Labor's "Right to a Free Market"

by Liberty and Power

No issue is more contentious in labor relations than the Employee Free Choice Act. This bill, now pending in Congress, would require the National Labor Relations Board (NLRB) to recognize a union when"a majority of the employees in a unit appropriate for bargaining has signed valid authorizations." Under current federal law, an NLRB-supervised election must be held and a majority must vote by secret ballot for the union before it becomes government-certified. The union-backed EFCA would presumably make it easier to establish a union in a company, but opponents say worker intimidation would be encouraged with an open card-signing process versus a secret-ballot election. What should free-market advocates say about this controversy?

The rest of this week's TGIF column,"Labor's 'Right to a Free Market,'" is at the website of the Foundation for Economic Education.

Cross-posted at Free Association.

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Tim Sydney - 5/10/2007

Software developer and IT guru Paul Graham has recently posted an interesting essay called "An Alternative Theory of Unions" that provides some new perspectives that may be of interest to L&P readers.

Tim Sydney - 5/3/2007

One of the interesting aspects of labour market economics and debates among economists about the impact of trade unions is the reluctance to folow the mainstream economic theory of cartel behaviour through the whole argument.

Free market economists, who are often the first to point out that "trade unionism is not socialism but the capitalism of the proletariat", do note that unions are cartels but they ignore the long term consequences.

I'm not an economist but have been a sideline observer of economics for many decades. My understanding of the "life history of cartels" is this. Producers combine into cartels and the short term impact is to drive prices (and presumably revenue) higher for the immediate term. Then over time consumers manage to adjust their demand for the product. Demand curves that are inelastic in the short run tend to be more elastic in the long term. At the same time chiselling amongst cartel members leads to the cartel being undermined from within. I think that is a reasonable summary of mainstream neoclassical economic theory of cartels.

What's all this mean for unions? Well it helps explain the short run gains of unions for workers and hence the enthusiasm many workers have for unions does have an economically rational basis. We tend to think of the introduction of pro-trade union legislation, "coercive unionism" in some parlance, as cementing those "greater than market" wage rates and conditions into a semi-permanent state.

There is a linguistic problem here. "Markets" are where ever buyes and sellers meet to make deals. Whether a wage is determined in an "atomistic" market or by arm twisting over a negotiation table it is still a "market wage".

Back to my thread of cartels. If cartel theory applies to unions, then over time their benefits to members, in terms of delivering higher wages and benefits, is likely to decline. Whether or not the union cartel is undermined by chiselling from within, the adaption from their consumers from without would seem to deliver this. The use of state enforced legislation to keep an existing union organisation in place is not going to the change this. Indeed state legislation tends to defend and protect an existing union versus a new union within the same 'marketplace'. It's protectionism for existing unions at the expense of new unions. If cartel theory is correct it is new unions that are the most likely to be effective at raising wages.

Government mandated monopoly unionism is not just a cartel but a monopoly too. Unions are suppliers of cartelisation services, they are cartelisation entrepreneurs. If they are "monopolists" they no longer have a competitive pressure to deliver results to their actual or prospective members.

Does this make sense to any of the economist commentators?

Sheldon Richman - 5/1/2007

I seriously doubt they would even jest, as Kirkland or Sweeney once did, about getting rid of all the laws lock, stock, and barrel.

Kevin Carson - 5/1/2007

The fact that the U.S. C. of C. and the NAM are appealing to the "right to a federally protected secret ballot" tells us all we need to know. "Organized capital" is just as statist as organized labor. They just want the state certification of unions to be carried out by their rules.

Sheldon Richman - 4/30/2007

I was expecting flak over this article, but it has yet to materialize.

Mark Brady - 4/30/2007

It is heartening to read your well-informed and eloquent statement about twentieth-century American labor law from a principled libertarian perspective.

You won't be surprised that a similar story may be told about Margaret Thatcher's trade union law reforms in the early 1980s that also outlawed "wildcat strikes, sympathy strikes, secondary boycotts, and other nonviolent activities." In 1979, the year when Thatcher took power, I presented a paper making this argument at a conference in London.

Anthony Gregory - 4/27/2007

Loved it.