Res Judicata: Union Wages Hold Back Job Growth

The Department of Labor recently enacted a new rule requiring employers to post a notice advising employees of some of their rights under the National Labor Relations Act. I say some, because the notice gives a one-sided presentation.

Employees are told only what unions want them to know: they can’t be fired for efforts to unionize. Employees should know their rights. But if the Department of Labor wants them to know those rights, it might have prepared a more balanced notice.

The notice should also say that the Act protects the right of workers in so-called “right to work” states not to join a union. This means even if an employer is operating under a collective bargaining agreement the employer cannot make joining a union, and paying union dues, a condition of employment. The corollary to this rule is that in non-right-to-work states employers and unions can adopt what is known as an “agency shop clause,” a requirement that employees must pay union dues. And those dues can be deducted from paychecks.

This is one of the unsavory aspects of unionization that the Obama Labor Department would rather not raise. Its notice is designed to present not only a one-sided pro-union statement of rights, but also to suppress the costs of unionization. This is roughly the equivalent of a notice telling car buyers that you have the right to eight air bags instead of the mandatory two in a vehicle but not telling them that this is an option with a $800 price tag.

The Obama Labor Department wants to promote union drives even though unionization means supra-competetive (above market) wage rates. Basic economics teaches that the demand for anything is roughly the inverse of its cost. So as the cost of employment rises, as with unionization, the demand for employees will fall. This is contrary to the President’s stated objective of “creating jobs.” Unionization reduces the number of people working by making employment more expensive than it needs to be.

One area where labor laws reduce employment is in public construction projects, a big source of new jobs if you listen to calls for rebuilding the infrastructure. The Davis-Bacon Act requires workers on all such public projects to be paid “prevailing wages” in the community. Under Department of Labor rules this is skewed heavily toward union wages rates, which are significantly above what the market (non-union employers) pay.

Here in Chicago, for example, union construction workers earn a minimum of $75,000/year excluding benefits. But the median family income is only $50,000. So government construction jobs are costing too much of the taxpayers’ money, are inefficient, and correspondingly, will reduce the number of workers who get hired. If the construction workers were paid non-union wages, like 90% of the private sector workforce, wages would be much closer to the median, projects would be cheaper, and more could get done.

In addition, many states, like Illinois, have their own “prevailing wage” laws doing the same thing on state and municipal construction projects. This is such a racket the Chicago construction unions boast that they cannot legally be underbid by non-union firms for state public works projects. So the government has sided completely with union labor and against non-union labor even though the effect of doing so decreases employment.

The Ohio referendum to curtail collective bargaining for public employees was defeated because Governor Kasich failed to make the argument that unionization lowers employment. Instinctively, the public has some idea that union wages are high and their pension programs are expensive. But if the public knew that construction workers are making a minimum of $75,000 excluding benefits (I realize this is in Chicago, a high-cost of living metropolis, but the bloated wages apply everywhere), there would be a taxpayer revolt. It’s bad enough that we are living through an endless period of persistently high unemployment. The fact that labor laws aggravate the situation is intolerable.

Readers will note that I deplore the depressive effects of illegal labor in the economy. This is not inconsistent with the view I express here that supra-competetive wage rates are also bad. My point is that wages that are below the market level, or above the market level, are undesirable.

American citizens with high school educations should be able to earn a living wage. Republicans can speak to that constituency by advocating strict enforcement of immigration laws. Republicans can also appeal to small business owners, overwhelmingly non-union, by opposing the tilt in favor or union labor. And those Americans in between want the unemployment crisis to be over. We thus have an opportune time to make the case for higher employment by cutting the ties to unions.