http://www.investors.com/NewsAndAnalysis/Article.aspx?id=520518Growing up in Michigan in the heyday of the United Auto Workers, I long assumed that labor unions were part of the natural order of things.
That's no longer clear. Last month, the Labor Department reported that private-sector unions lost 834,000 members last year and now represent only 7.2% of private-sector employees. That's down from the all-time peak of 36% in 1953-54.
But union membership is still growing in the public sector. Last year, 37.4% of public-sector employees were union members. That percentage was down near zero in the 1950s. For the first time in history, a majority of union members are government employees.
In my view, the outlook for both private- and public-sector unionism is problematic.
Private-sector unionism is adversarial. Economic studies show that such unions do extract premium wages and benefits from employers. But that puts employers at a competitive disadvantage.
Back in the 1950s, the Big Three auto companies dominated the industry and were at the top of the Fortune 500. Last year, General Motors and Chrysler went bankrupt and are now owned by the government and the UAW. Ford only barely escaped.
Adversarial unionism tends to produce rigid work rules that retard adaptation and innovation. We have had a three-decade experiment pitting UAW work rules against the flexible management of Japanese- and European-owned nonunion auto firms.
The results are in. Yes, clueless management at the Detroit firms for years ignored problems with product quality and made boneheaded investment mistakes. But adversarial unionism made it much, much harder for Detroit to produce high-quality vehicles than it was for nonunionized companies.
As economist Barry Hirsch points out, nonunion manufacturing employment rose from 12 million to 14 million between 1973 and 2006. In those years, union manufacturing employment dropped from 8 million to 2 million. "Unionism," Hirsch writes, "is a poor fit in a dynamic, competitive economy."
Moreover, federal laws passed since the 1950s now protect workers from racial and sex discrimination, safety hazards and pension failure. They don't need unions to do this anymore.
Public-sector unionism is a very different animal from private-sector unionism. It is not adversarial but collusive. Public-sector unions strive to elect their management, which in turn can extract money from taxpayers to increase wages and benefits — and can promise pensions that future taxpayers will have to fund.
The results are plain to see. States like New York, New Jersey and California, where public-sector unions are strong, now face enormous budget deficits and pension liabilities. In such states, the public sector has become a parasite sucking the life out of the private-sector economy. Not surprisingly, Americans have been steadily migrating out of such states and into states like Texas, where public-sector unions are weak and taxes are much lower.
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