Why Unions Don’t Work
April 29th, 2008
I fully expect to get a lot of flack for this particular post, simply by the aggressive nature of the title. The topic of unions has been so politically and socially charged for so long that many people are simply not willing to touch the subject, and yet it’s something that, much like any social convention, needs to be re-examined every so often.
So let me begin my making my claim: Unions don’t work in a free market environment. In fact, they actively harm any industry in which they are present, unless they are ubiquitous.
The argument goes something like this:
Assume you have an industry of arbitrary size, that draws on a labor pool with a common set of skills. Let us also assume that the competence in this labor pool follows a standard distribution of some arbitrary breadth, from completely competent to completely incompetent, and that the additional contribution provided by an individual at any level is linear. Lastly, let us assume that the hiring process is largely random, selecting arbitrarily from the available labor, and that there exists a point somewhere below the average where the contribution a worker gives to the industry is equivalent to the cost of that worker. We’ll call it the “point of incompetence”.
Figure 1: An Arbitrary Labor Market
In a pure supply/demand economy, the industry would draw from this labor pool in such a way that eventually, after some employee turnover, the most competent individuals would all have jobs, and there would be a cutoff somewhere below the average line where the cost of hiring a less competent individual is higher than the contribution they can provide to the industry. It is important to understand here that most likely, the entire labor pool will have been hired at some point, because the hiring individuals don’t really know how competent a particular worker is until they put them to work.
Figure 2: Employment in a Free Market
Note that in this environment, the average productivity of the industry is actually above the average competency of the labor pool, because of that magic cutoff line.
Now lets add the union, and let us make it ubiquitous. In this case, everyone who is hired into the industry becomes a member of the union, and as a result is subject to all the given union protections: Protection from firing being the one that matters the most in this argument. Furthermore, let me reiterate that candidate selection across the market is evenly distributed.
Given that, the industry now samples randomly from the labor pool, but once a hire has been made they are no longer allowed to trade out said employee for one who’s more competent. In short, the industry receives an even distribution of the available labor rather than a selected segment thereof. As you can see in the graph, the distribution of the labor pool now closely matches the distribution of skill and competence across the entire market, however there are some highly competent individuals who are not hired.
Figure 3: Employment in a Unionized Market
What is also important to point out is that contribution is by individual, and not net across the entire market. Therefore the loss of productivity at the center of the graph is actually far greater than that of the few individuals at the right, because there are far more of them.
Lastly, let us look at a partially unionized market. Here, we have some companies that are unionized and some that are not. In other words, some companies are willing and able to be selective in their candidate selection, and some are not. In this case the non-union companies realize that the additional contribution provided by a highly skilled worker is worth a premium in compensation, and are thus willing and able to pay more for higher skilled labor, outbidding the unionized companies. The end result of this is a concept I’m going to call the Hiring Line (not an official term), which marks the point where the labor needs for the non-union companies are met. From that point to the left, the unionized companies take whatever labor is left in the market, and due to union restrictions have to accept an even distribution.
Figure 4: Employment in a Partially Unionized Market
As you can see, non-unionized companies are making off with the best talent, and unionized companies have to make due with what’s left over. Practically speaking, this means that union companies cannot offer even an average level of service, because the cream of their labor market is being scalped by those willing to pay more. In short, they’re crippled.
To take this to the slightly more real-world example of Education. There are some schools that are unionized and some that are not. This means that the latter will have higher quality teachers resulting in an overall better education, and the former will have lower quality teachers which will result in a below average education. Even if the school system was fully unionized, the best it could offer is the average.
So let me ask you this: Would you trust your children to a school system that can offer, at best, an average education?
This is an answer to the last question:
There is one point you missed: sending children to a nonunionized school with very good teachers where the teachers are taken advantage of because they can choose between no job or a lousy paid job (which does Not make them bad teachers!!) (SMA)
There is the gap you also missed between a socially responsible system (and the free market ist NOT such a system) and the unionized system. Unions are companies by themselves, they make profit and they decide what to do with it over the heads of their members. If we had a socially responsible market everyone that wants to work seriously should find work (and we would need no unions). Hiring quality workers has a lot to do with how you treat them. Good examples are the early industrial companies like “Krupp” or some coal mining companies who built houses for their workers, had their own health care system and child care. They could rely on their workers quality being part of the system. But this can not be let up to the individual company to do or not to do; they ought to be bound to a social responsible policy by the state.
People would pay more if they would know that the price keeps the workplaces in the country and that every penny a company earns goes back into improving the local market. Only then do they get tax breaks!
WOULD that be NICE!!
Friedel- you are a socialist, and in typical liberal-socialist fashion you did not offer anything quantitative to support your socialist viewpoint.
You didn’t exactly present any quantitative either, Dave. Socialism is a valid and validated form of government, and statements such as yours are uneducated and inflammatory. It might not be your preferred form of government, but it is valid nonetheless.