Earlier this month, Service Employee International Union President Andy Stern told the Las Vegas Sun, “We spent a fortune to elect Barack Obama — $60.7 million to be exact — and we’re proud of it.” Stern should be proud of his $60.7 million investment. There is a good chance that thanks to the Obama administration, big labor will succeed in passing legislation that has the potential to reverse big labor’s decades long decline. And that will mean less jobs and a slower economic recovery for all of us.
Proponents of big labor argue that unions “give workers a stronger voice so that they can get a fair share of the economic growth they help create.” But that “fair share” does not descend like manna from the heavens. It has to come from somewhere. And that somewhere is the unionized firm’s bottom line. Studies typically find that unionized companies earn profits between 10 percent and 15 percent lower than those of comparable non-union firms. But big labor’s effect on the economy does not end there:
Unions Compress Worker’s Wages: Unions want employees to view the union–not their individual achievements–as the source of their economic gains (without the union, workers wouldn’t get “fair share”). As a result, union contracts typically base pay and promotions on seniority or detailed union job classifications. Unions rarely allow employers to base pay on individual performance or promote workers on the basis of individual ability. Consequently, union contracts suppress the wages of more productive workers and raise the wages of the less competent. They may raise the overall wages of workers as a whole, but mostly unions just redistribute wealth between workers.
Unions Kill Jobs: By eating up 10 to 15 percent of a firms profit, unions both make undertaking new investments less worthwhile and reduce the money that firms have available for new investments. Over time, this makes unionized firms less competitive. Consider the manufacturing industry. Most Americans take it as fact that manufacturing jobs have decreased over the past 30 years. However, that is not fully accurate. Unionized manufacturing jobs fell by 75 percent between 1977 and 2008. Non-union manufacturing employment increased by 6 percent over that time. In the aggregate, only unionized manufacturing jobs have disappeared from the economy. This pattern holds across many industries. Union jobs have disappeared especially quickly in industries where unions win the highest relative wages.
Unions Slow Economic Recovery By raising their member’s overall compensation, unions reduce business investment and the overall number of jobs in an industry. Economists have found that states with more union members took considerably longer than those with fewer union members to recover from the 1982 and 1991 recessions.
Heritage fellow James Sherk writes:
Unions are labor cartels. Cartels work by restricting the supply of what they produce so that consumers will have to pay higher prices for it. OPEC, the best-known cartel, attempts to raise the price of oil by cutting oil production. As labor cartels, unions attempt to monopolize the labor supplied to a company or an industry in order to force employers to pay higher wages. In this respect, they function like any other cartel and have the same effects on the economy. Cartels benefit their members in the short run and harm the overall economy.
Quick Hits:
- The White House unveiled their own news network yesterday, after keeping the press from covering a game of pickup basketball. ABC News dubbed it “OTV” and wondered if “Obama White House officials think their media coverage isn’t flattering enough?”
- California Governor Arnold Schwarzenegger has proposed borrowing $2 billion from local municipal governments to make up for budget shortfalls; which would leave many cities without cash to pay first responders or keep libraries and parks open.
- Reversing his earlier position, Governor Arnold Schwarzenegger also promised not to attempt any more tax increases after California voters overwhelmingly voted against tax hikes, saying California “will live within its means.”
- Fox News reports that the White House is preparing to move GM into a bankruptcy plan as soon as next week, where GM could collect just under $30 billion in additional taxpayer dollars.
- Politico reports that Congressional Democrats and former Vice President Dick Cheney have put President Obama on the defensive for the first time in his presidency.
