Pro-Business vs. Pro-Market: Right-to-Work as Restriction of Contract

For me, one of the most frustrating aspects of contemporary political debates about economic matters is the conflation of pro-market and pro-business (specifically pro-big business) policies or principles. I’ve written about this a bit before, but I wanted to bring it back up in the context of the current contention over “right-to-work” legislation in Michigan. In general, debates over unions seem to be one of the major places where “pro-market” and “pro-business” get very muddied. In theory, pro-market should mean freedom of contract – all exchanges are good, since they are (presumed) voluntary, and individuals would never make a voluntary exchange that was not in their interests. But, we can imagine unions as a kind of nexus-of-contracts (just as corporations are a nexus-of-contracts in modern legal understandings and financial theory). So why is it that Republicans, the supposed champions of the free market, as so anti-union? Well, because they aren’t actually pro-market, they are pro-business and, at least in the short run, weaker unions means less bargaining power for workers and thus higher profits for business. And, as Paul Krugman has recently noted, the share of national income going to wages has gone down and the share going to profits has gone up lately, probably reflecting increased monopoly power produced by corporation concentration – just what you’d expect without the countervailing power of unions to force the redistribution of some of that profit to workers.

All of this brings us to the “right-to-work” law that was just signed in Michigan. What is right-to-work? Most simply, it’s a restriction on what kinds of contracts are allowed. Here’s how HuffPo summarized it: ‎”Right-to-work laws forbid contracts between companies and unions that require all workers to pay the union for bargaining on their behalf.” That’s right, “right to work” is actually a government restriction on what kinds of contracts private actors can make. Why is this a Republican position? Well, because it weakens the bargaining power of workers and because it cripples a major base of Democratic financial support.*

Now, of course, we can step back and remind ourselves that corporations – and unions – are actually creations of the state, and that markets in general exist because of, not in spite of, state action. But sadly that’s a whole different rhetorical ballgame, and one neither major political party is excited about. For the moment, let’s just remember that “pro-market” is a rhetorical move as much as a substantive claim, and that the “right-to-work” of the person who doesn’t want to pay union fees for their representation is at once the elimination of the right for employers and unions to sign union shop agreements.

* I should note here that I am a union member in the state of Michigan, so all this is quite personal.

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5 Comments

  1. Jason Kerwin

     /  December 12, 2012

    I think this argument would be more compelling if it addressed the conventional economic argument against unions, which is that they are equivalent to a cartel or a monopoly among suppliers of labor. The fact that they are a nexus-of-contracts doesn’t obviate the fact that we do ban certain kinds of contract in every market. The rejoinder to HuffPo’s description of right-to-work is that antitrust laws forbid contracts between corporations that require all sellers in a market to set the same price.

    I don’t think you’re wrong – Republicans generally do reveal themselves to be pro-business rather than pro-market – but I do think they would deride your characterization of their position on this. Genuinely pro-market conservatives would argue that unions are bad because they lead to inefficiently low labor quantities, with rents accumulating to union members at the expense of non-members. This is an answerable critique, but answering it means addressing why unions are different from other kinds of cartel, and looking to the empirical evidence on what unions do.

    I should note that I am also a union member, at least during terms in which I am teaching, and that even when I am not, I still benefit from GEO’s negotiating power. Furthermore, in the case of GEO I think the case for a union is pretty straightforward: we face a powerful monopsonist in the University of Michigan, and the cost of seeking other employment is extremely high. It’s a close analogy to the parable of the company town. However, I am still pretty ambivalent about the role of unions more broadly – there are cases where they seem to be definitely harmful. I am very concerned about the impact of public-school teachers’ unions on students’ academic success, for example. If the only way to fix that problem is for my benefits and wages to decline, I’ll accept that tradeoff.

    • Jason,

      Thanks for your comment! Three responses.

      First, as an empirical question, I’d love to see research on public school unions and students’ academic success. Can you point me to some? It’s a reasonable thing to worry about, and I can certainly imagine the path from eliminating the union to better outcomes… but it also seems like the reverse is very plausible (especially since eliminating unions and lowering teacher compensation would mean less incentive for highly-talented people to enter teaching, etc.). So, I’d love to see a careful study, do you know some?

      Second, I think genuinely pro-market conservatives would need to prove their genuine pro-market-ness by opposing market power in all its forms, and I haven’t seen anyone doing so in a long time. In other words, yes, if you support vigorous anti-trust enforcement and the suspicion of big businesses simply on the ground that their size gives them undue political influence and market power, then I buy your opposition to unions on similar grounds. But, the moder Republican party contains approximately zero people who fit that description as far as I can tell.

      Third, of course we have limits on all sorts of contracts. I guess I just wanted to point out that the argument looks different when you flip it and think about it as a restriction of the kinds of contracts two corporate entities can make (a supplier and buyer of labor respectively) as opposed to a restriction on the rights of individuals to not be members of a union (which is misleading on a number of grounds).

      • Jason Kerwin

         /  December 12, 2012

        I’m not aware of any good studies on the effect of teachers’ unions on student performance, and I believe the reason is that education researchers are terrified of them. If you ever want to effect real policy change, you have to stay on their good side. I was in a seminar where a top education researcher artfully dodged a question about unions, and implied that the reason for not discussing them was that it would screw up other projects.

        So we’re left with what we know about what works in education, and what we can observe about teacher union behavior. In terms of what works, as you suggested, high-quality people are really important – maybe the only thing that is definitely effective. Here’s an example from Raj Chetty: http://www.immagic.com/Library/ARCHIVES/GENERAL/NBER_US/N111231C.pdf. Teacher unions hate these kinds of ratings. They routinely fight vigorously against proposals to raise wages in exchange performance-based pay and firings. For example, the second sentence of the Wikipedia article on the CTU, which seems to have been authored by someone partial to the union, stresses their opposition to varying pay based on performance evaluations (en.wikipedia.org/wiki/Chicago_Teachers_Union). Teaching to the test can be bad*, sure, and there are other outcomes that matter too, but the test scores that go into these evaluations are not meaningless. They have a robust and, as far as we can tell, structural (in the Lucas sense) effect on people’s whole lives. Roland Fryer has claimed that you can fix almost the whole black-white gap in socioeconomic outcomes by addressing the black-white gap in middle-school test scores, and that that relationship appears to hold up even if we try to use test scores as a policy lever.

        It’s possible that the absence of teacher unions would in fact leader to across-the-board lower pay and hence lower-quality teachers, but I find that dubious. School districts are not cost-minimizing businesses; their behavior comes from a political process in which all actors want good student outcomes and nearly everyone agrees teachers should be paid more.

        You’re dead on about the unreasonable stance of a many Republicans. But that’s not going to keep them from critiquing your argument on those grounds; they’re unreasonable!

        *Actually, some of the best classes I have ever taken were high school AP courses that taught to a particular test. But I digress.

  2. Graham Peterson

     /  December 14, 2012

    The solution to monopoly is not to create more monopoly. If you want studies measuring the affects of Unions on student outcomes, try the EconLit database.

    “And, as Paul Krugman has recently noted, the share of national income going to wages has gone down and the share going to profits has gone up lately, probably reflecting increased monopoly power produced by corporation concentration”

    One must establish directly that corporations have concentrated, and further that it allows them to reduce output and increase price. The theory of contestable markets shows that you don’t need many firms at all to approach perfectly competitive outcomes — because there is the *threat* of entry if an incumbent firm attempts to raise prices.

    An alternative hypothesis for an increase in the share going to corporate profit and decrease in wages’ share is the skills gap, where workers’ productivity is down, and financial and managerial innovation is up. Financial innovation seems to explain a lot of the change in wealth distribution lately. And once information asymmetries have been resolved, leveling the profits one can earn by merely screwing people, financial innovation is in the long run and on balance a good thing, making all other investment more productive.

    Corporations and Unions are not a product of the state — they are sanctioned by the state. People create the supply of and demand for these organizations. Most petite monopolies are sponsored or guaranteed by the super-monopoly, the state. This is why the University of Michigan in a successful monopsonist, and probably why tuition prices have skyrocketed — the state limits output of education relative to rising demand, and prices go up. A side effect of that monopoly power is that graduate students get squeezed because they are abundant.

    Competition levels the power of monopoly — not countervailing monopolies. Fighting corporate power with unions is like trying to put a burning house out by getting flame throwers out.

  3. Graham Peterson

     /  December 14, 2012

    I asked a friend doing economics of education for articles exploring the link between teacher unions and student outcomes. He reports:

    Well the first work that came to mind was Chubb and Moe (1990) “Politics, Markets, and America’s Schools.” That was one of the foundational literature that argued that the bureaucracy of public schools (of which unions are a major part).

    Both authors have made numerous contributions since then. For example, here is a recent article by Moe that might give you a starting point for more recent literature:

    http://www.terry.uga.edu/~mustard/co…nions-AJPS.pdf

    Other big names who have been critics of unions include Hanushek, Rivkin, and Hoxby.

    On the flip side, there’s also some labor economics articles that have looked at whether unions attract higher ability workers. A few people have looked at that, probably the best is Richard Ingersoll.