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Tuesday, April 9, 2013

Milton Friedman, Right to Work, and Free Riders

On December 11, 2012, Rick Snyder, governor of Michigan, signed a bill that made the state—home of the United Auto Workers (UAW)—the twenty-fourth right-to-work (RTW) state. A RTW law prohibits unions from forcing workers to pay union dues and fees as a condition of continued employment. 

The UAW and other unions reacted with predictable wrath and violence, even going so far as to tear down a large Americans for Prosperity tent with several pro-RTW people in it. Not to be outdone, state representative Douglas Geiss, a reliable union crony, threatened that blood would be spilled in reaction to the new law. 

Earlier that year neighboring Indiana had become the twenty-third RTW state. People in the old Rust Belt, it seems, are beginning to renounce their long-time allegiances to coercive unionism. Unions and their apologists are desperate to quash the emerging consensus that unionism is legitimate if and only if it is voluntary. Only voluntary unionism is consistent with workers’ freedom of association.

One of the arguments used by union apologists in their reaction to the Michigan story is the observation that Milton Friedman, whom they call conservative but who was actually a classical liberal, was opposed to RTW laws. Thus, they argue, conservatives who support RTW are hypocrites. 

Here is how Martin Fridson put it in Forbes magazine on December 14:

Supporters of right-to-work laws cast the issue in terms of individual rights. They will have to confront the fact that Milton Friedman, an acknowledged champion of human freedom, consistently opposed outlawing contracts that compel employees to pay dues to unions. …
If right-to-work supporters hope to prevail, they must be prepared to explain why they believe the great champion of individual rights, Milton Friedman, was wrong on this issue.
Friedman was not wrong on the issue at all, for his argument in Capitalism and Freedom (1962) on this issue was made in the context of a “competitive” labor market. Unions exist to quash labor market competition.
Friedman begins with a paragraph that unionists (almost) love.
The principles involved in right-to-work laws are identical to those involved in FEPC [Fair Employment Practices Commission]. Both interfere with the freedom of employment contract, in the one case [FEPC] by specifying that a particular color or religion cannot be made a condition of employment; in the other, that membership in a union cannot be. Despite the identity of principle, there is almost 100 percent divergence of views with respect to the two laws. Almost all who favor FEPC oppose right to work; almost all who favor right to work oppose FEPC. As a liberal, I am opposed to both, as I am equally to outlawing the so-called 'yellow-dog' contract (a contract making non-membership in a union a condition of employment) [p. 115].
Union apologists often elide the bit about the yellow-dog contracts; but still, Friedman clearly rejects RTW laws on the basis of freedom of contract. If employers want to operate their enterprises on a union-only (closed shop) or union-free (yellow dog) basis they should be free to do so. It is none of the government’s business. But the government has made it its business by enacting the National Labor Relations Act (NLRA).
On the following page Friedman writes:
As a practical matter, of course, there are some important differences between FEPC and right to work. The differences are the presence of monopoly in the form of union organizations on the employee side and the presence of federal legislation in respect of labor unions. It is doubtful that in a competitive [unregulated] labor market, it would in fact ever be profitable for employers to offer a closed shop as a condition of employment….
The coincidence of a closed shop and labor monopoly is not an argument for a right-to-work law. It is an argument for action to eliminate monopoly power regardless of the particular forms and manifestations which it takes (p. 116).

The NLRA imposes forced association on workers through “exclusive representation,” which is more appropriately called monopoly bargaining privileges for unions. Once a union is certified (by the National Labor Relations Board) as an exclusive bargaining agent for employees in a firm, all such employees must accept such representation whether they, as individuals, want it or not. Individuals are even forbidden to represent themselves. 

Friedman is clear that such monopoly should not be permitted. In his view, getting rid of the monopoly is better than relying on RTW laws to ameliorate the malign consequences of the monopoly. I agree. Repealing the NLRA would eliminate the labor monopoly in question. Under those circumstances RTW laws would be illicit.

However, in my view, if we cannot get rid of the monopoly, RTW laws are an acceptable means by which some modicum of workers’ freedom of association can be protected. I don’t know whether Friedman would agree with this point.

All union apologists use the free-rider problem as justification for forcing workers they represent to pay union dues and fees as a condition of continued employment. They argue that inasmuch as unions, under the NLRA, must bargain for all workers, not just their voluntary members, all workers will benefit. Any dissenting worker who didn’t pay the union for those benefits would get them for free. He would be a free-rider. He wouldn’t pay his “fair share.” 

This hoary argument is wrong for at least four reasons. 

  1. Most of the time, if the union represented only its voluntary members no one except union members would get union-generated benefits. The only exception would be union-bargained improvements in the job environment such as improved safety. Exclusive representation creates the possibility of free riding. If unions want to get rid of free riders, they should advocate repeal of exclusive representation.
  2. The free-rider idea is based on the assumption that a dissenting worker gets a net positive gain from union representation. However, this gain is never demonstrable. Costs and benefits are subjective. Suppose a union bargains for and gets increased safety on the job. Say a dissenting worker values that increased safety by the same amount he values $100, but he values the forced association with the union by the same amount he values losing $300. On the dissenting worker’s value scale there is a net loss of $200. If he is forced to pay dues, he would be a forced rider.
  3. This forced-rider argument applies to all the alleged benefits of being represented by a union. Moreover, even in wages, salaries, and pensions there is no evidence that a union-represented worker is better off than a union-free one. Private sector unions are now admitting that the terms they can get are severely constrained by competitive market (even global) competition.
  4. Consider market dynamics. For example, a union-impaired employer is more likely to lose market share than a union-free one. Over time, union rules reduce productivity growth and even reduce the level of productivity. If union-impaired employers shrink relative to union-free ones, employees of the former have less job security than employees of the latter. In this case, union representation hurts workers. Forcing them to pay for the hurt is like forcing victims of assault to reward the perpetrators.

If more and more states adopt RTW laws, the union movement will become so anemic that perhaps even its crony politicians might summon the courage to repeal the NLRA. 

No, I am not an incurable optimist. I just like to dream.

  • Charles Baird is a professor of economics emeritus at California State University at East Bay.

    He specializes in the law and economics of labor relations, a subject on which he has published several articles in refereed journals and numerous shorter pieces with FEE.