The Truth About Coercive Labor Unions

by | Jul 5, 2005

Where the closed shop unions hold sway, companies cannot compete. Their market share falls and they ultimately go bankrupt. The only way that coercive unions can maintain any given share of the labor force is by finding new victims to replace the ones they have sucked dry.

The New York Times has proved once again that it is a reliable font of economic ignorance.

This time, it’s through an op-ed piece titled “A More Perfect Union,” by a lady named Ruth Milkman, whose credentials in economics are that she is a “sociologist” and “director of U.C.L.A.’s Institute of Industrial Relations and a visiting scholar at the Russell Sage Foundation.”

The purpose and substance of Ms. Milkman’s piece is an attempt to pump for the resurgence of the labor union movement via the election of one Andy Stern to the presidency of the A.F.L.-C.I.O. Stern, who is currently president of the largest individual union within the A.F.L.-C.I.O, is threatening to break up the organization if his agenda of vast new union organizing campaigns is not enacted. His and Ms. Milkman’s goal is to bring about a repeat of organized labor’s rise in the 1930’s, when it increased its membership from 13 percent of non-agricultural workers to 35 percent by 1955. The further effect will allegedly be prosperity for all: “Given a chance, Mr. Stern’s proposals can restore labor as the counterforce it once was in an era that saw remarkable gains in prosperity for all Americans.”

Ms. Milkman and the Times would have their readers believe that the growth or decline in labor union membership is something that depends essentially on the personality and skills of union leaders, that the right leaders were responsible for the growth of unionism starting in the ‘thirties and that union leaders less dynamic and less competent than Mr. Stern have been responsible for the decline in unionism in more recent decades.

This is simply dishonest. It chooses to ignore major historical facts that were crucial to the rise of unionism in the ‘thirties. These included the enactment of the Norris-LaGuardia Act of 1932, which deprived employers of the ability to obtain Federal Court injunctions against labor-union coercion, and then the enactment of the National Recovery Act in 1933 and The Wagner Act of 1935, which compelled employers to recognize labor unions and to bargain with them under threat of being found guilty of “unfair labor practices” by the newly established National Labor Relations Board. By the same token, Ms. Milkman and the Times conceal from their readers that only the enactment of major new and additional legislation increasing the coercive power of labor unions could succeed in once again substantially increasing union membership.

The truth is that unions are essentially parasitic organizations that thrive only by draining and ultimately destroying the companies and industries they control. The essential goal of the unions is to compel the payment of higher wages for the performance of less work and less productive work. Unions are notorious for their hostility to labor saving machinery and to any form of competition among workers, for featherbedding practices, indeed, for “making work” by deliberately and arbitrarily increasing the number of workers required to accomplish a given task and sometimes even by compelling the disassembly or destruction of products already produced.

It should be no wonder that the percentage of the labor force controlled by unions tends progressively to decline. Where the unions hold sway, companies cannot compete. Their market share falls and they ultimately go bankrupt. The only way that unions can maintain any given share of the labor force is by finding new victims to replace the ones they have sucked dry. The finding of new victims, by means of new government intervention is the unstated agenda of  Mr. Stern, Ms. Milkman, and The New York Times.

The actual effects of labor unions are arbitrary inequalities in wage rates, mass unemployment, and substantially lower real wages for the average worker. Labor unions are aptly described as a leading vehicle of what von Mises called “destructionism.”

Whenever a union succeeds in obtaining above market wage rates for its members, it also reduces the number of workers who can be employed in its field. This is because of the operation of one of the best established principles of economics: Namely, the higher the price of anything, including the wage of any kind of labor, the smaller is the quantity demanded of that good or labor service.

Thus, workers who could have been employed in the lines controlled by labor unions are instead displaced and forced to seek work elsewhere. The added competition of these workers in other lines then serves either to depress wage rates in those other lines, thereby resulting in an arbitrary, union-imposed inequality in wage rates, or, if those other lines are also unionized or are forced to pay union wages in order to avoid becoming unionized (which is often the case), to cause still other workers to be displaced. It should be clear that to the extent that the effect of union activity is to depress wage rates in other fields, the union slogan “Live Better, Work Union” turns out to mean “Live Better by Forcing Other Workers to Live Worse.”

If wage rates in all lines of work are forced above the free-market level either because labor unions are able to impose their wage scales everywhere, or because upward union pressure on wage rates is joined by minimum-wage legislation, the effect is mass unemployment. In this case, there is simply no branch of the economic system that is allowed to pay wage rates low enough to make possible the absorption of workers displaced from elsewhere by the imposition of union wages. The result is the kind of situation presently existing in France and Germany, where unemployment is in excess of ten percent. And, of course, the cost of supporting the masses of unemployed falls mainly on the workers who manage to keep their jobs. Here higher taxes are their reward for “working union.”

Andy Stern, Ms. Milkman, and The New York Times are probably too ignorant to know that labor unions and minimum-wage laws cause unemployment. They all almost certainly believe instead that what causes unemployment is labor-saving machinery and anything else that raises the productivity of labor. It is on this foundation that labor unions have typically opposed all such improvements.

To whatever extent unions have succeeded in preventing increases in the productivity of labor, what they have actually succeeded in doing is holding down the supply of consumers’ goods relative to the supply of labor, because labor-saving improvements do not in fact cause unemployment. Their actual effect is to enable the same number of workers to produce more.

Of course, many workers have to change their jobs in the process. For example, if the average farm worker becomes able to produce fifty times more food, that does not mean that people will want to eat fifty times more food. They may want to eat only the same amount of food. In this case, forty-nine workers are made available to produce new and additional goods that previously could not be produced, from air conditioners to zoology texts, and including to some extent improvements in the processing, delivery, and preparation of food.

This description of matters is overwhelmingly borne out by economic history. In the last two centuries or more the average productivity of labor in the economic system has increased by well over a hundred times. The effect has not been the creation of a ninety-nine percent plus unemployment rate. To the contrary, the unemployment rate today is not very different than it was a century or two ago; indeed, vastly more workers are employed today than in the past. What is different today is the enormously increased quantity and variety of goods produced per worker and which are readily available to the average worker in his capacity as a consumer.

The effect of improvements in the productivity of labor is thus to increase the supply of consumers’ goods relative to the supply of labor. Whether one considers matters from the point of view of supply and demand or from the point of view of cost of production, the effect of improvements in the productivity of labor is to raise real wages. In terms of supply and demand, the effect of the increase in the supply of consumers’ goods relative to the supply of labor is that prices fall relative to wage rates. This, of course, means that the buying power of the average worker’s wages is increased and thus that he can buy more, which is to say, that his real wages are increased.

In terms of cost of production, labor saving improvements, in reducing the quantity of labor required to produce goods, reduce their costs of production, and thus, to the extent that prices are determined by costs, reduce prices. But note, because the reductions in costs and prices are the result of reductions in the quantity of labor required to produce goods, they take place without any necessity of a fall in wage rates. Once again, the buying power of wages is increased and the standard of living of the average wage earner rises.

Union leaders and their academic and political cohorts are incredibly ignorant of how real wages actually increase. Their focus is on raising money wage rates, which, as shown, can only result in arbitrary inequalities in wages rates and in mass unemployment. Utterly unbeknownst to them, what makes real wages actually rise are the progressive improvements in the productivity of labor that they fight at every turn in the irrational belief that those improvements cause unemployment. Indeed, the unions and their cohorts are not even aware that when they prevent improvements in the productivity of labor they are in fact holding down real wages. That is because their mental horizon is narrowly confined to the short-run interests of small minorities of workers—the workers who comprise the membership of their particular union.

Thus, a printers union would oppose computerized typesetting out of fear of its members losing their present jobs. Its narrow mental horizon leaves no room for recognizing that its members who become unemployed as printers could be employed in other lines of work. More than this, it leaves no room for recognizing that in opposing computerized type setting, which would serve to make the cost of production and price of all printed matter less, it actively combats the rise in the real wages of workers throughout the economic system who buy printed matter and other products whose cost and price is determined in part by the price of printed matter.

The unions and their cohorts simply do not recognize the essential, vital connection between real wages and product prices and so actively strive to keep prices up and real wages down. Whatever, their subjective desire and intent may be, they are profoundly anti-labor in the objective reality of their actual practice and the economic theories they hold which guide their practice.

Ms. Milkman concludes her article with a reference to a time of greater union membership, presumably the late 1940s and the 1950s, “that saw remarkable gains in prosperity for all Americans.” In her ignorance, which already takes for granted the allegedly positive effects of labor unions on the standard of living of the average wage earner, despite the diametrically opposite conclusion established by the science of economics, she apparently believes that such a passing reference to an historical association is sufficient to make the case for a labor union resurgence unanswerable.

Let us note here that, apart from notable interruption by wars and depressions, the whole of American history was a period of “remarkable gains in prosperity for all Americans.” (Negro slaves, of course, were an unfortunate exception.) The gains of the late 1940s and the 1950s were not the result of labor unions but of the same forces that had brought about economic improvement throughout our history, without significant union membership. Those forces were, and are, saving and capital accumulation, scientific and technological progress, the profit motive, competition, and the price system, and, more fundamental even than any of these, protection of property rights and economic freedom.

Labor unions, then as now, were a force working against the positive effects of these fundamentals. They had greatly prolonged the mass unemployment of the 1930s, first by preventing reductions in money wage rates and then from 1933 on actually increasing money wages rates, in the midst of mass unemployment. The unemployment came to an end in World War II only as the result of a combination of massive inflation of the money supply coupled with the prohibition of union wage increases by governmental wage controls. In the absence of wage increases, the increases in the quantity of money served to rapidly increase the quantity of labor demanded and thus not only to eliminate mass unemployment but to turn it into an actual labor shortage by 1942.

In the postwar period, just as at any other time, the unions retarded the rise in the productivity of labor and in real wages. They accomplished this in part by the very success of their wage demands, which served to an important extent to deprive companies of funds they otherwise would have invested in improved plant and equipment, which would have raised the productivity of labor. To this extent, the higher wages won by the unions were, in effect, a case of eating the seed corn.

As foreign competition increased, with the economic recovery of Europe and Japan, the negative consequences of the unions became more obvious. Major American industries, such as automobiles and steel, became unable to compete because of the power of their labor unions. Their products came to be noted for their inferior quality, such as “Monday morning” or “Friday afternoon” automobiles, automobiles poorly produced because the necessary workers were not present to produce them or not in a proper condition to produce them. These were workers who also could not be fired because they were union workers. Inferior products, artificially high wages, and low productivity of labor. These were and are the destructionist contributions of the labor unions to the American standard of living.

And since the 1960s, they have been joined by the additional destructionist policies of the “Great Society,” above all, Medicare and Medicaid and the hundreds of billions of dollars in taxes required to finance them. These, along with the war in Vietnam, were accompanied by the acceleration of inflation and the abandonment of the remnants of the gold standard. And then, starting in 1970, came the EPA and OSHA, government agencies imposing further hundreds of billions of costs on business firms in vague quests to “protect the environment” and achieve “safety.” In 1971 came Nixon’s price and wage controls, with the controls on oil lasting until 1980 and causing the oil crisis of the time. Along the way, came the Departments of Energy and Education, with still more government interference and resulting paralysis.1

Still more recently have come first a stock market bubble and now a housing bubble, both set in motion by the inflationist policies of the Federal Reserve System and both causing a massive malinvestment and waste of capital. To this has been added huge government budget deficits, causing the waste of still more capital.

Real wages and the standard of living of the average American worker have been persistently and seriously undermined by these destructionist economic policies based on ignorance on the part of those the public naively expects to know better. It is no wonder that many American working families have grown poorer in recent decades. What else should one expect in the face of such an onslaught? The New York Times and its numerous allies in academia and in government are generally believed to know, and probably themselves believe they know, what they are talking about. Nevertheless, they simply do not. They are utterly and dangerously ignorant, irrespective of all the pretensions to knowledge they themselves may make or are foolishly believed by others actually to possess.

Recommended Reading: Labor Unions, Thugs, and Storm Troopers by George Reisman

To learn about every aspect of the case for capitalism, read my Capitalism: A Treatise on Economics. Originally published at Copyright 2019 George Reisman. All rights reserved.


1. And now, only days ago, has come a Supreme Court decision effectively abolishing private property rights and effectively making governments, local, state, and federal, the ultimate owners of all land, free to use it for any “public purpose,” such as simply collecting more tax revenue. The Supreme Court of the United States has decided that the judgment of government officials is ”entitled to our deference.” As for the individual rights of the citizens whose property is forcibly taken by such officials, and which, in words of The Declaration of Independence it is the very purpose of government to secure, the majority of the Court is silent.

George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics. See his author's page for additional titles by him. Visit his website and his blog Watch his YouTube videos and follow @GGReisman on Twitter.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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