By Steve Buckstein and John A. Charles, Jr.
This summer, Detroit automakers began one of the most
critical rounds of labor negotiations in their history. Ford,
General Motors and Chrysler are all teetering on the brink
of bankruptcy, in part due to high labor costs.
For example, according to manufacturers, every car they
make contains a $1,500 premium due to labor health care
costs that their Japanese competitors don’t face.
The United Auto Workers have historically been one of the most powerful unions in the country, but previously-negotiated benefits are likely to be reined in during the coming months due to growing competition. If American-made automobiles remain too expensive, the companies face the very real threat of mass layoffs or even collapse. This is the ultimate bargaining chip held by management, because a great contract with a dead company isn’t worth anything to labor.
Market competition is the primary reason why private sector unionism has diminished to the point of irrelevance in America. Union membership in private workplaces peaked at 24% in the 1970s but dropped to just 7.4 percent last year. It will continue to decline as globalization increases.
Does that mean that the union movement is dead? Not at all. For the past three decades, union membership has flourished in the public sector. Public employee union participation went from 23 percent of the workforce nationally in 1973 to 36 percent last year. Oregon’s public sector union rate is far higher, at roughly 50 percent.
Government workplaces are the perfect environment for union organizing because government entities are sheltered from most competition, and they have a monopoly on tax revenue. Therefore government agencies can accommodate union demands with little fear that they will lose their customer base or revenue stream.
For example, the largest single item in Oregon’s general fund is public education, a highly unionized sector of the economy. This year, with a union-friendly legislature and a former labor lawyer as governor, the K-12 budget increased by $1 billion, or 17 percent. None of this money is available for private school education or home schools. Unionized school employees know this, and they also know that they have a 90 percent market share of all students because parents cannot get any refunds for bad service from government schools.
Therefore school employee unions can continue to bargain for, and receive, steady increases in pay and benefits because there is simply no market discipline. Less than half of this budget increase will reach the classroom in the form of smaller class size or added programs; the rest will go to increased pay and benefits. Two years from now, the process will repeat itself, with no end in sight for taxpayers forced to pay for services they may not want.
For these reasons, Oregon public sector unions are far more powerful than the private sector UAW. The UAW has already seen its best days; labor costs have made the Big Three automakers so uncompetitive that they will either gain concessions from the unions or cease to exist.
In contrast, Oregon public employee unions will continue to grow. In fact, they now have a new pro-union law known as “card-check.” This allows unions to organize government agencies simply by convincing half of the eligible workers to sign a card stating they want to join the union.
Another new law allows a public sector union to organize the owners of adult
foster care homes, apparently on the thin rationale that they accept state
payments for some residents. This will stretch the reach of public union jurisdiction into workplaces that are actually private.
We have no objection to people voluntarily banding together into a labor association for the purpose of bargaining for higher compensation. Employees should always seek the best deal they can get. But in a competitive market, there is always a check on over-reaching, which diminishes the power of a union. In Oregon’s public sector, there is no market, and therefore no restraint.
Steve Buckstein is Senior Policy Analyst and John A. Charles, Jr. is President and CEO of Cascade Policy Institute, a free-market think tank based in Portland. A version was published on the front page of the September 2nd Sunday Oregonian Opinion section under the title “The new world for American labor.”