Death of the Union?

Monday, August 29, 2005
Most people know I'm not a big fan of unions. I think unions have their place in certain industries where there is a monopoly by the owners; the sports industry is one of the few examples I can really think of, education is another. But overall, I think unions just don't make a lot of economic sense.

Whenever you deal with a group, you are going to get a wide spectrum of talent. You are going to get high, average, and low performers. Unions ensure a set wage structure with little latitude for performance based differences. That means if you are capable of doing twice the work of someone else, you will still get paid exactly the same. This of course builds in an incentive to do as little as possible, why strain yourself if there is no incentive to? As a diligent and hard worker, I want the ability to negotiate my own wage.

Union membership has been on the decline. In 2004, 12.5% of Americans belonged to a union. An even smaller percentage, 7.9%, if you count those workers in the private sector. The latest strike by a large union is happening now. The mechanics of Northwest have refused to accept a 25% wage cut and have gone on strike. Northwest in turn has hired replacement workers to fill the void. They seem to be doing the job. This past weekend, Northwest flew 98% of its schedule. Many of the Northwest mechanics have expressed surprise that Northwest was able to fly as many flights as they have been able to.

This is the new age of labor economics where companies are playing hardball with their employees. Employees are quickly finding out just how replaceable they are. Look at some of the major strikes in the past few years. The NBA had its players, all millionaires, crawling back in 1999. More recently, the NHL absolutely crushed its union and got major concessions. If you don't care about the problems of millionaires there are the examples of the California Supermarket Strike or the Catepillar strike in 1995. In each case, the owners played hard and refused to back down and each time the "workers" caved in and gave back major concessions.

Almost all employees have an over inflated sense of how important they are to the company's bottom line. However, as several examples have shown (some personal to myself), companies are finding it easier and easier to replace their workers. Is this shift of power toward employers permanent? Given the fluidity of today's workforce, the erosion of loyalty (both by companies and their employees) and the decreasing expectation of lifetime employment, I think labor is in for a tough battle.


Kat said...

definitely says something about the effectiveness of unions... i should say ineffectiveness.

susan said...

I do hope it is the death of the union and the birth of individual responsibility. If you can't negotiate for your salary and quit a job where they treat you poorly, you don't deserve help. Ok, that's a little rough but, really. There is minimum wage now and the national labor board and OSHA and plenty of other places to get help - and no dues. What I've never understood are people who make less than $50,000 a year, going on strike and demanding better pay, losing salary the whole time while their union bosses are making 6 figures. Then they go back to work with a .12 raise and never make up the losses. Hello? Get a clue. Give up the union dues and work hard and negotiate a good salary on your own.

Disclaimer: This is not to say there wasn't a place for unions in history.

T said...

What is even more sad is that the Northwest Mechanics union has absolutely no strike fund. That is, their membership are receiving absolutely no benefits while they are on strike.

At least with the Grocery strike, their union gave the striking members a little something so they could make ends meet. Members of this union are SOL.

susan said...

And speaking of education. Think about how great a public school system you could build if principals could pay the star teachers more money than the placeholders.

David Cho said...

So Terrence, you've decided to put your degree in economics to use here by blogging on pertinent economic topics.

I guess that means I will have to start talking engineering.

Be afraid. Be very afraid.

Anonymous said...

The fluidity of the workforce includes foreign workers who come here and can raise their standard of living by accepting fewer benefits than existing workers have demanded. The same effect occurs where jobs can be outsourced to workers with lower total compensation packages than the US workers have. The answer is not to legislate against outsourcing or immigration, but to understand the economic impact of a global economy. Owners too need to begin expecting lower returns just as their workers are.

Anonymous said...

However, sports strikes are a whole different thing. Sports franchises must have other franchises to play against. Each sports org. (NFL, NHL, MLB etc) is a monopoly but still different from other busineses. I wish that my company could get the city to build us a state of the art facility to work in and compete against other architect firms. If people paid to watch our people work and everyone could move to a different architecture firm every year for more money, and companies gave us $million$ to wear their shoes and clothes and drink their beer ------what a great world this would be. I've forgotten what my point was

susan said...

John Bunyan star controller signed a multi-million dollar deal today with the cross town rival architects. The new contract will bring him 8 million a year for the next 10 years. Let's just hope that carpal tunnel injury he had last year doesn't sideline him.

susan said...

I understand about the fear that immigrants take lower paying jobs so Americans need unions to protect them. And I can tolerate those unions sort of - except I still think union managment takes advantage. But those Northwest Mechanics were making pretty good $$. Yes, I would not want a 25% paycut either but what good does the pay do me if the company goes bankrupt. I suppose the union says NW is lying and using the bankruptcy as a ploy to get a better deal. It is probably a more complex subject than a blog post can solve.

One answer I've always liked is profit sharing. If I owned a company I'd have profit sharing so that the better I do the better the employees do. But of course I'd also pay a fair wage. :)