Contracts
play a pivotal role in a free economy. Every time we buy or sell something,
whether it is a home or a cup of coffee, there’s a contract. Sometimes these
contracts are long, complicated things that are the product of weeks of
bargaining, like the contract that the UAW just agreed to with GM. Sometimes
they are informal things that are made and expire so quickly we hardly notice
them. You grab a table at the local diner and the waitress takes your order.
You’ve just made a contract. After you’ve finished your meal and you pay the
bill, the contract is done.
For a
majority of Americans, the most important contracts we’ll ever agree to are the
ones that we make with our employers. Those are the contracts that govern how
we’ll spend 40 or more hours a week and how we’ll fund nearly all of our
purchases. Depending on the specific terms, these contracts may also play a
large role in how we finance our retirement or receive health insurance.
But the
laws that govern these contracts get little attention considering just how
important they are. That applies in particular to the laws that govern union
representation, which is unfortunate because Michigan is at a point where it
needs to re-evaluate the role that unions play in the state’s economy and
government.
Union
membership has been dropping for decades. Between 1986 and 2006, unions lost 1.6
million members and saw their percentage of the workforce decline from 17.5
percent to 12 percent. Michigan unions are somewhat stronger but they’ve been
losing members here as well, losing 275,000 members between 1986 and 2006
and seeing their share of the workforce drop from 28.3 to 19.6.
But
unions remain very influential in the political realm, and they can be counted
on to oppose a wide range of free-market solutions to the state’s problems.
Meanwhile, the core of our labor law dates back to the 1930s, when the economy
and society and most of the jobs themselves were very different.
At the
top of this page you’ll find an illustration of where labor law has been, where
it is now, and where it really ought to go. Labor law has swung wildly from
periods where unions were subject to needless restrictions that shortchanged
workers to the current day where unions are protected to the point that they are
unaccountable to the people they are supposed to represent. Union officials will
often claim that free-market ideas are anti-labor. Mackinac Center scholars have
been critical of a lot of things that union officials have done, but also
complimentary when intelligent union leadership presents itself. A look at the
larger picture will show that the restoration of balance and accountability that
will enhance worker rights.
The labor
law structure of today has been in effect for more than 70 years. An entire
generation of union leaders, lawyers, economists and policymakers has grown up,
been educated and worked through their careers without seeing any major change
in how relations between workers, unions and employers are governed. One effect
of this lack of change is that few people grasp the extent to which the
government interferes in this important area of the economy.
Relatively modest changes, like a state
right-to-work law, seem radical, but if one takes a slightly longer view of
history they are anything but.
In the
late 1800s, as industry began to take hold in the U.S., workers began to see
value in banding together to present a united front to employers. Early labor
unions such as the National Labor Union, the Knights of Labor and the Industrial
Workers of the World rose and fell, but eventually the American Federation of
Labor found lasting success by focusing on "bread and butter unionism" that
improved wages and conditions in the workplace while placing a lower emphasis on
political activism.
The AFL
prospered in spite of the lack of supportive legislation, but the judiciary of
that period was prone to take sides against unions. Looking at the pendulum
above, labor law tended to tilt to the left side, towards restricting unions.
Many of these decisions gave short shrift to the fundamental rights of workers.
To give just a couple of examples, the Supreme Court of Massachusetts arguably
barred peaceful picketing in one case. One New York court enjoined a strike
because the union’s demands included limits on working hours designed to
increase employment opportunities. In addition, the courts were prone to use the
Sherman Act, which Congress passed in response to the perceived threat of
industrial monopolies, against unions on the grounds that unions tended to act
"in restraint of trade."
The early
to mid-1930s saw the passage of federal legislation that swung that pendulum in
the opposite direction. The keystone was the Wagner Act, now known as the
National Labor Relations Act.
The NLRA
gave unions remarkable prerogatives. Where union recognition had been at the
discretion of employers, it was now mandatory, and where union membership for
workers was optional, it could be compelled. The natural sympathies for working
men and women, combined with a history in which unions had been treated unfairly
in the courts, tended to obscure the dramatic shift in power, but as Friedrich
Hayek observed in the "Constitution of Liberty,"
"...any union effectively
controlling all potential workers of a firm or industry can exercise almost
unlimited pressure on the employer … where a great amount of capital has been
invested in specialized equipment, such a union can practically expropriate the
owner and command nearly the whole return of his enterprise."
To Hayek, control over workers was the key to control over enterprises:
"...the coercion which unions have
been permitted to exercise contrary to all principles of freedom under the law
is primarily the coercion of fellow workers. Whatever true coercive power unions
may hold over employers is a consequence of this primary power of coercing other
workers..."
And
that’s where we stand today. In Michigan we have recently been treated to the
drama of negotiations — and a pair of short strikes — in which the main issue
was whether or not Detroit’s automakers would be able to restructure its
workforce and compensation in such a way as to make the company competitive. In
these negotiations the actual workers were largely bit players and the critical
role was played by UAW President Ron Gettelfinger.
As things
stand now it appears that the UAW and the companies were able to work out an
agreement that will make Detroit rolling iron much more competitive, but a
miscalculation on the part of Gettelfinger and those close to him might have
denied Detroit’s automakers the ability to make the necessary changes, with
catastrophic consequences for tens of thousands of autoworkers, not to mention a
state where automobiles are the state’s signature industry.
Gettelfinger has this power because one cannot legally work in most blue-collar
jobs at GM, Ford or Chrysler without accepting the UAW’s representation. The
companies cannot go around the UAW to deal with their employees directly, and as
a practical matter it has become nearly impossible for workers at these
companies to remove the UAW. We in Michigan are fortunate that this time the
union’s leadership has exhibited some understanding of the economy. They have
not always done so. If they had acted rashly neither the workers nor management
nor the residents of Michigan would have had any effective remedies. As it is, a
lot of Michiganians are left wondering if the concessions might have been less
sharp, and the job losses and economic distress suffered throughout Michigan
less severe, if the UAW had been willing to make concessions earlier.
Which
leaves the people of Michigan with an important question: Was it wise to put so
much economic power in the hands of one organization?
The
National Labor Relations Act works in many ways to empower union officials and
shield them from accountability to the workers that they are supposed to
represent:
Mandatory recognition by employers is perpetual. Once a union is
installed an employer must continue to treat that union as its workers’
representative unless it has remarkably strong evidence that the union has lost
the support of its employees.
An individual worker in a union-represented bargaining unit may
not declare himself independent and bargain on his own behalf, but rather must
accept what the union negotiates for him or find work somewhere else. This in
turn makes it much more difficult for the workforce to know whether or not the
union is securing them adequate benefits, there being no non-union coworkers of
similar job classifications against whom to make a comparison.
If a majority of workers are inclined to
remove the union it is possible to do so, but the process is difficult and
seldom attempted. Workers typically must wait until a collective bargaining
agreement is near its end to start the process, which requires the collection of
signatures from 30 percent of the workforce (a daunting task in a large company
with thousands of workers scattered at several plants) in order to set up a
worker vote to remove the union. Just collecting the signatures is bound to
attract the attention of union officials, who understandably will not look
kindly on those who lead the petition-gathering effort.
In most states (those without a right-to-work law, like Michigan)
a union can ask the employer for a contract clause stating that all workers
covered by that contract must either join the union or pay an agency fee in lieu
of dues. There being no financial incentive for the employer to refuse, the
union almost always gets this in the contract. Union coffers are thus enlarged
by membership dues extracted from workers who are indifferent towards or even
opposed to the union. This money can come in handy for, among other things,
fighting off petition drives to remove the union.
The
result of all this is that rather than acting as a representative for workers —
closely accountable and subject to replacement if they fail to meet employee
expectations — unions are prone to become a third force in the workplace,
largely free to pursue their own interests in all too many cases. This sort of
thing would be rare in a real free market, where workers would quickly abandon a
union that was not pursuing their best interests if they had the freedom to do
so.
The
extent to which compulsory unionism distorts the employment market and hampers
economic growth is difficult to calculate, but a hint can be found in the record
of states with right-to-work laws. Right-to-work is a relatively modest step but
it does restore some worker freedom and restraint over union activity by
prohibiting agency fees and allowing individual workers to decide whether or not
the union has earned their financial support.
Under
right-to-work, union officials must persuade workers to pay dues, rather than
simply negotiate for them with employers. It may seem ironic, but this law
empowering workers has proved to be a powerful magnet for employers, who given
the choice tend to prefer to start or expand their businesses in states with
right-to-work laws. This increases the demand for labor in right-to-work states,
creating jobs and boosting wages.
There are
a number of reasons why this is so, but they boil down to one thing: It is
better to have unions that are accountable to the men and women they represent
than it is to have unions that are accountable to nobody.
As our
recent report on the economic effects of right-to-work laws shows,
right-to-work states have noticeably higher rates of economic growth, have added
jobs at twice the rate of non-right-to-work states, and have
higher rates of disposable per-capita income growth as well. Michigan has
historically prided itself on being a high-wage state, but we estimate that by
2010 most right-to-work states will have disposable per capita income that is
higher than Michigan
Just as
important, Michigan has extended this same sort of mandatory unionism law to
government employees — all the requirements of mandatory recognition, forced
membership and forced dues with all the inflexibility that the federal
government imposes on unionized workplaces in the private sector.
The
results of this have been fairly clear. Government employee unions in particular
are one of the most stubborn obstacles we face to enacting rational policies
such as privatization, educational choice and balancing government budgets with
spending reductions rather than tax increases that choke off economic growth. We
estimate that in Michigan alone government employee unions receive more than
$150 million annually from state and local governments in the form of union
dues. Court cases on the use of union dues have found that little of this money,
perhaps as little as 10 percent, is used for workplace representation. The work
rules and job guarantees found in collective bargaining agreements can hamper a
wide range of reforms or innovations that might otherwise make government less
expensive and more effective.
With
millions of dollars in mandatory membership dues and the authority to negotiate
collective bargaining agreements on behalf of workers with little regard to
those workers’ individual preferences, government employee union officials have
tremendous power — far more power than they would likely have if membership dues
and representation authority were limited to those workers who joined
voluntarily.
Again,
recent drama from Michigan illustrates the problem. Last September the
Legislature, confronted with an overspending crisis of nearly $2 billion
dollars, faced a possible government shutdown because of its inability to pass a
budget. (In fact the government was shut down for about four hours early in the
morning of Oct. 1.) One would think that a state with a stalled economy — real
GDP had actually declined from 2002 to 2006 and the state has lost both jobs and
taxpayers at an alarming rate — might want to hold the line on taxes as much as
possible and give employers a chance to recover. But a governor who had been
elected with heavy support from government employee unions, especially the
powerful Michigan Education Association, insisted that the gap be made up almost
entirely with tax increases. In the end she got her way. Instead of controlling
expenses, Michigan increased taxes by $1.5 billion.
It
doesn’t have to be this way. Unions are not inherently evil, and there are many
decent men and women in the union movement today. Union critics should keep in
mind that leading a union can be hard work, especially in the midst of the
one-state recession we have in Michigan. But the labor law we have today has
created perverse incentives and allowed union officials to lose touch with who
they represent. Forgotten is their proper role in our society — representing
workers in the workplace rather than influencing government. If the union
movement is to be a strong and positive force in Michigan and the country as a
whole, the lines of accountability between union officials and the rank-and file
will need to be strengthened, and the best way to the that would be to give
individual workers the freedom to break away from forced representation and
forced dues.
Over the
last 70 years we have had a union law in which the main features have been
forced representation of workers, forced recognition by employers and forced
dues from opponents. The result is a union movement that is associated with
declining industries, overgrown and inefficient governments, and sluggish
economies.
Prior to
that we had courts that placed unions under severe and unfair restrictions that
hampered working men and women in their efforts to get the best wages they can
for their labor. Our state economy and workers themselves would benefit if we
were to bring the pendulum back to center: genuine government neutrality towards
unions, with no special favor and no unnecessary restrictions. Where unions have
been allowed to resort to legal mandates, they should now rely on persuasion.
While legislators at the federal and state level will need to work out details,
the following principles should act as a guide:
Voluntary membership: workers decide whether or not to join a
union.
Voluntary representation: a union represents its own members and
does not bear the burden or the authority to represent anyone else.
Freedom of action: a union and its members may take any action
they deem necessary, including strikes (except for essential government
employees), picketing and boycotts, subject only to the requirement that they
honor contracts in force and refrain from violence or threats. The same goes for management.
In the
meantime, Michigan in particular would benefit greatly from
enacting a state right-to-work law. The power wielded by unaccountable
unions creates a burden that our economy can no longer bear. Right-to-work would
restore some semblance of balance and freedom to labor relations in Michigan,
and make the state much more attractive to employers. Right-to-work is not a
cure all; Michigan faces lean years in any event, but right to work would make
the current slump less severe and hasten the day of Michigan’s recovery.
Unions
can and have played a valuable role in a modern economy by providing workers
with expert representation and the ability to present a united front to
management where it’s called for. It was a trade union, Solidarity, which
triggered a chain of events leading to the fall of the Berlin Wall and the
collapse of the Soviet empire. Today, unions make up much of the opposition to
Islamic totalitarianism in Iran. There should always be effective unions and
workers should always be free to turn to them for help.
But
unions must be fully accountable to the people they represent and workers should
have broad freedom to either negotiate for themselves or choose who will
represent them. Achieving this will require a remarkable shift in attitudes, and
the shift away from an unaccountable union movement has been underway for
decades, both in Michigan (where unions lost 275,000 members over the last 20
years) and across the country.
The
question before the people of Michigan is: What will be our next step? We can
leave things as they are and continue to have a union movement that serves fewer
and fewer workers but also continues to use agency fee money to fight needed
reforms in state government, or we can move our labor law back towards balance
with a right-to-work law, with unions that are more accountable to the men and
women they represent and a state that is more attractive to business and
industry. The choice is up to us.
#####
Paul Kersey is
director of labor policy for the Mackinac Center for Public Policy, a research
and educational institute headquartered in Midland, Mich. Permission to reprint
in whole or in part is hereby granted, provided that the author and the Center
are properly cited.
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