consumers.

As a result, our Monopoly/Monopsony Processor is able to depress the price it pays the farmers, and increase the price it charges to supermarkets, and ultimately, the consumer. This is due to unequal bargaining power (or concentrated "Market Structure") of the Processor...and it would simply be erroneous to blame the farmers or the high prices the consumer was ultimately paying.

There are two solutions to this imbalance of market power: the Processor's power can be reduced or divided; or the farmers power can be increased. In the former, the state would use anti-trust laws to 'break up' the Processor into several smaller companies, thus restoring balance in the negotiating of prices; or, the farmers could band together and speak with one voice to negotiate a price for their product with the Processor (This is precisely what cranberry growers have done, by creating the farmer's cooperative known as Ocean Spray).

Now, let's apply these principles to Labor Markets.

Individual Workers, rather than raising and selling chickens, sell their labor to Employers (which could be private employers, or to governing structures). Those employers then sell the final products (whether goods or services) to consumers. In the case of public employment, the consumers are taxpayers, who have little say: they 'purchase' these services with their tax dollars, and face legal repercussions if they refuse. Understandably, from time to time these consumers may complain about either the price or the service...but just as chicken farmers are not the natural enemy of the consumer, neither are public employees the enemy of the taxpayer.

In fact, just as the Processor in the above example wields market power to increase prices to consumers while simultaneously depressing the prices the farmer gets, so too do the structures of government (and many private corporations) increase the price (or tax) they charge to consumers, while wielding the ability to depress the price (or wages) it offers to its employees. Unlike private industry where employment contracts are enforceable in a court of law, government can - and does - change the terms of its employees compensation through a mere act of the legislature. The terms of employment that labor counted on can be changed with a legislative vote and a pen stroke, with few legal rights of recourse. The unilateral power of governing structures to dictate the terms of employment means that, left unorganized labor is in no better condition than the farmers in the above example.

Unlike the example of the Monopoly/Monopsony Processor, however, there are fewer solutions available to public employees to 'even the playing field.' Anti-trust laws can not be applied to government structures, and government can not be 'broken up.' No one seriously suggests that there should be multiple State Troopers, or competing Registries of Deeds, or three different fire departments competing to provide service in one city. No one seriously believes that there should be multiple public school systems in the same town, with the resultant duplication of administration and buildings.

The only solution, then, to create equivalent market power, is to permit those at the bottom of the chain - the laborers - to organize and speak with a single voice. And that is what unionism is all about. It is the only option available to create equivalency of bargaining power between those seeking to sell their labor and the governing structures hiring them, and to counteract the arbitrary and raw power those institutions can exercise if unchecked.

And for those who claim that public employees, or any other employees, 'make too much,' or have 'extravagant' benefits as a result of union agreements - perhaps they should turn that question around:

What has happened to the average Americans pays and benefits as a result of the decrease of unions in this country over the last half-century?

By most measurements, Americans are now losing purchasing power. Their health benefits are less than at any time in the last 50 years. Their vacation, sick, and personal time lags behind every major industrialized nation in the world.

Those who complain about the effects of unions remind me of the 1971 song recorded by "Ten Years After" titled, "I'd Love to Change the World." One of the more memorable lyrics in that song went,

"Tax the rich, Feed the Poor,
'Till there are no Rich no more..."

I have always believed that the writer, Alvin Lee, got that all wrong. Rather, it should be:

"Tax the rich, Feed the Poor,
'Till there are no Poor no more..."

Our goal as a nation should not be to make everyone equally miserable by impoverishing everyone...but to ensure that all our citizens share in the wealth our society creates.