BuckeyeBlog

To go along with my article this week, here is a much more in-depth look at the damage to workers caused by unions:

Labor unions get more respect than they deserve. They are nothing other than labor cartels. Like all cartels, their success depends on the extent to which they can cut off their trading partners—employers, workers, and the customers of employers—from alternatives. Notwithstanding that the National Labor Relations Act (NLRA) helps private-sector unions capture their victims, over time those unions lose market share because of the process of creative escape….

Exclusive representation precludes employers from dealing directly with employees about wages and other terms of employment. Employers are forbidden to reward individual workers for meritorious performance without union permission. Unions are loath to grant permission because they want workers to think that they, rather than individual productivity, are the source of wage gains. Thus, highly capable workers often want nothing to do with unions. Exclusive representation also prohibits individual workers from speaking directly with employers about any job-related issues without union permission. Individual workers have no voice. Only certified unions may speak.

The full article is well worth the time it takes to read it.

Unions and their allies in Congress have been pushing legislation for the past few years that would undermine a variety of worker and business owner protections currently in the law. The so-called “Employee Free Choice Act” would actually undermine employee free choice by making it much harder for workers to vote by secret ballot in unionizing votes (anyone see the potential for abuse there?).  It would also impose mandatory arbitration on workers and employers in the event of an impasse during contract negotiations. The only things that have stopped it from passing this year were President Bush’s opposition and the Republican miniority in the Senate. Next year Bush is gone and there are far fewer GOP Senators. It’s quite possible this legislation will become law.

University of Chicago law professor Richard Epstein discusses the problems with the law in the Wall Street Journal:

The National Labor Relations Act strips employers of basic common law rights, including the right to refuse to deal with the union. It imposes on employers (and unions) a duty to bargain in good faith toward a contract. But this duty does not force agreement. Either side is free to walk away from any deal it does not like. Unions can strike, and firms can lock out workers. Today’s law, accordingly, restricts arbitration to interpreting existing agreements, not to making agreements from whole cloth.

The EFCA takes away the employer’s right to walk. Now the successful union, backed by direct government power — i.e., mandatory arbitration — can force itself on the firm. Yet the proposed law does not let any court block the deal or ensure that the mandated terms offer a reasonable return on its invested capital. (Even modern rent control statutes require that much.)

The government-chosen panel could well impose terms that might cripple the firm competitively. Consider that the takings clause surely prevents the government from forcing any person to buy real estate for twice its market value from a seller. That same principle applies to this labor law: No government should be able to force a firm to hire labor at $50 per hour when the company is not willing to pay half that much.

The Columbus Business First recently published The Small Business Owner’s Guide to the Presidential Election, in which one of the sections deals with labor issues. While the war on terror and recent financial crisis are getting the most attention from the media and voters, small business owners – who create most of the jobs in today’s economy – are also concerned about the impact an Obama administration would have on labor activities. Specifically, they are concerned about the Employee Free Choice Act, which passed the House but died in the U.S. Senate, that would permit workplace unionization without a private vote by workers. Obama supports the Act, while McCain voted against it last year. In this Buckeye Institute viewpoint, I outlined the dangers of this “card check” system, which would allow union bosses to intimidate workers into supporting unionization of workplaces, jeopardize workers’ rights, and put American businesses at further competitive disadvantage in the global marketplace.

The Business First article states:

Giovanni Coratalo, executive director of the U.S. Chamber of Commerce’s small and midmarket business councils, said he has heard more concerns from businesses about the Employee Free Choice Act than any other issue besides the economy. ‘Small businesses should be afraid of this,’ Coratolo said.”

Based on recent polls showing Obama with a significant lead in the presidential race, small businesses and their employees may find themselves worse off next year.

Gongwer reports on yesterday’s Controlling Board meeting–they’re the guys who write the checks, or cause them to be written, anyway–that “prevailing wage” is coming down the pike from Gov. Strickland.

The Strickland administration confirmed Monday it is considering a major policy change in which private companies that receive millions in state aid would have to pay prevailing wage on their construction projects.

Word of the expansion in the application of prevailing wage – the geographic pay scale usually tied to union contracts – surfaced as the Controlling Board released $2 million in Third Frontier Program grants.

Well of course prevailing wage is coming. There hasn’t been much doubt about that. This is a great reporting catch, though, the good stuff, because it’s the real meat and potatoes. Knowing something is coming is quite different from catching it when it does come.

It’s really a shame how much of government is just about shoveling money from one pocket into another, and of course the only pocket the money is being shoveled out of is yours. Our officials seem interested only in the debate over what pocket it gets shoveled into: the unions, large corporations or entitlement programs. (I wonder if there are any economists out there studying how large the politicians’ commissions are among these groups? My initial guess would be that it’s pretty constant, but that’s just to start the models going.)

As for those few of you who save anything, there is only one message for you: suckers.

Robert Scott, the author of the EPI report which I criticized earlier today, defended his study in a response to my post. In that defense, he draws heavily upon statistics and models from which his conclusions and assumptions are drawn. It’s easy to get caught up in numbers and leave the principles that give them meaning far behind. But detailed observations don’t always reflect the truth, and it’s easy to fall into a trap when one forgets which is the master and which is the servant. For thousands of years, humans observed the sun moving from the east in the morning to the west at night. From this observation, they developed the theory that the sun revolved around the earth. They were so convinced of their beliefs that they were willing to kill others to preserve their theory. As we now know, however, they were wrong. Data and observations by themselves serve only as the various colors on a painter’s palette. One must have the principles to use as a brush if he wishes to paint a picture. (more…)

The Columbus Dispatch ran a front page story by Dan Gearino today on a report being released by the Economic Policy Institute:

The trade deficit with China has cost Ohio more than 100,000 jobs since 2001, and the greatest losses have been in manufacturing, according to a study being issued today.

The report by the Economic Policy Institute, an advocacy group in Washington, D.C., was timed for release days before China hosts the Summer Olympics in Beijing.

(more…)

Over at NaugBlog, Matt takes apart Governor Strickland’s claim that President Bush is to blame for the GM plant closings in Ohio. To build on his analysis, it’s interesting to read an editorial in Investor’s Business Daily that points out how unions in Ohio (and elsewhere) are a large reason why car manufacturing jobs are shrinking in the upper Midwest:

It’s tempting to blame automakers for [moving jobs to Mexico]. Indeed, they do deserve a big chunk of the blame for poor management decisions. And by far, their worst decisions yet came when they agreed to company-destroying labor pacts with the United Auto Workers union that practically guaranteed Big Auto’s demise.

We don’t fault workers for trying to get more in labor negotiations. But the fact is, past UAW deals have saddled U.S. companies with such high costs that they can no longer make cars here and compete on a global market. So they make cars elsewhere.

Like a coyote caught in a trap, U.S. automakers have been desperately gnawing off a leg to escape certain death. They’re closing plants and slashing jobs in Michigan, Ohio and other U.S. union havens, in favor of non-union, foreign places. Like Mexico and China.

Meanwhile, foreign companies have no problem making cars here. They do it in the non-union South, where the UAW is weak.

Though little noted, last year was a watershed for U.S. carmakers. For the first time, foreign producers in the U.S. made more cars — 54% of the total — than the former Big Three. As recently as the 1980s, Ford, Chrysler and GM made 73% of all cars here.

Why is this? U.S. carmakers pay their workers an average of about $73 an hour in wages and benefits — way more than others.

According to the Center for Automotive Research, there’s a $16.15 per hour gap between what Detroit’s Big 3 pay workers and what Toyota pays workers in the U.S. Add to that a $5 billion a year difference in health care and other retirement costs, totaling thousands of dollars in extra costs on every car sold, and U.S. automakers operate at about a $12 billion a year disadvantage.

It doesn’t take an MBA to understand this is an industry in peril.

(more…)

In Ohio’s neighbor to the north, Michigan, there is an interesting prevailing wage issue playing out. What is a “prevailing wage”? As Buckeye Institute scholar Jeff Williams describes it:

Ohio law still requires that construction workers on government projects be paid union negotiated wage rates, also called “prevailing wages.” These wages, however, are not really “prevailing” in the sense that markets freely determine the wage rate based on supply and demand. The “prevailing wage” is an administrative wage, set by government officials, based on union wage rates where the work would be performed. Union wage rates are almost 18 percent higher than market wage rates in Ohio.

After two years of legal wrangling and union harassment, a non-union contractor working on Lakeview High School in Battle Creek received word from the Department of Labor on its prevailing wage “violation” — it had underpaid an employee $10.56 on a $3.9 million contract.

The Lakeview High School situation is described in this article by the Battle Creek Enquirer and illustrates the lengths to which unions will go to ensure that taxpayers are forced to pay higher-than-necessary prices for construction. As the owner of the non-union contractor put it, “Unfortunately for Michigan taxpayers, the IBEW’s grievance against our company cost the state of Michigan thousands of dollars to investigate and additional costs to Lakeview School District to gather and produce information.”

Unions, of course, don’t see it this way. As one of their representatives put it, “When the materials are the same and the law says that prevailing wages have to be the same, how does (a non-union company) get down to 20 percent (lower than) the next-lowest bid? They cheat their workers.” It is hard to see how workers are being cheated, though. No one forces them to take non-union jobs. They and their employer freely decide on wages. To the union mindset, however, non-union workers aren’t smart enough to bargain for their own wages, I guess. If they aren’t being paid what the union thinks is fair, they are being “cheated.”

Jeff Williams sums up the issues well:

Citizens and taxpayers are paying dearly for Ohio’s prevailing wage law. In 1995, the Ohio Legislative Budget Office estimated that repealing the prevailing wage law would save state and local governments between $80 million and $236 million annually. These savings are large, but even they do not include the labor that could be saved by eliminating the enormous paperwork the law requires. This labor savings would add at least $9.8 million.

More than the savings, however, this issue involves responsibility, fairness and trust. By setting wage rates higher than market wages, the prevailing wage law prevents elected officials from carrying out their responsibility to use taxpayers’ money wisely. They are, in effect, required by law to spend more money than necessary. The prevailing wage law is particularly unfair toward contractors and workers at non-union construction firms. Firms can include non-union fringe benefits in their wage calculations only after enduring an onerous approval process. Rigid and unfamiliar job classifications and massive paperwork requirements create a complex system that is a minefield of potential trouble for those inexperienced in it. Thus, the law effectively prevents many non-union firms from bidding for government business. The process methodically shuts non-union and inexperienced contractors out of $3 billion in construction work each year.

Dr. Robert LAwson also wrote about this issue for the Buckeye Institute here.