This speech was delivered to the Legislation Committee
of the Grand Rapids Chamber of Commerce,
May 12, 2003.

I’m here to speak about the legislative agenda that Michigan should adopt to assure its prosperity. I’ll get fairly detailed, but let me begin with some very basic principles. The Mackinac Center for Public Policy is committed to the principle that economic decision making, as a general rule, should be left to individuals in the free market.

There is no area where individual freedom is needed so much as in the labor market. For the vast majority of us, the “deals” we make for our labor are the most important we will make. My money goes in dozens of different directions: investments, housing, groceries, car, girlfriend, all the way down to my weekly subscription to The Sporting News. But all my income derives from one source: the Most Benevolent Mackinac Center for Public Policy.

One would think that I would want the most input possible on that one agreement, one that takes up so much of my waking hours and provides all of my spending and investment money. But under certain circumstances, my ability to negotiate for myself at all may be completely removed, leaving me with virtually no input on the most important economic deal I have to make.

I am referring, of course, to federal labor law, and to state law that governs public-sector employment in Michigan. These laws would not allow me, if I were unionized to bargain on my own behalf. Far from it — they lock me into a system of collective bargaining in which I have little or no influence over the decisions of the union that represents me. A properly balanced labor law — one that respects the economic prerogatives of individual men and women, would allow individuals to opt out of a collective bargaining agreement and at least attempt to negotiate on their own.

As businessmen, you probably have representatives, an attorney who represents you in court if you are sued or if you have a collections problem, perhaps. Or you have sales representatives who can commit your firm to sell goods or services. But you also have fairly tight controls over your representatives, to make certain what they do is in your firm’s best interests. If your attorney is doing a poor job you can bring in a new firm.

The same should be the case for a union that represents workers. Those workers, if they are dissatisfied with their representation, should be able to change it or opt out of it. There are procedures in place for removing a union. But as a practical matter workers have far less control over the unions that represent them than does a businessman over his representation, and the procedures for getting rid of a bad union are fraught with difficulties, and sometimes dangerous to a person’s working career. This is a serious flaw in our labor law that must be addressed.

That unions improve wages and working conditions is often assumed but rarely tested, and even a good union may wind up hurting individual employees. Consider the example of seniority: Imagine a young worker who is laid off based on the simple fact that he was the last hired, even though he is every bit as productive, or even more so, than those with more seniority, or who is passed over for promotion, even though he has all the necessary skills, again for lack of seniority. Regardless of whether or not one believes the use of seniority is fair, it clearly hurts this worker. There’s no guarantee that he could get a better deal negotiating for himself, but as things now stand, the law does not even permit him to ask.

Unfortunately, there’s little we can do about that in the private sector, since that area is covered by federal law. But there are things we can do here in Michigan to restore labor freedom. We propose beginning with teachers in the public schools.

The Teachers’ Bill of Rights, developed by the Mackinac Center for Public Policy, would restore individual autonomy and respect to the teaching profession by allowing teachers to negotiate with their employers either through a union or on their own. Teachers who excel in their fields would be able to negotiate bonuses, and school districts across the state would be able to recruit teachers in hard-to-find subject areas, like computer science, the hard sciences, and mathematics, by setting aside the rigid salary schedules that the school employee unions typically insist upon, and offering the kinds of salaries qualified people in these fields command.

Another way Michigan could help restore labor freedom — and boost the state’s economy in the process — would be to enact a state right-to-work law. Just a year ago we worked with Bill Wilson, a former senior-level economist with Comerica Bank, to produce a 30-page report showing that, by nearly every economic measure, states with right-to-work laws were outperforming Michigan, in some instances by substantial margins.

For example, Michigan employment has grown, on average, at half the rate that it has grown in right-to-work states over the last 30 years. And the wage gap between Michigan and right-to-work states is narrowing. Average annual growth in per-capita disposable income over the past three decades was two-tenths of a percent higher in right-to-work states than in Michigan. While this may seem a modest difference, remember that it has been building over 30 years. And there’s trouble on the horizon: Per-unit labor costs are significantly lower in right-to-work states. Michigan is next to last among the states in this category; only New Jersey has more costly labor. This will make Michigan less competitive as the economy becomes more and more global in scope. Fixing the problem will not necessarily require lower wages, but for wages to remain high Michigan workers will need to become more productive. A right-to-work law might help with that. Economic research indicates that unions in right-to-work states impose fewer work rules, allowing for greater individual initiative and efficiency.

There are other changes we could make that would improve Michigan’s business climate and make unions more responsive to the interests of individual workers. One is known as “paycheck protection.” Under Michigan’s paycheck protection law, unions may not use a member’s dues money for political purposes without signed authorization from that member. The union movement has adopted an aggressive and partisan political posture well out of line with the sympathies of the people they supposedly represent. If one looks at the 12 most active political action committees (PACS) from the 2000 election year, you’ll find six labor union PACS, and six corporate or trade group PACS. The six labor union PACs spent 94 percent to 100 percent of their funds on Democratic candidates. Did the six business PACs spend similarly in favor of Republican candidates? No. In fact, they spent anywhere from 18 percent to as much as 70 percent on Democratic Party candidates.

Do union members themselves vote overwhelmingly Democratic, which would justify union expenditures favoring Democratic candidates by overwhelming margins? Actually, anywhere from 35 percent to 45 percent of union members vote for Republicans. Political consultant Steve Mitchell estimates that 40 percent of Michigan union member votes went to Dick Posthumus in the last gubernatorial election.

Thus does union political spending, made with mandatory union dues paid by workers, distort the political debate in Michigan, making the positions taken by union leadership seem to have more support than they actually do, even among union members themselves. Paycheck protection has dramatically reduced the ability of labor PACs to spend against the preferences of union members, but the spending categories it covers needs to be expanded so that it also includes get-out-the-vote, issue advocacy, and other union political activity that doesn’t show up in campaign finance reports. In the process we will increase union accountability to the workers they represent.

Another way in which we can expand union accountability is by improving financial accounting by unions to their members. Current financial accounting rules are very cursory, and federal reports, known as LM-2 forms, provide little of the information union members need in order to gauge their union’s cost-effectiveness or economic health. The Bush administration is working on LM2 form update, which will improve the value of LM2 forms dramatically. But it will apply only to the private sector. For most of the government union sector there is no reporting requirement whatsoever. We estimate that government employee unions in Michigan take in more than $100 million in dues annually, money that is largely unaccounted for. No large corporation could get away with anything remotely similar in this day and age.

Meanwhile, there are several laws becoming more common in Michigan, favored by unions, which distort the labor market and ultimately do not help workers. One type is “living-wage” laws, adopted by 13 local governments across the state, which mandate what amounts to a higher minimum wage for all workers employed on city contracts. These statutes increase the cost of government while reducing the number of jobs available to unskilled workers. Few of the increased wages that come about as a result of these laws will go to families. In fact, most low-wage workers are young adults still living with another family member, who is also employed. The Michigan State House of Representatives has passed legislation to preempt living-wage laws, and the bill is currently awaiting action in the state Senate.

Another type of union-inspired laws that ultimately hurt Michigan workers is “prevailing-wage” laws, which specify that workers on state construction contracts must receive union-scale wages, even though most of the construction industry is non-union. We estimate — conservatively — that the prevailing-wage law adds around 10 percent to the cost of construction on any project. When you realize how much the state spends on building and remodeling its buildings, you see that this is a lot of money. Exempting public school systems from the prevailing-wage law would save state taxpayers $150 million annually, which would be very useful in balancing a tight budget, and would allow school districts to put more money into the classroom.

While this isn’t exactly legislative, there is a situation many of you are probably familiar with that I would like to comment upon. That is, of course, the new contract the UAW has signed with Johnson Controls. We are seeing a new union organizing tactic — using outside pressure from the community or, in the case of Johnson, from its customers, the union pushes for an agreement that the employer will remain neutral in the midst of a union organizing drive, and recognize the union as exclusive bargaining agent if it is able to collect a majority of workers’ signatures on union authorization cards.

This tactic, known as a “card-check” agreement, is being used by unions to address losses in members, a trend dating back more than 20 years. According to U.S. Census data, 16.4 million U.S. workers were unionized in 1992. That number had declined to approximately 16 million by 2002, in spite of the creation of 16.3 million new jobs during the same period. Michigan unions were no exception to this trend, seeing their membership rolls decline from approximately 972,200 to 896,500 between 1992 and 2002. Yet, overall employment in Michigan had been on the increase, from 3.8 million to 4.2 million, during the same period.

A large share of those losses was suffered by the UAW, which nationwide lost 96,000 members, or approximately 10 percent of their members, last year.

Unions are losing their appeal to many working men and women, as demonstrated by the negative results of union elections conducted by the National Labor Relations Board. Even though organized labor is putting more emphasis on organizing, the number of NLRB elections — to see whether employees in a particular workplace favor unionization — has been declining in recent years. Looking at the UAW specifically, it was one of the 10 most active unions last year in organizing new employees, but it participated in only 65 elections nationwide, with an election success rate of only 51 percent. The inability to win elections led the unions to look for shortcuts, hence its insistence on neutrality and card-check agreements.

Last summer, the UAW engaged in seven strikes at various Johnson facilities in an attempt to force the company to capitulate and allow unionization of all its employees. Johnson stood its ground until the strikes started to have an impact on he production process of one of its prime customers. That customer, one of the Big Three automakers, then leaned on Johnson to agree to the UAW’s neutrality and card-check terms, which of course Johnson had to do in order to maintain its relationship with its customer. So the agreement came about, as the result of a union “corporate campaign” against Johnson.

Let’s take a look at the standard set by the UAW, which is applicable to Johnson’s Holland plant, and likely will be applied in future labor agreements in Michigan.

Johnson’s affirmative obligations under the agreement were:

  1. To remain totally neutral when it comes to the UAW and the issue of UAW representation of employees in the covered plants and to communicate to employees that they are totally neutral;

  2. To tell employees that JCI-ASG has constructive and positive relationships with the UAW and other Unions at other Johnson Controls plants;

  3. To not assist or support any person or group that is opposed to the UAW or UAW representation of employees;

  4. To not tell employees about the potential negative effects or results of UAW representation.

Johnson will also:

  1. Provide the UAW with a list of the names, addresses, dates of hire, classifications and departments, for all employees in the plant.

  2. Provide the UAW with access to employees in non-work areas on non-work time under certain conditions;

  3. Provide the UAW with access to the plant premises for a meeting with the employees under certain conditions. In essence, these are captive audience meetings where unions may post observers.

Union neutrality and card-check agreements constitute a lawful practice, generally speaking. An employer is not legally obligated to oppose unionization, and can recognize a union based upon signed cards from a majority of uncoerced workers. There is a real question, however, as to the legality of the arrangement because of the active assistance Johnson is giving to the UAW. There also are potential problems with card-check certification. Workers may be signing these cards not understanding that they are, in effect, signing a petition for unionization. And the personal information being obtained about employees opens the possibility of intimidation. We believe that NLRB-supervised, secret-ballot elections are a more reliable gauge of union support than card-check agreements.

There is no prior NLRB ruling that directly applies to the facts and circumstances of the Johnson arrangement. But there are reasons to believe that, under the right conditions, the NLRB will review this agreement. The bad news is that it may take years for the NLRB to rule, in which case the UAW could be firmly entrenched in the plant, making it impossible for workers to exercise their right to deal directly with the company.

Why is the UAW so intent upon penetrating the labor market in Western Michigan, and why is it resorting to questionable tactics such as neutrality and card check? First of all, union density in this area — the percentage of manufacturing workers who are unionized in the Grand Rapids Metropolitan Statistical Area, which includes Muskegon and Holland — is 15 percent, compared to the statewide average of 27.3 percent. Second, workers in this region are unlikely to vote in favor of unionization in an NLRB-run election. After all, the private-sector union manufacturing wage in this region is $15.97 an hour, while the non-union wage is $17.74 an hour, a difference of $1.77 per hour in favor on non-union workers.

This private deal dramatically increases the risk that Johnson Controls’ Holland plant will be organized by the UAW. Among the effects of this will be an additional $2 million in union dollars available to influence political campaigns or organize other facilities in Western Michigan. I believe, however, that an educational campaign directed at Johnson workers, and focusing on the implications of the neutrality and card-check agreements and their remaining rights, will enable them to make an informed choice about unionization. But the focus must be on education and worker rights, because this is ultimately their choice, and their wishes must be respected.

Which brings us back to first principles — again, unionism per se is not the problem. The problem is federal and state laws that violate individual rights and make unions less accountable to the workers they represent. The power to speak or negotiate for oneself may not always work — that’s why we have unions in the first place — but it is not to be taken away casually by government, unions, or employers for that matter. Unions should always be responsive and accountable to the people they represent, in concrete, practical terms. One of our goals should be to strengthen that accountability.

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Paul Kersey is labor research associate at the Mackinac Center for Public Policy, a research and educational institute in Midland, Michigan.