The Decline of Unions

The recent two-day strike by the United Automobile Workers (UAW) against General Motors (GM) illustrates clearly the steep decline of the importance of unions in the United States economy. Once perhaps the most powerful union in America, UAW membership among the big three auto companies has fallen by 40 per cent since the last national contract in 2003, and by much more since the 1980's. This union represented about one quarter of a million workers at GM as recently as 1994, but its active membership there has shrunk to under 75,000. As a result of this latest contract, GM will unload its present and future health care liabilities into a trust fund run by the union. Apparently, GM reduced its liabilities for health care by over $15 billions, and eliminated the uncertainty over its future liabilities toward the medical care of its active and retired employees. In return GM committed to keeping a number of plants operating in North America, and made a few other concessions. Perhaps I do not appreciate some subtleties of the contract, but it seems to me GM, once known as "Generous" Motors for its softness in dealing with the UAW (it provided, for example, health benefits without any deductibles), won the confrontation, and came out in better financial shape.

The decline in power of the UAW mirrors more generally the steep fall in American unions. The fraction of workers that are union members peaked in the United States at about 35 per cent in the early 1950's, and declined since then to only 7 1/2 per cent of the non-governmental labor force. The only bright spot for unions is its strength among government employees, fueled by considerable relaxation of laws outlawing strikes by government employees. All developed countries have has some decline in union strength, but generally unions still cover much larger fractions of the labor forces in these countries.

Some of the factors helping to erode union strength are straightforward. The decline in manufacturing has been important since union power has traditionally been strongest in large industrial companies, such as in the steel, aluminum, and auto industries. Globalization has increased the competition from production located outside the control of the unions in any particular country, including production by employees abroad of the same company. Government provisions of unemployment, retirement, and health benefits, and various regulatory controls on layoffs have substituted for similar services provided by unions in the past. Yet these considerations do not seem to be the full story since globalization, the growth of the welfare state, and declines of manufacturing were at work also in other countries, such as Germany and Sweden, and they had much smaller falls in unionism. Presumably, the difference is that laws and attitudes toward unions are much less favorable in the US than in many other nations.

Not that long ago, there was strong support for unions in American academia and among American intellectuals, as well as among blue-collar workers. Scholars who emphasized the negative side of unions, such as Chicago economists Henry Simons, H. Gregg Lewis, and Milton Friedman, were looked upon as crackpot reactionaries. Academics and intellectuals are still generally pro-union, but with little enthusiasm. They have seen that strong unions promote the earnings, and health and retirement benefits of their members who tend to be well paid-production workers at GM start at close to $30 per hour- without doing anything for workers who earn much less. As a result, no current union leader has the prestige, name recognition, or media attention that Walter Reuther, John L. Lewis, and Jimmy Hoffa did several decades ago.

Unions could have an important place in a competitive market economy, but their organization would look different than that of present day industrial and craft unions. Men and women working for large, impersonal corporations may prefer to bargain over wages, work rules, and health and retirement benefits collectively through company unions rather than individually. In particular, workers who have spent many years with the same company may find a union helpful in protecting against management that tries to take advantage of the difficulties older workers face finding good jobs. Other workers in the same industry may elect to not have a union and prefer to bargain individually for wages and benefits. Companies with unions of their employees would compete for profits and employees against companies with other unions, and also against non-unionized companies. This type of union structure is called "competitive unionism".

Actual unions in most countries, however, are not company unions, but organize workers in different companies, often in the same industry, into one union, as with the UAW, or the United Steelworkers of America. By organizing across companies in the same industry, unions hope to exercise greater economic power since they can bargain for similar benefits in competing companies, and can call industry-wide work stoppages. These unions, in effect, try to get monopoly power in labor markets that enable them to boost their wages and other benefits above competitive levels. The Clayton Act of 1914 generally exempted trade union negotiations from anti-trust laws, which enable unions to openly seek what amounts to monopoly gains.

In the past I opposed this exemption as making no economic sense because it allowed a minority of unionized workers to raise their benefits at the expense of consumers and other workers. But with the steep decline of unionism, it no longer matters much, at least in the US and UK, whether unions are exempt or not from the anti-trust laws that apply to companies. Union attempts at monopoly power cannot be important (outside the government sector) in economies where under 10 per cent of non-governmental employees are unionized, and where companies, and indirectly workers, must compete on world markets. The cost in litigation and regulatory burden of applying anti-trust laws to unions would exceed any gain from eliminating the union exemption from anti-trust actions.