A Random Thought About Labor Unions

I have never understood people who think that large corporations are all well and good but labor unions are illegitimate, infringe on the freedom of contract, distort the market, and so on. This post is an attempt at clarifying why it is that those two beliefs are confusing when held together.

Pretend no one has market power – employers are small and lack monopoly power – and labor markets work well. If you decide you don’t like your boss or your working conditions you can quit and get a similar new job. Everything’s hunky dory.

Now pretend that employers are big and have (some) monopsony power as big buyers of labor (monopsony means single-buyer, the counterpart to monopoly). If you get fired, you might not be able to get a new job, and if you did, it might be at much lower wages or in a very distant locale (think of being made to leave a company town). At worst, coordinated employers could blacklist you, and then you’d starve on the streets. Employers also have lots of concentrated political power, and can prevent legislation they don’t like from passing (higher taxes on capital gains or the rich, safety and health rules, what have you).

Now imagine we introduce labor unions into the picture. How does this inherently make the situation worse for workers or the system as a whole? You can say, well now workers at a firm lose their choice to not join the union – unions are monopolies on labor. Well, kinda. Now, instead of choosing which large employer to work for, a worker is choosing which employer-union combination to work for. Assuming that there are multiple unions and multiple employers, the worker still has choices. The supposed monopoly power of the union is a function of the existing monopsony power of the firm – if the firm was in a perfectly competitive market, unions would have nothing to bargain for. I guess if a single union truly dominated an otherwise large and dispersed industry, some of these arguments would make sense. But in the US at least, unions have been most successful in relatively concentrated manufacturing industries and the public sector (a serious monopsony employer, as many careers only exist inside the government).

Now, there are lots of good arguments against particular unions, and certainly against all sorts of things particular unions have done (excluding minorities or women, corruption, etc.). But I just don’t understand a belief system that legitimates large employers but completely rejects unions.

This post is a lot more hand-wavy than I’d like, so please comment if you can suggest a more formal treatment of these topics (even if it shows that I’m completely off base!).

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