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Monday, November 1, 1999

The AFL-CIO: Renaissance or Irrelevance?

Fewer and Fewer Workers Are Interested in Organizing

To hear the AFL-CIO tell it, the union movement has reversed its decline and is at the dawn of a renaissance. But among all the puffery, three reported claims are especially suspect: (1) employers routinely harass workers who want to organize; (2) in 1998 the number of union members increased by 101,000; and (3) on average workers represented by unions now make 34 percent more than union-free workers. Perhaps most troubling of all are reports that clergy and civic leaders have announced coalitions with unions to promote improved living standards and a heightened “sense of community.”

Worker Harassment

In reality, the decline of the union movement in the private sector continues unabated, and it has nothing to do with employers harassing workers who want to unionize. The principal reason for the unions’ plight is that fewer and fewer workers are interested in organizing. In a recent paper for the National Bureau of Economic Research, Henry Farber and Alan Krueger concluded that the demand for unionization among private-sector workers has declined and continues to decline. Workers’ bargaining power in employment contracts depends on the quantity and quality of alternative employment alternatives they have. Deregulation and globalization of competition have significantly increased those alternatives in both dimensions. In this environment most workers think the costs of unionization—union-imposed initiation fees, fines, assessments and dues, increased strife between workers and management, lost productivity, and lost working time due to strikes—far outweigh the benefits.

The unions’ claim that employers prevent unionization by harassment of workers simply doesn’t make sense. First, such practices are already illegal; and second, intense competition for qualified workers prevents employers from mistreating workers. In a 1998 study of the reasons for the continuing decline of unions in the private sector, the Employment Policy Foundation found that only 0.35 percent of the decline could be attributed to managerial opposition activities involving “unfair labor practices” as defined in the National Labor Relations Act. Astute private-sector employers are less likely to harass workers than to try to avoid the burdens of unionization by treating their employees well.

New Members

The 101,000 additional dues payers captured by unions in 1998 were all in the government sector. In 1998 government employee membership increased by 158,000 while private employee membership fell by 57,000. The unions’ market share in government employment rose from 37.2 to 37.5 percent, while in the private sector it fell from 9.7 to 9.4 percent. In terms of market share, government employment has provided the unions with the only good news they have had since 1953.

This is easy to explain. Government employers don’t resist unionization. In fact they encourage it. They and the unions sit on the same side of the bargaining table. Both seek to pick the pockets of taxpayers. The much ballyhooed February 23 win by the Service Employees International Union of the right to represent 74,000 home-care health workers in Los Angeles is a case in point. Those workers are employees of Los Angeles County, and any union-imposed increases in costs will simply be passed forward to the county’s hapless taxpayers. In the competitive private sector, union-imposed cost increases cannot be passed forward because customers go elsewhere.

Union Wage Premium

The unions’ claim of a 34 percent wage premium over union-free workers is overblown. According to the Bureau of Labor Statistics, in 1998 the median weekly wage paid to union-free private-sector workers was 79.6 percent of that paid to comparable workers who were represented by unions. That figure compares wages only. When total compensation packages are taken into account the union-free to union ratio is 85 percent. Moreover, union representation is not the sole source of the apparent union advantage. The BLS explains that “The difference reflects a variety of influences in addition to coverage by a collective bargaining agreement, including variations in the distributions of union members and nonunion employees by occupation, industry, firm size, or geographic region.” In services, union-free wages were 90.1 percent of wages paid to workers represented by unions. In finance, insurance, and real estate the figure was 104.3 percent. Moreover, the ratio of union-free wages to union wages has been steadily increasing. This is another reason for the decline in the demand for unionization.

Statistics will usually overstate the effect of unions on wages. The comparison that should be made is wages paid union-represented workers versus wages those same workers would have received without union representation. Of course that comparison cannot be made. As a second best, wages paid to union-represented workers are compared to wages paid to comparable union-free workers. But this comparison always involves what economists call a spillover effect. Unions are able to get above-market wages for workers they represent only by restricting the supply of workers on those jobs. When the workers who are shut out of those jobs seek employment elsewhere, they spill into the union-free market, depressing wages.

Unions argue that statistics are just as likely to understate their effects on wages because of what they call the threat effect. Employers may raise union-free wages just to avoid unionization—a form of preventive labor relations. However, there is an upper limit to what an employer is willing to pay for labor. That limit, called a demand price, is based on labor productivity and the prices that customers are willing to pay for the goods and services produced with those labor services. In a competitive labor market any margins between demand prices and wages actually paid will be very slim. There will be little room for threat-based wage increases.


Clergy and civic leaders ought to pause before they sign on to the unions’ agenda. Unions cannot raise living standards for anyone except their members. The workers who end up with lower wages because of the spillover effect certainly will not have higher living standards.

Clergy and civic leaders also ought to consider the unions’ well-documented history of getting their way through violence and intimidation before they blindly accept the notion that unions foster a “sense of community.” Organizations whose survival depends on government-granted rights of coercion rather than their ability to engage others on the basis of voluntary exchange are bereft of merit. They deserve the scorn of everyone who seeks genuine justice for all rather than special privileges for a few.

  • 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.