Powerful, once upon a time.

Inequality Isn't a Union Issue

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
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I know it’s been getting to be All Supreme Court, All the Time around here, but Monday’s decisions have spurred so much back and forth that I can’t resist weighing in. Up next: Harris v. Quinn, the other ruling, which held that home health-care workers and other quasi-public employees cannot be forced to pay dues to a union in order to cover collective-bargaining expenses.

I’m going to leave aside the back and forth over whether this was good for workers (which workers? The ones who want to opt out, or the ones what want a union?). I will also leave aside the battle over whether this was legally correct. What I’m interested in is the larger economic effects -- specifically, as Beverly Gage’s article in Slate argued, that this is going to make inequality worse:

It is no coincidence that the labor movement’s glory days also yielded the building blocks of the social welfare state, including Social Security and overtime laws. There were many reasons for these developments, including Cold War image pressure: If you wanted to compete with the Soviets as the world’s model society, it was unseemly to concentrate too much wealth at the top. But unions played a key role in pushing for these changes at a national level, as well as securing wages that helped to even out the divide between executives and their employees. The middle decades of the 20th century are the only time in modern American history when inequality actually decreased, and Americans began to play more and work less. You’ve probably seen the union bumper stickers: “From the folks who brought you the weekend.” That slogan reflects a basic historical truth.

. . . Today, as labor historian Joseph McCartin has pointed out, the few unions that remain have all but given up on what was once their most potent weapon: the right to strike. In 1952, a fairly typical year in labor’s heyday, more than 2 million workers went out on strike. By 2002, just 46,000 workers engaged in that kind of action, and the numbers have fallen still further since. In 2009, the worst year of the worst economic crisis since the Great Depression, just 13,000 workers went on strike, in only five separate work stoppages. There was no shortage of economic complaint or suffering, just a shortage of organized action.

For consumers, this might be seen as a welcome development: The trains keep running, the schools stay open, the mail gets delivered. For anyone who cares about inequality, however, the near disappearance of American unions -- even of strikes -- should be cause for concern.

So is this decision a harbinger of even more dramatic increases in inequality?

Maybe. But I tend to think that these arguments get cause and effect backward. Unions were strong in the 1960s and 1970s for the same reasons that inequality was low -- and while the law may have been one of those reasons, it was at best a minor reason.

To see what I mean, look at the United Automobile Workers union, which is a pale shadow of its former self. Its workers have made huge concessions, and its numbers have dwindled to the point where the union, like many of the mighty industrial unions of the past, has more retirees than workers.

Is that because the law won’t let them strike? Obviously not; the problem is that striking wouldn’t do them any good, because the companies they work for are too fragile to give them more money. A more labor-friendly National Labor Relations Board couldn’t magically generate the profits and market share necessary to pay hundreds of thousands of workers above-market wages, as General Motors Co. did in the 1960s.

The modern industrial worker’s main problems, which have nothing to do with the law, are:

  1. Immigration.
  2. Automation.
  3. Trade.

Gage thinks it’s no coincidence that the movement’s glory days, and widespread declines in inequality, overlapped with the New Deal and the Great Society. I think so, too. I also think that it is no coincidence that all of those things overlapped with the Immigration Act of 1924 and the Smoot-Hawley Tariff Act. With America’s labor market closed to outside competition, it was easier for the workers inside our borders to claim a greater share of output.

There are still a few unions with that kind of power, mostly municipal service workers and longshoremen, whose strikes can actually cripple large areas. But thanks to trade liberalization in the 1950s through 1980s and a dramatically more liberal immigration policy starting in the mid-1960s, most companies -- and therefore most unions -- can no longer operate cozy cartels in which an industry’s workers demand raises, and the industry’s firms raise prices to pay those wages. In most industries, if you strike at your company, the only person you hurt is yourself, as customers snip you out of their pipeline and replace the products you make with cheaper foreign substitutes. That drastically limits the ability of workers to extract gains from their firms, even if the law weighs heavily on their side.

Among economists, this is known as global factor price equalization, and what it boils down to is that as long as there’s a big pool of cheap workers in the world, American workers are going to find it hard to get the kind of deals they did in the 1960s and 1970s. (Though even that was seen as anomalous at the time; journalist Paul Ingrassia quotes the union boss who negotiated GM’s sweet contracts as lamenting that he’d convinced workers they were supposed to get a rising share of profits every year, which was mathematically impossible.)

Adding to this problem is automation; machines can do more and more of what used to require strong backs, sharp eyes and human brain processing. Unions could and did slow down automation within plants and companies, but that left them vulnerable to upstart competition from other firms that, even if unionized, got a cost advantage from having fewer workers. The better the deal the union workers were getting, the bigger advantage the automated operations had over their employers. Add in trade, and this sort of rear-guard action quickly became unsustainable; if consumers couldn’t buy something made by machines, they’d buy something made by cheap foreign labor instead.

This was bound to put sharp downward pressure on wages. It’s most obvious in industries such as steel and autos, where the workers had the most bargaining power. But it’s a nationwide -- indeed, a global -- phenomenon, in all walks of life. Unless you can outcompete a machine, and a Chinese worker, your wages have suffered over the past few decades. That’s not all bad, even if you lament the decline of industrial workers; it’s meant big gains for poor consumers and huge improvements in the lives of millions, maybe billions, of desperately poor people in the developing world. But it’s hard on the people who used to populate those unions.

Unless we are going to pull out of the World Trade Organization, slam shut the door to more immigration the way we did in 1924, and slap a 300 percent excise tax on industrial robots, this will continue to be the environment in which American workers negotiate. Trying to fix that by fiddling with the interpretation of our labor laws is a bit like . . . well, rearranging the work shifts on the Titanic.

Of course, government workers are a bit different, because governments don’t face the same constraints as manufacturers. But they do face constraints nonetheless. At all levels of government, we are approaching the natural limits of expenditures. There is no free money to be dispensed by the gracious hand of the NLRB.

So it actually seems to me quite unlikely that this is going to have much effect on inequality. Which is not to say that people who worry a lot about inequality should be happy; the reason that this won’t have much impact is that nothing we do will have much impact unless we take drastic, dangerous actions to close off our economy to outsiders. And like many people, I think that cure would be worse than the disease.

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To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net