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| Senior Fellow Kevin A. Hassett |
The stakes could hardly be higher. If the American labor movement were a baseball team, this deal would make the Chicago Cubs look like the New York Yankees. The movement has been on a losing streak stretching back to the 1950s, and the losses have been accelerating.
According to the latest data from the U.S. Bureau of Labor Statistics, the percentage of the private workforce that is unionized is only 8.1 percent, down from 9.8 percent in 2000, and 27 percent back in the 1950s.
| One study of unionized workers found that they make about 15 percent more money than non-union workers in the U.S. |
Economic research has clearly identified the causes of unionization's decline. Unions have historically foisted rigid work rules and higher costs on companies. Since unions can't organize every company on Earth, non-unionized competitors have eventually emerged to grab business away from unionized companies. Unionized factories have closed, while non-unionized plants have flourished.
One study of unionized workers found that they make about 15 percent more money than non-union workers in the U.S. That's certainly good news for those who are older and likely to retire before high costs drive the unionized firm into bankruptcy. It's not necessarily a good deal for younger workers who will be on the street when the "cancer" of union inefficiencies kills the patient.
Steep Drop
The auto industry in the U.S. has seen an especially dramatic case of union cancer. The number of active workers in the UAW has dropped precipitously in recent years, from 302,500 in 2003 to 180,000 today.
Why the sharp drop? Work rules that were negotiated back when U.S. automakers were awash in market power allowed workers to quit, for example, once they had met their piece-rate rules for the day. This often allowed workers to quit and receive a full day's pay after a half-day's work. And these lucky workers had short careers as well: With retirement eligibility starting after 30 years, a high school grad could retire at 48.
The end result of this has been that U.S. manufacturers have been weighed down by an extremely expensive workforce and an enormous pool of retirees who receive costly benefits. GM has about 74,000 active UAW workers, and about 340,000 retirees. Workers at UAW organized plants cost about $25 per hour more than at a Toyota Motor Corp. plant.
Lower Wages
Such a cost differential isn't sustainable, and the UAW has finally conceded the point. In the landmark agreement, the union will now allow GM to pay new workers much lower wages, and has also allowed the automaker to offload retiree health costs into an independent trust that will be seeded with about $35 billion of GM money.
By making these concessions, the UAW has finally acknowledged something that big labor has always been reluctant to: Past practices were driving employers into bankruptcy. Labor cannot simply demand higher wages without providing greater productivity and expect the firm to survive.
One could envision a future of the labor movement that builds off this agreement and fundamentally alters the relationship between workers and companies. In their landmark book "What Do Unions Do?" first published in 1984, Harvard economists Richard Freeman and James Medoff envisioned a union that could be a net positive for a firm if it worked to maximize what the authors called the "union voice" effect.
Hope Yet for Unions
If workers get together and figure out changes that can be made to improve operating practices, and then voice these observations to employers, then the union could in theory help the employer become more competitive.
Unions haven't done this effectively enough in the past to offset higher wages, but there is no reason why they couldn't do so in the future. If they do, they may well flourish.
Consider two hypothetical firms: One has a workforce that has developed a communications apparatus that allows employees, in consultation with management, to change work practices on a dime as new potential efficiencies are discovered. Another has a disorganized workforce. Workers do their jobs and go home.
Which firm will provide the best product at the best price? The one with the organized workforce might well, especially if it turns out that workers are better than firms at organizing themselves into productivity-enhancing networks, and if workers accept extra compensation in the form of equity in the firm, rather than higher hourly wages.
American labor isn't there yet, of course, but the UAW has taken a step in the right direction.
Almost 10 years ago, I wrote a piece in the Wall Street Journal titled, "Why Big Labor Keeps Getting Smaller.'' I argued that all signs pointed to the gradual disappearance of organized labor in America. Even after a decade of steady decline, today one would have to conclude that the outlook is less bleak.
Kevin A. Hassett is a senior fellow at AEI.
