Unions Cause Unemployment
David Leonhart writing in the New York Times has this to say about declining union enrollment:
Since 1980, as union membership has dropped sharply, the share of economic output going to corporate profits has more than doubled.
Oh no! Corporate profits! How terrible for, um, the 60% or so Americans who are invested in corporations? That doesn’t make any sense.
Corporations employ millions of people, and millions more are invested in them. So what’s so bad about corporate profits? I think Mr. Leonhart’s real problem is that unions are getting a smaller cut. Except that who cares about the union cut? Except for the small minority of Americans who are still union members?
Regardless, Greg Mankiw rewrites Leonhart’s line to better reflect reflect reality:
He could have written:
Since 1980, as union membership has dropped sharply, the natural rate of unemployment has dropped sharply as well.I have no doubt that making it easier for workers to form cartels would raise wages--at least for those workers in the cartels. But demand curves slope downward. When unions push wages above the equilibrium of supply and demand, the side effects are not entirely benign.
Translated from economist-speak, what he’s saying is that unions cause unemployment by needlessly increasing the cost of labor. When businesses are faced with additional expenses, such as increased employee costs, they have only two options for dealing with it. Raise the price of their goods and/or services or cut back on expenses.
Since raising prices isn’t exactly something a business can do on it’s own and stay in business (just because your labor force is unionized doesn’t mean your competitor’s is, and we all know what happens to companies that are more expensive than their competitors), the only option is to cut expenses. And that usually means making do with fewer employees.
As a perfect real-life example, consider North Dakota’s own Bobcat skid-steer company. Earlier this year the steelworkers went on strike against Bobcat to demand higher wages and increased benefits. At the time the striking steelworkers were successful in forcing Bobcat to raise wages and health benefits for 780 striking workers. A couple of months later, however, Bobcat had to lay off 155 workers at another plant. The reason given by Bobcat was a “decline” in the market for its products, but it’s pretty clear to most observers that this was a cost-cutting maneuver.
Thanks to the union the price of labor went up for Bobcat so they had to make room for that extra expense elsewhere by laying off workers elsewhere. This is how business works. Sure the unions were successful in getting some extra money and benefits for 780 workers, but they also cost 155 workers their jobs.
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