Are Unions Necessary?

May 5, 2010

Fallacy: “Unions Are Necessary…….
… to balance negotiating power with employers”. This is the ultimate justification advanced for the legal empowerment of unions. It is based on two false assumptions: that there is a fixed company income to be divided between employers’ profits and workers’ wages, and that the division of this pot is a matter of power.
The free market is a meritocracy, where the measure of your merit is your contribution to production. Market competition determines your pay: If a competing employer is willing to pay you more than you’re getting, you change jobs, unless your employer will bid more than his competition. He can only do this if your contribution to production is worth it. Ultimately the consumers provide your pay. The company’s income, and yours, depends on the wants of the consumers and their willingness to bear the cost of the production of your product.
Union negotiations are effectively for a common pot of wages, to be divided among the workers on the basis of type of work and seniority. Since merit doesn’t enter into it, there is very little incentive to work well or efficiently. In a union shop, most workers are free riders on the hard workers. In fact union members will put pressure to desist on any member who “works too hard”. It makes the others look bad.
If the union manages to increase the employer’s wage costs, the employer must pass the added cost on to consumers. If there is competition from non-unionized producers, the employer will lose sales and soon go bankrupt. If all competing producers are unionized and forced to match the wage increase, product prices will rise, consumer demand for the product will drop, and all the producers must lay off some employees.
Unions can maintain high wages only by excluding competing workers. They can maintain their monopoly only by coercion. Until the 1930s the unions provided the coercion. With the advent of labor laws the government provided the coercion.
This, of course, is the purpose of any monopoly, to maximize profit by reducing production and raising prices. In this case the profits go to the union members who escaped the layoff, usually the ones with the most seniority. They are the winners. The employers and the consumers and the laid off workers are all losers.
All of this requires power. Only if government grants unions power to exclude non-union workers from employment, to prevent employers from firing strikers, and to harass and intimidate “scabs”, can the union increase pay for the privileged members..


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