Let me begin my making my biases clear: my father was a union man, his father was a union man, and the only thing I don’t like about my chosen profession is that I won’t be able to be a union man. I think that unions play a vital role in correcting the economic inefficiencies that arise from unequal bargaining power between employers and employees. No matter how much value you can provide to a business, whether you’re scrubbing the toilets, welding the widgets, building the building, or fixing the printers, a business will always be able to undercut that value by finding someone desperate enough to do the same job, contributing the same value, for less pay. That is why nations impose laws like minimum wages, collective action protections, and equal pay statutes: because they hurt the market.
But what is this doing on a skeptical blog, you ask? Because I, as a skeptic, am a dedicated foe of pseudoscience, and I think that there is a lot of economic pseudoscience out there. A lot. And there are few economic models more pseudoscientific than those followed by the Scott Walkers and Paul Ryans of the world. Those are the models that say that unions are bad for the economy, and by extension bad for America.
The labor issue gripping America’s imagination most vividly today is that of the NFL referee lockout, coming right on the heels of the Chicago teachers’ union strike, so we’ll start there. Now, a lockout and a strike are significantly different: in a lockout is the employers enforcing a work stoppage, usually used as a preventative measure against a strike during labor negotiations, but in a strike, the workers themselves have decided (and at least one federal judge and the National Labor Relations Board agree) that the workers have no way to get their voices heard at the negotiating table other than to strike.
That is one defining feature of work stoppages that people sometimes forget: it isn’t just up to the workers to call a strike. For large strikes with the potential to paralyze local economies, as the Chicago teacher strike has, workers do not have the unilateral power to engage in a strike. In part because of the size of the strike, the critical importance of the industry in question, and the fact that the workers are public employees, they had to receive a judge’s approval, and the approval of the National Labor Relations Board, to strike. The Chicago teachers had to go through literally years of abuse at the hands of their managers before a judge would authorize the strike.
The National Labor Relations Board is, at least hypothetically, a five-member body that adjudicates labor disputes at their preliminary stages. Their general counsel investigates complaints and has virtually unilateral control over whose complaints get heard and whose do not. The Board itself makes calls on how to fix the problems described in the complaints, but both complainants and those accused of unfair labor practices (both workers and employers can commit unfair labor practices) have broad rights to appeal.
While the NFL and the Chicago labor disputes are different in the nature of the action taken by workers (striking and being locked out), their complaints are fundamentally the same: they feel that they do not have the kind of bargaining power that they need to secure fair working conditions and fair pay. The NFL’s lockout strategy has permitted them to hire strikebreakers or “scabs,” workers who will work while the aggrieved professionals wait for a court to force their employers to hear their demands. And the American public is very, very upset at the performance quality of the scabs.
That is one of the few advantages that workers have in labor disputes: their expertise. Striking workers are the ones who have worked at a business long enough to develop skills, and while the skill variance between workers and scabs is sometimes very low (a janitor, by and large, is a janitor), it is sometimes very high (not all referees are created equal). In a perfectly-functioning market, every employee would come with a little experience bar floating over their heads like in a video game that would broadcast the fair market value of their labor to any employer, who would mechanically pay exactly that amount for their services.
But how do you go about characterizing the fair market value of a referee’s work? The pseudoscientific model says: the fair market value of that labor is the lowest amount somebody would do the job for. And we’re seeing just how effective that model is at describing the value of an NFL referee. The scabs will work for less than the locked-out referees are asking, and so supposedly they should have as much value as the refs had before the lockout – but they don’t. The veritable uproar American football fans are expressing over a slew of bad calls shows that, in very real terms, a scab referee is giving less bang for his buck than an experienced referee.
The pseudoscientific model of labor relations makes this mistake because it makes the childish mistake that workers and employers negotiate fair and square over working conditions, that the worker and the boss are equal partners at the bargaining table and so if a worker doesn’t like her pay scale, she should demand a raise or find a job that will pay her more. This is the economic model that America followed in what we today call the Guilded Age, the late 19th- to early 20th-century period where a textile worker might make a million dollars worth of textiles over the course of her working life but end up making $50,000 for herself.
Read that again: a textile worker might have a lifetime output of one million dollars in widgets, and take home $50,000 over that lifetime. On what planet is this an efficient market that rewards hard work according to its merit? Scott Walker’s planet. Paul Ryan’s planet. It’s the same planet where minimum wage laws are unnecessary because labor is as valuable as the boss will pay for it! It’s the same planet where the American poverty rate cracked 25%, where the income gap between high-income and low-income earners hovered around 1,000%, where the market was free for employers and tightly controlled from above for workers.
The simple fact is that, from the original position, workers are at a disadvantage. There will always be more people looking for jobs than there are jobs, and so everybody will want to work for less than everybody else. This drives down wages, which puts less money in the pockets of customers, which puts less money in the pockets of businesses, which causes businesses to shed workers, who will work for less than everybody else because they need work, which drives down wages, which puts less money in the pockets of customers…
Think of it as a complicated iteration of the prisoner’s dilemma. It is to every business’s net advantage to pay every worker higher wages, because that way every customer has more money to spend. But it is also beneficial to the individual business to screw its own employees out of fair wages because that saves it money and lets it be more competitive by driving down the prices of its goods – but then other businesses have to follow suit or perish, so everyone else follows suit, and prices fall almost as fast as the wages, and in the end, everybody loses.
The trade-off that we are often told that we have to accept is that fairer labor laws will translate into a weaker economy. But that simply isn’t true. Minimum wage laws are fair labor laws, and they translate into a stronger economy (according to a group with very moderate overall opinions on minimum wages). Labor organization protections are fair labor laws, and they translate into a stronger economy for the same reason: they maintain market efficiency. Pure and simple.
That’s the other version of the premise we’re all told to accept: any government protection of workers is a de facto market inefficiency. But that just isn’t so: markets work best when they reward by outputs according to inputs. That is why a worker who makes a million dollars worth of textiles today wouldn’t make nearly a million dollars in a lifetime of work, since of course the employer takes a cut, the business takes a cut, fringe benefits take a cut, taxes take a cut, and so on, but they’ll be making a hell of a lot more than the lowest possible amount the employer can get away with.
In the efficient market, the government protects employees from having the fair market value of their labor artificially depreciated by contingent disparities between number of workers and number of jobs. Our minimum wage is far from high enough, the NLRB is far from protectionist enough, and labor protections are far from extensive enough, but they do a better job of modeling a truly free negotiation between workers and bosses than the pseudoscientific economics which says that, left to their own devices, bosses will make for a better market by themselves. Because I just do not think that what makes a market “free” is what makes a market free for the people who already have all of the capital to invest. A market is “free” when fair value is paid to everyone for everyone‘swork.
Myself, I am an entrepreneur. My private practice is service-oriented and we do not have any employees, we only have partners. My partners and I had the luxury of being able to sit down and freely negotiate the terms of our partnership agreement, which dictates virtually every aspect of the economics of our business and of our relationship with each other. Any of us could freely leave, refuse the terms, and end the business. But with regular employees, the business doesn’t end when it considers your own needs – it moves on to the next worker, who hopefully will work for less. The partnership model is the ideal model, since everybody agrees on the terms or the business never happens. In the employer-employee model, the employee gets by with what the employer allows. The second model is economic pseudoscience, one that we try to correct with labor and wage protections.