Free Exchange asks:
The problem that unions tend to to face, in America and in Europe, is that successful attempts to improve the viability of a business lead to growth but also to employment shifts. A company may survive and generate better outcomes and wages for its workforce, but only if there is freedom to adjust the size and composition of that workforce. Since workers primarily benefit from employer concessions only to the extent that they're still employees, this encourages unions to ask for growth-constraining benefits that ensure either continued employment or handsome benefits for those forced to leave the company.This state of affairs leads many economists to lament the existence of unions generally, since they tend to constrain economic growth, but it's important to note that union members are simply insuring against the potential loss of benefits they'd face if shunted out of their particular firm or industry and into another part of the economy. It stands to reason, then, that the package of benefits sought by unions might be less damaging to growth in situations where unions are fewer, larger, and more encompassing. In that case, a worker forced out of a firm for the sake of efficiency would stand a better chance of landing in an industry or firm with equally good worker benefits.
If that's the case, though, and larger unions are more amenable to growth-friendly corporate policies, then why not extend worker benefits to include all workers? If job loss carries with it the risk of benefit loss, leading workers to fight job-loss in growth inhibiting ways, why not eliminate that risk by providing those benefits at a national level? If concerns about health insurance and pension plans are encouraging workers to ask for employment protections, it seems sensible to provide them to all, so that displacement from any job into any other job will not result in benefit loss and give unions reasons to ask for job security (or fight openness to global markets).
Obviously, such programs must be paid for and would probably necessitate tax increases, which come with their own economic distortions. But it may be time to acknowledge that such trade-offs are necessary.
The problem is that while theoretically, such protections could smooth the growth losses this way, in practice, there's little evidence that they do so. Europe seems to have permanently lower growth, and higher unemployment, despite generous public pensions and health insurance. Indeed, the union fight at GM was over a group of people that already have gold-plated government health insurance: retirees over the age of 65. Nonetheless, the union struck.
Members of the UAW want job guarantees because outside a GM plant their skills will never, ever return anything close to what they make inside one. According to the Freep, wages and benefits for the average UAW worker run about $73. At a standard 40-hour workweek, that's the equivalent of a roughly $100,000 a year salary for someone with a high school education who takes no entrepreneurial risk. Where else is that kind of deal available? Is it any wonder that the membership wants to fight to keep that? Slash the health benefits and pensions in half and it would still be an extraordinarily good deal for workers whose earning power on the open market is probably more in the $20 an hour range.
Somewhere in here is a math or transcription error. $73/hour and 2,080 hours per year means a annual compensation of $151,840, not $100,000.
The linked article may be at fault...perhaps it's $37/hour not $73? ("Wages and benefits for second-tier workers will average $27 per hour, compared with the average $73 per hour of current workers, the sources said.") Seems like a huge gap at $73....$37 makes more sense.
Even so, that would mean annual compensation of $76,960.
It's wages and benefits; you have to back out the costs of non-salary compensation, which tend to be large.
Chris Anderson is likely correct, the number was meant to be $37/hr.
There are three ways you can lose your job:
(1) Technology makes your job unnecessary,
(2) Economic conditions change, necessitating your layoff in a bid to cut costs and output,
(3) The company goes out of business
Negotitated job guarantees can lessen the risks to the individual in cases (1) and (2), but at the cost of raising the risk from (3). Again, nothing is free.
Megan_McArdle: Your question is related to the question, "Why did unions demand an *employer pension* instead of demanding that it pre-fund a union-controlled account that distributed the pension?"
Why indeed.
They're just now getting around the idea that *maybe* it's better if the union has control over the pension fund, since they're the ones that suffer if it's poorly run.
Is it hindsight bias to call them stupid?
My husband made a good point regarding the job guarantees desired by the UAW. He said GM should offer to guarantee jobs as long as the UAW can guarantee sales. Anything else is absurd.
Aren't most auto workers older? Try being over 50 and trying to find a new job. Also, Barry Ritholtz has data that says that in reality, the US unemployment rate isn't much different than Europe(yes, he says the Dept. of Labor lies). Also, if you want to get rid of unions, how about not bailing out investment banks, or giving sports teams such large subsidies.
Person - trusting unions to manage one's pension isn't always the best idea, either. Unions are largely exempt from ERISA, making it much easier for them to mismanage or steal the pension fund.
Your question is related to the question, "Why did unions demand an *employer pension* instead of demanding that it pre-fund a union-controlled account that distributed the pension?"
Why indeed.
While this isn't my professional specialty, so I'm remembering law school here, I believe the answer to your question is that Taft-Hartley forbids it. Pension and health benefit funds may be employer controlled, or jointly employer and union controlled, but solely union controlled pension and health benefit funds are prohibited.
LizardBreath, could you please cite the portion of T/H that says that? According to the Wikipedia article, the only mention of pension is the (lenient) requirements an employer must meet before establishing one. It would also contradict thie history of the GM pension, which Walter Reuther originally wanted as a regional union-run scheme, rather than employer specific.
It's also unclear what exactly such a prohibition would mean. How can T/H prohibit this:
1) Union negotiates x% raise for union members.
2) Oh hey, to be part of the union, you have to put x% of your salary into this union fund.
3) When you retire, that fund is contractually obligated to pay you f(x, ...) in benefits.
Anthony: I was speaking from a union member's perspective, not a reasonable person's. In any case, the point is, why should your retirment benefits be coupled to future employer profitability at all?
Members of the UAW want job guarantees because outside a GM plant their skills will never, ever return anything close to what they make inside one.
You admit this is a logical stance, but you sound so disapproving... Are you saying these particular people ought to be defending interests other than their own?
I also think you might underestimate the attraction of job security in itself. Most people are stasists, to use Virginia Postrel's term, and they hate and fear change, especially change which is very likely to have a quite negative effect in the short term and could very well have negative effects in the long term.
The number is $73 an hour. 37 in salary and 36 in benifits - current health insurance, pension, health insurance in retirement, vacation, short term disability, long term disabliity, jobs bank, etc.
Imagine you tried to buy an annuity that would pay you 80% of your salary when you were 55 and would pay your health insurance premiums when you retired - how much do you think that would cost?
It's a shame more unions and employers don't have the sort of relationship that exists at Southwest Airlines, wherein a substantial % of compensation is in the form of profit sharing, which tends to much better align interests.
I don't know. Why don't you ask the teamsters?
Job security is a serious issue in a real world where people need to plan their lives and adapt to specific environments and standards of living.
Adam Smith pointed out that contract work is actually more expensive because you need to pay the contractor not just for the unemployment but the anxiety that goes with it.
After all, we fear what can hurt us the most and not what is the most probably (see cancer).
Therefore, one would expect that good job security would enable an employer to pay lower benefits and wages yet still get employees. I have had many friends who accepted a lower pay civil service job rather than a much more lucrative industry position solely on the grounds of having better job security.
What is rather remarkable about GM is how this happens to translate into higher wages and benefits! This seems counter-intuitive to me unless the profits in auto-making are extraordinary (which seems unlikely given the low margins).
I have a hard time believing that auto workers make only $37 (wages) per hour. In 1982, union steelworkers were making $36/hour.
Megan, you're generally correct on both counts, but neither really addresses the point I was making. I'm not asking who grows faster: a Europe with lots of benefits and employment protections or a United States without them. I'm saying that it looks like there's going to be political traction for policies that benefit workers and restrict growth. In that case, which set of policies that improve worker security are least likely to harm growth? I think pressure to restrict the openness of our markets stems in part from the cost associated with losing a job, and that reducing that loss might calm those clamoring for trade restrictions.
If we think about Europe immediately after WWII, we have a continent that's essentially compelled to open its markets, and that responds in part by legislating all these employment protections. The question is then: does Europe grow faster with rich state benefits and steadily opening borders, or might it have been better off with weaker benefits and greater restrictions on trade and migration? I think the former option is clearly better.
I think we've all heard of examples of people dropping out of High School or not going to college because there were jobs at "the plant" that had great pay and benifits.
It would seem that unions, by artifically inflating the wages of the unskilled, discourage people from gaining the skills nessecary to demand high wages and benifits.
jmo wrote: It would seem that unions, by artifically inflating the wages of the unskilled, discourage people from gaining the skills nessecary to demand high wages and benifits.
Bingo. And that's why UAW workers struck over terms of a wages and beneftis package which, adjusted for their lower cost of living, is at least three times what I make as an electrical engineer on the Colorado front range.
Well, if it is $73/hr, then those are two, very different tiers.
And, it is no wonder that the American auto companies are floundering.
Right, that's a question, but only if you assume that we can actually purchase open borders etc. with these kinds of benefits. The evidence from Europe, with its current paranoia about the Polish plumber and destructive tax competition, is not exactly encouraging on that score.
Person:
"They're just now getting around the idea that *maybe* it's better if the union has control over the pension fund, since they're the ones that suffer if it's poorly run.
Is it hindsight bias to call them stupid?"
It would be incorrect. For the most part pension fund problems are due to underfunding not poor management. By not having responsibility for the funds the unions are in a better position to get the companies and the government to make up the shortfalls.
If you want to call people stupid (or corrupt) I think this would better refer to the company managers who promised benefits without even attempting to properly account for their costs.
James_B._Shearer: If the assets reserved are insufficient to cover the pensions, who suffers? While the pensioners should be considered the most senior shareholders, in practice, they aren't, and the company is allowed to dump the obligation onto the PBGC in bankruptcy court. It was quite ingenious on the part of management:
1) Get workers to accept deferred compensation in lieu of market wages.
2) Never pay the compensation.
3) Pay out the profits from below market labor costs to shareholders.
4) Stiff the workers.
5) ???
6) Profit!
"It would seem that unions, by artifically inflating the wages of the unskilled, discourage people from gaining the skills nessecary to demand high wages and benifits."
I see your point.....It's worth nothing to be able to walk 4" beam 100' in the air to land and weld a 10 ton header into a power plant that produces the electricity that you need to type your condisending remarks. Not to mention the fact that you'll most likely live into your seventies where as that man will die at the age of 61 after collecting only 13 retirement checks.
So just sit in your 70 degree office and push your well educated pencil for some ungodly dollar amount.....I can understand why you feel you deserve that. We'll keep destroying our bodies and shortening our lives so you can live in comfort........It's only fair. RIGHT?
In response to:
"It would seem that unions, by artifically inflating the wages of the unskilled, discourage people from gaining the skills nessecary to demand high wages and benifits."
You posted:
"I see your point.....It's worth nothing to be able to walk 4" beam 100' in the air to land and weld a 10 ton header into a power plant that produces the electricity that you need to type your condisending remarks. Not to mention the fact that you'll most likely live into your seventies where as that man will die at the age of 61 after collecting only 13 retirement checks.
So just sit in your 70 degree office and push your well educated pencil for some ungodly dollar amount.....I can understand why you feel you deserve that. We'll keep destroying our bodies and shortening our lives so you can live in comfort........It's only fair. RIGHT?"
I think you are missing what this person was trying to convey...and I am not trying to be condescending at all. I am a well-educated (I paid every penny myself) son of a blue collar family, so I understand how upsetting it is to have someone you believe has never had to bust his/her butt speak negatively of a system that has allowed you to provide for your family and demanded a lot from your body and time.
Also, I think blue collar, especially union workers, have a skewed perspective of what college educated persons earn on the free market.
I will start with my latter point and work backwards.
On the open market, without unions, a person who desires to work in a white collar job, let's just say accounting, will need four to five years of college, plus some form of certification in order to maximize his/her potential.
Public college costs (low estimate): $10K/year + money needed to live (rent, food, car, insurance)
Certification: $2500-5K
What kind of job is available right out of school? In Texas, where I am from, an entry level accounting job with the BEST tier of firms only pays $50K, no pension, only 401K and medical.
Investment: ~$55K or more
Salary: $50K + ~$7K/year in healthcare, etc.
Union job:
Investment: Union dues (certainly less than $55K)
Salary: ~$151,000/yr. in compensation and benefits
What I believe he is trying to intimate is that in a world where a person has to invest so much in money and hard work (yes, college is hard work), unions work preserve a system that rewards workers with salaries disproportionate to a) their demand and b) the amount of technical expertise/education/training required to do them (especially in the case of the UAW).
Let's be honest, $73/hr. to stand on an assembly line and press a drill button? REALLY?
So in the context of a global free makret economy, THAT scenario above is why Toyota and Honda is killing the US auto manufacturers. In a free market system, which ALL non-union workers subject themselves to everyday, supply and demand determine the fair wage. How many people want to make $37/hr. plus $36 in deferred comp. and bennys?
Hell, I 'll do it for $33! (and I still get a raise from the job I currently do, which required an investment of more than $60K in education).
Unions are work counter-intuitively with the rest of our economy, and therefore, on the balance, a bad idea for the longevity of our nation as a whole.
Oh, and to someone else's comment about protecting interests...we should all strive to protect our economic interests as a whole nation, and in turn, our own interests are served. Until we do that, foreign competition will continue to chip away at our staple American industries.
Just my two cents.
From a blue-collar, educated guy.
The whole thing about an education is not only that you make a good income, but that you are actually smarter and will make better decisions with your money. There is a little thing called compound interest. Those who learn its importance will become filthy rich with time. Those who earn $100k per year and spend $110k per year will be poor.