Unions get away with this behavior because their propagandists have convinced the public that a strikebreaker or “scab” is one of the lowest forms of life on earth. In reality, a strikebreaker is just someone who wants a job and is willing to work on the terms offered by the employer who is being struck. Violence against strikebreakers is either excused, or worse, made to look like it’s the strikebreakers’ fault. Much of the history of labor violence in the United States has been distorted in this way. According to union lore, during the famous strikes of the late 19th and early 20th centuries company bosses sent in armies of Pinkerton men to club peaceful union men into submission; in reality, the “peaceful” union men beat and maimed non-union workers who were just trying to go to work, and the Pinkertons had to be called in to protect them. One of the ugly truths you never hear much about is that much of the union violence directed against strikebreakers was racial. During the Jim Crow era, many African-Americans and other minorities were able to break the color barrier in the factories by coming in as strikebreakers, and the violence against them was especially vicious. And if some of them were able to keep their jobs after the strike ended, they were not allowed to join the whites-only unions.

Some more objections

Strikes aside, the ability of a union to force a high minimum wage on an employer is not unlimited. Regardless of what a majority of union members might want, there is no way the union is going to obtain a wage rate so high that the employer cannot pay it. Recall that employer surplus — which, after unionization, is the area above the line AH and below the demand curve for labor in Figure 1, and above the line UP and below the VMP curve in Figure 3 — is what is available to pay non-labor factors of production after paying wages. If this isn’t enough to pay those other factors, the employer will go out of business.

The astute economist who carefully studies these models will note that I have assumed that the employer in both the competitive labor market and the monopsonistic market is a perfect competitor in the goods market. Since perfect competitors earn only a normal profit, the employer would be unable to absorb a very large wage increase. (Strictly speaking, ceteris paribus, he would be unable to absorb any wage increase at all! But let’s leave a little wiggle room!)

In both the competitive and monopsonistic labor markets, we have shown that employers have to lay off workers as a result of the union-imposed wage minimums. The effect of this is to reduce output, shifting the market supply curves for the goods produced by the firms upward and to the left. This in turn results in a higher price for their output, which will cover part of the firms’ increased labor costs. For a monopsonist this is not an unambiguous result. Recall that while the monopsonist is the only employer in the relevant labor market, it is a perfect competitor in the goods market.  It’s share of total output in the market for its product is not enough to allow it to affect price.  However, a union is not going to negotiate a contract with just one firm in the industry.  It will negotiate with as many firms as it can, even if each firm has a local monopsony.  This is the only way the union can raise wages to a level that otherwise would drive an employer out of business.

Another thing firms can do when confronted with a wage increase is employ more machinery relative to labor. The fact that firms do this is often cited by union apologists as evidence that unions promote economic progress. They argue that labor productivity increases as a result of union activity. Actually, the capital-to-labor ratio and marginal productivity of labor increase without employing more machinery simply because each firm is now employing less labor and is operating at a higher point on the marginal product curve. However, firms will want to employ even more capital relative to labor because wages have gone up relative to the cost of capital. But the ultimate source of business investment is private saving, so unless saving increases, the only way to get more capital is to shift investment from other industries. Thus, unionization, rather than serving as an engine of progress by encouraging the use of more capital, merely reallocates capital from more efficient to less efficient uses.

Another objection to this analysis is that it applies only to private sector unions, not to government unions. That is true. The government labor “market” isn’t a real market at all because both parties to the negotiations are driven by political, not market considerations. The main difference is that government unions are negotiating with the very people they help elect. We cannot truly call it collective bargaining, because true bargaining only takes place when the interests of the two parties negotiating are strictly opposed. Lefty filmmaker Michael Moore, probably without realizing it, put his finger on the difference between private and public sector collective bargaining when he told demonstrators in Madison, Wisconsin this week that “America is not broke!” Of course, what he meant by that is that Americans aren’t being taxed enough to suit him. Politicians who negotiate with public sector unions are not spending their own money, so the only limit to how much they will give away to these unions is the patience of the voters who pay the taxes.

The effects of unionization

One of the reasons I wrote this piece is that I’m a little irritated with conservative commentators who, while correctly pointing out that public employees’ unions are bankrupting the country, speak almost reverently about private sector unions. They talk about the horrors of work in factories and mines in the 19th century — and I will concede that, by today’s standards, conditions were pretty horrible — and give unions the credit for improving conditions. Some even go so far as to credit unions with “creating the middle class.”

Actually, working conditions are brutal in any country that is in the early stages of industrialization. They improve over time as more capital is employed and labor becomes more productive. Usually there is a lag in getting the benefits of increased productivity to the workers and sometimes unions may help speed up that process, but to the extent that they inhibit productivity and cause the misallocation of resources, they actually stand in the way of improving the workers’ condition.