Labor Cartels, Competition, and Government
Unionized Workers Form Legal Cartels
AUGUST 01, 1994 by CHARLES W. BAIRD
A cartel is a group of sellers of a product or service who, instead of competing with each other in an open market, band together and try to eliminate that competition. Some cartels are illegal, and some are legal. For example, if General Motors, Chrysler, and Ford conspired together to raise automobile prices and standardize market shares, government would prosecute them for violating the Sherman Antitrust Act. On the other hand, if the employees of General Motors, Chrysler, and Ford conspired together to raise wages and standardize working hours and conditions, government would applaud them for unionizing.
Economic theory tells us that all cartels are inherently unstable. If government doesn’t do anything to force cartel members to refrain from competition and to keep interlopers from competing with a cartel, it soon disintegrates. As George Stigler put it, “Cartels are gentlemen’s agreements, but they seldom are and never do.”
In spite of the protection afforded unions by the National Labor Relations Act, only 11 percent of the American private sector labor force is unionized. According to Leo Troy, of Rutgers University, by the year 2000 that figure will be below seven percent. Unions are desperate for even more government protection. And the Clinton administration seems eager to comply.
Much has been written about the pro-union appointments President Clinton has made to the National Labor Relations Board and his new National Commission on the Future of Worker-Management Relations (which one commentator calls FOU—Friends of Unions). The president’s promises to sign such legislation as the bill to make it illegal for employers to hire permanent replacement workers during economic strikes and a bill to repeal all laws that protect workers from compulsory union membership are also well known. But far too little attention has been paid to the president’s pro-union intervention in labor disputes.
A New Era?
Last Thanksgiving, with much fanfare and publicity, Clinton intervened on the side of the union in the flight attendants strike at American Airlines. Under political pressure, American capitulated to union demands. The Association of Professional Flight Attendants, which represents workers at other major airlines as well as American, immediately hailed Clinton’s intervention as a victory that would “set the tone” for future negotiations in the industry. Clinton justified his action on the grounds that the Thanksgiving holiday was a peak travel time, and the public would be greatly distressed by continued interruption of flights. Labor Secretary Robert Reich said that this intervention was based on unique “extenuating circumstances” and that the Clinton administration did not plan to get involved in other labor disputes except in extreme circumstances. In contrast, the AFL-CIO lauded the president’s action as the beginning of a new era in which management would no longer have the upper hand in labor disputes.
The president’s pro-union intervention in the American Airlines strike was soon followed by a similar intervention in a labor dispute at United Airlines. While American flight attendants were on strike, machinists at United were “working to rule” to protest United’s refusal to agree to a union plan to acquire majority ownership of United. The union proposed to pay for the buyout merely by accepting some wage and work rule concessions which would reduce United’s labor costs. Clinton dispatched Reich and Transportation Secretary Federico Pena to pressure United into agreeing to reopen talks with the unions on the buyout. He also sent Felix Rohatyn, a member of his commission to study the national airlines, to “mediate” the talks. In March of this year United agreed to a buyout of at least 53 percent of its equity shares by its unionized pilots and mechanics in exchange for wage and work rule concessions that were not appreciably different from those United initially turned down. Even with the concessions, United’s labor costs will still be much higher than, for example, those at rival, nonunion Southwest Airlines.
Then there were the coal strikes. Starting on May 10, 1993, the United Mine Workers of America (UMW) undertook an expanding program of “targeted” strikes against members of the Bituminous Coal Operators’ Association (BCOA). More than 17,700, out of 30,000, unionized miners were pulled away from their jobs. The seven-month strike ended on December 7.
The UMW said its principal goal was “job security.” Actually, the strikes were nothing more than a desperate attempt by the UMW to prove that it is still relevant in the coal industry. From the union’s point of view its members are important only insofar as they serve the institutional interests of the UMW.
UMW mines have suffered a sustained decline of market share since 1970 when union coal amounted to 70 percent of total U.S. coal production. In 1980 the figure was 44 percent; in 1990, 30 percent; and in 1992, 28 percent. Union mines are losing market share to more efficient nonunion mines. Of the 2,800 active mines in the United States, only 800 are unionized. As more and more established union mines are shut down because of depletion or because the falling price of coal relative to union-driven costs makes their continued operation uneconomic, new, union-free mines are opened.
The reasons behind this declining market share have nothing to do with employers trying to rip off workers. For example, under the terms of the 1990 Clean Air Act, coal burning utilities are gradually being forced to switch from high sulfur, eastern coal to low sulfur, western coal. By 1995 many high sulfur mines, many of which are unionized, will be made obsolete by law.
Competition is the biggest part of the UMW’s problem. In addition to the fact that 2,800 American mines compete with each other, foreign competition from such countries as Australia and Canada has been increasing. Expressed in 1987 dollars, the average price of coal in 1980 was $34.20 per ton. By 1991 the price had fallen to $18.24—a 48 percent decline. For a mine to stay open and continue to provide employment to miners., it must keep costs of production in line with these falling market prices.
Increased productivity is the single most important means to reduce cost. In union mines productivity is 27.9 tons per miner per day. In union-free mines the figure is 47.6—70 percent more. Even if hourly wages per worker were the same at nonunion and union mines, the big productivity difference would give the nonunion mines a huge advantage in cost per unit of output.
The productivity difference is not the result of sweatshop conditions at union-free mines. Rather, it is because at such mines: employees are hired and assigned based on ability rather than seniority; work rule restrictions, such as requiring an electrician to plug in a power cord, are absent; scheduling is flexible; and contracting-out of repair and maintenance work is permitted. Interestingly, the UMW had already agreed to many of these productivity-enhancing practices at a few unionized mines that compete with BCOA mines; yet, the union refused to discuss the issue with the BCOA.
Average hourly wages and benefits received by nonunion miners ($24.21) exceed those received by union miners ($23.90). That doesn’t include work incentive payments paid by many nonunion mines with which a nonunion miner can receive several thousand dollars more in wages and benefits per year than his unionized counterpart.
Nevertheless, unionized mines have higher overall hourly labor costs ($31.64) than union-free mines ($26.95). This is mainly due to spiraling health care costs. Unionized mines pay $3.14 per hour per existing employee for health policies with no deductibles and no coinsurance. Nonunion mines pay $1.83 for policies with deductibles and coinsurance. Moreover, the unionized mines are required by the 1992 Coal Mine Retirees Health Benefits Act to pay health benefits to retired unionized workers whose employers have gone out of business. That is unfair, but it is not the fault of the BCOA or the nonunion mines.
In the face of falling prices, higher overall labor costs, and much lower productivity, the UMW demanded that all existing union jobs be preserved and that all union miners receive full pay even if, for any reason, they are out of work. This is what it means by “job security.”
Some BCOA mines are owned by parent companies that also own nonunion mines. As part of its plan for job security, the union demanded that the parent companies, which were not part of the bargaining, force workers in their nonunion mines to unionize. More and more miners are telling the UMW to get lost. Desperately afraid of losing dues payers, the union sought to take free choice away from workers in two ways.
First, the union demanded that management in nonunion mines already owned by parents of BCOA members remain silent when the UMW tries to organize their employees. In other words, it demanded that management give up its right of free speech during organizing campaigns in those mines. Second, the union demanded that management in new nonunion mines acquired or opened by parents of BCOA members automatically recognize the UMW on the basis of signatures on authorization cards. In other words, it demanded that management take away the employees’ right to vote on whether to unionize.
Authorization card signatures are collected on a face-to-face basis, and workers are often intimidated by union organizers who are seeking their signatures. The only target unionists prefer to any employer is a worker who wishes to be union-free.
The UMW has a reputation for violence. For example, during the seven-month strike equipment was sabotaged; tires were punctured; truck and car windows were broken; rocks, steel balls, and bolts were launched from slingshots at guards and supervisors; at least one truck was burned by a Molotov cocktail; one supervisor was shot, and gunshots were fired at a mine office. The UMW is now fighting a $52 million fine imposed on it by a Virginia court for its violent activities during the 1989 ten-month Pittston strike.
The only way that BCOA mines can provide genuine job security to their employees is to cut costs to remain competitive. UMW demands are inconsistent with that goal. Yet, Clinton dispatched Reich and William Usery, a member of the National Commission on the Future of Worker-Management Relations (FOU), to “encourage” the BCOA to accept the UMW’s job security demands. On December 7, 1993, the BCOA announced its capitulation.
Reich said the agreement was “a testament to the tenacity and conviction of Richard Trumka and the UMW.” Trumka is the president of the UMW. In my judgment, the only conviction that Trumka had was that if he held on long enough, Bill Clinton would come to his rescue. When Reich was asked about the propriety of the administration’s actions he lamely asserted that, like the American Airlines case, the coal strike involved “unusual circumstances.” One wonders if there will be any major strikes that will not involve “unusual circumstances” which justify pro-union political intervention during the Clinton presidency.
Not since Franklin Roosevelt has the United States had a president so eager to subordinate the rights of employers, consumers, and union-free labor to the interests of cartelized labor. It won’t work. Clinton may be able to slow down the rate of union decline, but he cannot reverse it. In an increasingly competitive world economy, unions will, like all cartels, eventually disintegrate.