Pitting workers against prosperity

Stephen Ontko

Labor unions are typically regarded as a societal good, benefiting workers through higher wages, benefits and improved work conditions. This premise, however, has gone unchecked far too often.

Once aspects of economic theory, empirical data and the regression model analysis to fit theory to the real world are approached, labor unions do in fact appear to have adverse effects on economic growth and deteriorate economic output.

Theory dictates that, due to the monopoly labor unions have on the supply of labor, employment in unionized industries of the economy decrease as unions increase wages and benefits above market equilibriums.ÿ

Ohio University professors Richard K. Vedder and Lowell E. Gallaway published a research study in 2002 depicting how labor unions have affected the U.S. economy (“Do Unions Help the Economy? The Economic Effects of Labor Unions Revisited”).

The research report compares the employment growth between union-intensive and nonunion-intensive industries using industrial classified employment data. From 1983-2000, the six sectors of the economy with above average union membership saw an increase in employment of 24.4 percent. This compares with the 55.2 percent gain in employment in the five industries with below average union membership. If growth for the union sectors reached the latter rate, 10 million more jobs would have been created, and 4 million would have been created if it was at the rate for the economy overall (36.8 percent).

Vedder and Gallaway’s regression analysis between the years 1964 and 1999 consistently found statistical significance of negative correlation between real income per capita and union membership.

Their model predicts that had a union density of zero been implemented, the mean growth rate of per capita income over the 35 years would have been 135.85 percent compared to the mean rate of per capita growth of 112.43 percent with the union density of the nation as a whole.

In 1999, Georgia’s per capita income was less than four percent higher than Michigan’s. Yet Vedder and Gallaway’s model finds that if both states’ unionization rate were equal to the state with the smallest rate of a unionized labor force (North Carolina at 5.3 percent) then Michigan’s per capita income rate would actually be 21 percent higher than Georgia’s.

While Vedder and Gallaway demonstrate the aggregate economic effects of labor unionization, labor unions also impact the economy at the business level with negative consequences.

Logan Robinson, professor of law at the University of Detroit Mercy, in a Dec. 30, 2008 column in the Wall Street Journal, described the legal structure of labor unions that impedes the operations of businesses.

Of particular interest to Robinson’s column, however, was the U.S. automakers – who are headquartered in highly unionized Michigan – and their inability to compete with the foreign automakers.

Robinson contends that every facility in a company is operated by its own individual bargaining unit. Strategic changes that a company would make to each facility, e.g. consolidating facilities, would have to be approved by the union through the respective bargaining agreement.

Unsurprisingly in cases of consolidation, bargaining units won’t negotiate their positions away, whereby “unnecessary facilities are not sold, but kept open, lit and heated, just to preserve a redundant bargaining-unit president and his team.”

A Dec. 1, 2008 Wall Street Journal editorial further brings this production inefficiency against competitors into focus. The editorial points out that Hyundai was able to change its production in mere minutes to more competitive and highly demanded models in its manufacturing facilities located in the largely union-free south. A similar strategic business procedure by the United Auto Workers union would, the editorial posits, take weeks to adapt.

The horrible effects labor unions have on the economy isn’t the only concern for public policy today, however. The ill consequences of labor unions is about to be compounded with the “Employee Free Choice Act,” which, if passed, will eliminate the secrecy of ballots being cast in an election to make an employer unionized. The secrecy of votes is fundamental and necessary for any democratic society. Jeopardizing prosperity is an abomination already, but the coercion to increase falling union membership through coercion is undemocratic and unconstitutional. Our wealth, and our republic, shouldn’t fall victim to the despicable pandering to one of the Democratic party’s most powerful special interest groups.

Stephen Ontko is a senior economics major and columnist for the Daily Kent Stater. Contact him at [email protected].