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“Right-to-work”? For a union…

D. Eric Schansberg

Professor of Economics, Indiana University (New Albany)

Adjunct Scholar, Indiana Policy Review

Author, Turn Neither to the Right nor to the Left: A Thinking Christian’s Guide to Politics and Public Policy

dschansb@ius.edu

Labor unions continue to be in the news sporadically. This summer’s 50^th anniversary of the AFL-CIO merger was ironically paired with a maverick union group’s decision to break from the pack (the “Change to Win Coalition”). Then, just in time for Christmas, unionized transit workers in New York City hamstrung The Big Apple by going on strike.

Locally, in recent weeks, Governor Daniels cited Indiana’s “closed shop” laws as a significant reason behind Colgate’s decision to leave Southern Indiana. And “right-to-work” bills have been introduced in both Kentucky and Indiana—“open shop” laws that would allow workers to join a firm that has union representation without being forced to join the union and pay dues.

Clearly, union representation drives up the cost of doing business. It’s more difficult to determine whether this is a deciding factor in a firm choosing to leave a state—or not to enter a state. In any case, artificially high costs cannot be helpful for promoting a state’s economic development.

Unions are a labor market cartel whose members bind together as one bargaining unit to increase compensation. Like a cartel in a product market (e.g., OPEC), the cartel holds together by a.) promoting solidarity among members; and b.) limiting competition from outsiders. All suppliers, whether of labor or lawn chairs, would like higher prices for what they sell. Unfortunately (for them), competitive labor and product markets work against that goal. The solution: restrict competition.

“Closed shop” laws are an important element in promoting solidarity among union members. Obviously, their cartel is strengthened when people who join a unionized firm must join the union and must pay dues.

But unions are especially active in restricting their competition. In product markets, unions are avid proponents of trade “protectionism”—protecting American jobs from overseas competition and protecting American consumers from the bane of lower prices.

In labor markets, unions are fond of using the law to limit their competition as well—from mandatory licensing to laws mandating a “prevailing (union) wage” for public works projects. (The use of threats and violence are also helpful for decreasing non-union competition.)

Unfortunately, the political market activity of unions benefits their members at the expense of consumers, businesses, taxpayers, and competing workers. Unions are clearly not pro-consumer, pro-business, or pro-taxpayer—as their legislative efforts drive up prices, costs, and government spending. Ironically, unions are not pro-worker either—unless one defines workers narrowly as only those in a union. In a word, unions are simply pro-union.

Finally, note that the relative success of the public sector union in New York City is not surprising compared to the relative struggles of private sector unions. In competitive markets in the private sector, firms cannot afford the higher costs of unions. Companies can neither afford to pay the compensation premiums that unions demand nor tolerate the inefficiencies that unions encourage. In contrast, unions can thrive in arenas with limited competition and the relatively high profits that follow—or in the public sector, with the deep pockets of the taxpayer who isn’t paying any attention.

With ever-increasing regional and global competition, private sector unions will continue to fade. In the public sector, unions will continue to prosper—as yet another interest group whose members benefit themselves at the expense of others.

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