Are labor unions still necessary?

Labor Day 2017, and the status of the American worker has never been more uncertain.  Some, like Harvard's Lawrence Summers, believe that the answer is more unionization.

Financial Times:

Economists do not have complete answers. In part there are inevitable fluctuations. Profits have declined in recent years. The wages that are reflected by the BLS are earned in the US, whereas a little less than half of profits are earned abroad and have become more valuable as the dollar has declined. In part, wages have not risen more because a strengthening labour market has drawn more people into the workforce. 

But I suspect the most important factor explaining what is happening is that the bargaining power of employers has increased and that of workers has decreased. Bargaining power depends on alternative options. Technology has given employers more scope for replacing Americans with foreign workers, or with technology, or by drawing on the gig economy. So their leverage to hold down wages has increased.

This is true.  But Summers and other liberal economists can see only the problems, not the opportunities.  First, the flow of foreign workers can be better controlled with immigration reform.  Secondly, the technology – A.I. and other robots – needs someone to build it and maintain it.  The day is fast approaching when traditional factory work will be a thing of the past and a new work force will emerge – better trained, and perhaps better paid, than their predecessors.

Unions would rather resist the new technology than exploit it to better the position of workers.

On this Labor Day we would do well to remember that unions have long played a crucial role in the American economy in evening out the bargaining power between employers and employees. They win higher wages, better working conditions and more protection from unjust employer treatment for their members. More broadly they provide crucial support in the political process for broad measures such as Social Security and Medicare, which benefit members and non-members alike. Both were at their inception passionately opposed by major corporations.

The glory days of unions was 60 years ago.  Summers reveals exactly why Democrats and their union allies have fallen so far out of favor: they live in the past and are unprepared for the revolution sweeping the labor force.  Industrial unions exist today largely as a vessel for big corporations to pay health care and pensions to a large number of people – most of whom aren't even working anymore.  By contrast, the foreign auto plants in the non-union South are thriving while paying their employees good wages.

For those who believe that Donald Trump when he claims he will bring factory jobs back to America, you are going to be disappointed.  In many ways, Trump's delusions about modern manufacturing are as profound as Summers and the Democrats.  Both believe in a world that has passed them by.  Those jobs will not "return" to America largely because to be competitive in the world economy (with or without trade deals like NAFTA), a factory must be able to take advantage of efficiencies that do not involve human workers.  A plant that employed 2,000 people a couple of decades ago can be run better and more efficiently by 200 workers today.  And those 200 workers need to be re-educated and retrained to operate and maintain the complex machines that make the plant competitive.

But does all this mean that no unions are necessary?  There are sectors of the service economy where unions would, indeed, protect workers from being exploited and negotiate decent pay packages.  Home health care workers come to mind – a growing industry of workers who perform backbreaking and heartbreaking labor for, in many cases, little more than minimum wage.  As private insurance companies increasingly cover these services, it becomes easier for unions to negotiate fair and equitable contracts.

Anyone who knows the history of labor unions from the early 20th century on can track the progress of America's manual laborers from abject poverty to middle class.  Unions have done good things in the past – not so much recently.  The question is, can they reform and represent this new workforce that is already taking shape?

Labor Day 2017, and the status of the American worker has never been more uncertain.  Some, like Harvard's Lawrence Summers, believe that the answer is more unionization.

Financial Times:

Economists do not have complete answers. In part there are inevitable fluctuations. Profits have declined in recent years. The wages that are reflected by the BLS are earned in the US, whereas a little less than half of profits are earned abroad and have become more valuable as the dollar has declined. In part, wages have not risen more because a strengthening labour market has drawn more people into the workforce. 

But I suspect the most important factor explaining what is happening is that the bargaining power of employers has increased and that of workers has decreased. Bargaining power depends on alternative options. Technology has given employers more scope for replacing Americans with foreign workers, or with technology, or by drawing on the gig economy. So their leverage to hold down wages has increased.

This is true.  But Summers and other liberal economists can see only the problems, not the opportunities.  First, the flow of foreign workers can be better controlled with immigration reform.  Secondly, the technology – A.I. and other robots – needs someone to build it and maintain it.  The day is fast approaching when traditional factory work will be a thing of the past and a new work force will emerge – better trained, and perhaps better paid, than their predecessors.

Unions would rather resist the new technology than exploit it to better the position of workers.

On this Labor Day we would do well to remember that unions have long played a crucial role in the American economy in evening out the bargaining power between employers and employees. They win higher wages, better working conditions and more protection from unjust employer treatment for their members. More broadly they provide crucial support in the political process for broad measures such as Social Security and Medicare, which benefit members and non-members alike. Both were at their inception passionately opposed by major corporations.

The glory days of unions was 60 years ago.  Summers reveals exactly why Democrats and their union allies have fallen so far out of favor: they live in the past and are unprepared for the revolution sweeping the labor force.  Industrial unions exist today largely as a vessel for big corporations to pay health care and pensions to a large number of people – most of whom aren't even working anymore.  By contrast, the foreign auto plants in the non-union South are thriving while paying their employees good wages.

For those who believe that Donald Trump when he claims he will bring factory jobs back to America, you are going to be disappointed.  In many ways, Trump's delusions about modern manufacturing are as profound as Summers and the Democrats.  Both believe in a world that has passed them by.  Those jobs will not "return" to America largely because to be competitive in the world economy (with or without trade deals like NAFTA), a factory must be able to take advantage of efficiencies that do not involve human workers.  A plant that employed 2,000 people a couple of decades ago can be run better and more efficiently by 200 workers today.  And those 200 workers need to be re-educated and retrained to operate and maintain the complex machines that make the plant competitive.

But does all this mean that no unions are necessary?  There are sectors of the service economy where unions would, indeed, protect workers from being exploited and negotiate decent pay packages.  Home health care workers come to mind – a growing industry of workers who perform backbreaking and heartbreaking labor for, in many cases, little more than minimum wage.  As private insurance companies increasingly cover these services, it becomes easier for unions to negotiate fair and equitable contracts.

Anyone who knows the history of labor unions from the early 20th century on can track the progress of America's manual laborers from abject poverty to middle class.  Unions have done good things in the past – not so much recently.  The question is, can they reform and represent this new workforce that is already taking shape?

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