Friday, September 2, 2016

How Much Do Labor Unions Affect Wages?

Below I have some excerpts from Deirdre McCloskey’s book Bourgeois Dignity, just in time for Labor Day. I find it obnoxious the way that some commentators attribute far too much explanatory power to labor unions. There’s a bumper sticker that says, “Enjoy weekends? Thank your local union.” Sorry, but this is just implausible. The workers got richer because they became more productive. Their greater earnings led them to purchase, among other things, more leisure time. That is why wages have been rising and the average work-week has been shortening for the past two centuries. It’s plausible that labor unions, in some select cases at certain times, made these advances happen faster than they would have otherwise, but it’s completely unrealistic to credit the labor movement with all the gains since the mid-19th century as some glib writers do.

The struggle by unions for higher wages and better working conditions has inspired many good songs and many good people. Clearly, say the songs, we gotta' go down and join the union; we need to fight for Harry Bridges and build the CIO; and we need to be a union maid when she fought for higher pay. "She'd show her card / To the National Guard, / And this is what she'd say:/ `Oh, you cant scare me: / I'm stickin to the union."' But the fight to get a higher share of the pie for union members leaves out nonunion members, who were always a high percentage of the workforce in the United States. If the size of the pie is pretty much fixed-the underlying assumption of classical economics and of union logic-then higher pay for auto workers implies lower pay for auto mechanics, not something to be celebrated in songs by Woody Guthrie and history books by progressive historians. The economist H. Gregg Lewis painstakingly estimated the effect of unions 1967-1979 on wages of their members relative to comparable nonmembers and found it to be, as an upper bound, rather small: some 14 percent. My uncle, who was himself a union electrician in Michigan, paid union wages for his employees gladly, he said, because he passed the expense on to the companies and hospitals and school buildings that he wired. Oh, good. But who pays that? Other workers. There's no one else to pay it. As Pogo famously said, "We has met the enemy, and he is us."

So, essentially unions succeeded in raising the pay of their own member by at most 14%, and that came at the expense of other workers. Meanwhile, the average wage in the developed world rose by something more like 1600% to 10,000% (a factor of 16 to 100, depending on how you account for changes in quality and other considerations).

And if, as was on the contrary the case, the pie was in fact exploding, then a shift in the size of the slice going to workers as a whole (setting aside that it would in fact go only to the minority of union members) would anyway play a small role in the betterment of even those workers. Workers in the United States and elsewhere grew radically better off from 1800 on, and 1900 on, and even from 1970 on because of the Bourgeois Deal, not because they went down and joined the union. How do I know? Answer: the nonunion people shared nearly equally in the gain, even though they were paying as consumers for the fancier wages for union electricians in Michigan. The maximum of 14 percent of "concessions" extracted by bargaining or strike doesn't come close to accounting for the great magnitude of rise in the real wage. There's not enough profit-usually 10 or 15 percent of national income-to raise the level of the rest of national income by a factor of even two, that is, 100 percent, much less the factor of eighteen it in fact rose after 18oo. Expropriating 15 percent of national income claimed by the wretched profiteers teers and transferring it to the 85 percent earned by us workers raises our income only 18 percent. That's a long, long way from 1,700 percent.

Deirdre McCloskey is making the point that labor unions can only rearrange portions of a relatively fixed pie; nothing they do is likely to grow the pie. They can negotiate with the capitalists to redistribute some of the profits from capitalists to laborers, but they can’t increase the total productivity available for distribution. People love to romanticize the 19th century labor struggle. So much blood was shed, it's irresistible to conclude that some tremendous benefit must have come from it. Alas, a little bit of numeracy and some back-of-the-envelope math implies otherwise. 

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