Labor Day is a good opportunity to consider whether unions help or hurt ordinary workers in America.
The answer is yes and no, depending on circumstances, but that’s actually the wrong question. The real issue, at least from a public policy perspective, is whether government should be a neutral referee in labor matters.
The union bosses reject that approach. They want the government to tilt the playing field, which is why the Obama Administration is using the National Labor Relations Board to promote the interests of Big Labor.
In this short interview on Larry Kudlow’s CNBC show, I argue that government should not have a thumb on the scale.
To elaborate, here’s what I wrote last year about labor unions and the role of government.
In a free society, people obviously should be free to join unions and companies should be free to negotiate with unions. But that also means that companies should be free to resist union demands and hire non-union workers. There is no right or wrong in these battles, just as there is no right or wrong when McDonald’s decides to sell french fries for a particular price. The market will reward good decisions and penalize bad choices. The only appropriate role for policy in this area is to enforce contracts and protect public safety.
I then make what should be an obvious point about what happens if unions use the coercive power of government to push wages – when adjusted for productivity – above a competitive level.
…above-market wages (at least in the private sector) are not sustainable in the long run. Workers ultimately get paid on the basis of what they produce and if it costs $25 per hour to employ a worker and that worker produces $23 per hour of output, that ultimately is a recipe for unemployment. A good example is the American auto industry, which has declined in part because of a compensation system that is not matched by productivity. This does not necessarily mean that wages are too high. It could mean that productivity is too low. Some of that, to be sure, is the fault of government policies such as a corporate tax system that penalizes investment (thus making it more difficult for workers to boost productivity). But unions also have used their government-granted power to insist on absurd workforce practices.
The important point in that passage is that unions may be hurting workers, not with demands for unsustainable wages, but instead by imposing work rules that undermine productivity.
That’s an empirical issue, to be sure. But here’s the bottom line. Government favoritism may help workers in the short run by temporarily pushing wages higher, but may hurt them in the long run by making companies – or, as I mentioned in the Kudlow interview, entire industries – uncompetitive.
