The Future of the Union Movement: Clues From the UPS Strike

Competition and Entrepreneurship, Not Unions, Are the Source of Lasting Prosperity for Workers and Investors Alike

The first Monday in September is Labor Day. However, the media, both print and broadcast, seem to think it is Union Day. This year, as the media’s Union Day approached, the two most-quoted and most-televised personalities were John Sweeney, president of the AFL-CIO, and Ron Carey, president of the Teamsters. They boasted of the victory of the Teamsters over United Parcel Service (UPS) last August and proclaimed the beginning of a resurgence of the American union movement. They were wrong.

The overwhelming majority of American labor is union-free. Only 10 percent of the private-sector work force is unionized. That number has been declining since 1953, when it was 36 percent, and it will continue to decline. By 2000 it will be, at most, 7 percent, the same as it was in 1900. Neither the UPS strike nor all the bluster of Sweeney, Carey, and their surrogates about bold new ventures in union organizing can stem the tide. The future of the American union movement as we know it (at least in the private sector) is decay. In contrast, the future of the American labor movement is increasing prosperity based on competition and entrepreneurship.

Economists have always understood that a labor union is merely a cartel. It is a group of sellers of labor services in collusion to eliminate competition among themselves and to try to quash competition from others. The unions’ rallying cry has always been, “Take wages out of competition.”

Competition is the enemy of all cartels. Even if a union can impose discipline on its own members, it always has to contend with union-free workers and union-free firms. In the modern American economy, with substantial (albeit insufficient) deregulation in hitherto heavily unionized industries—for example, trucking and airlines—even unionized firms cannot pass above-market wage costs forward to customers. Moreover, competition is increasingly global in scope. Every entrepreneur in every country has the potential of causing unexpected changes in market conditions to which American firms and American workers must respond.

Firms and workers under the yoke of Sweeney-style unionism are too inflexible to respond adequately to rapidly changing market conditions. And John Sweeney knows it. That is why he and his agents in Congress always struggle against free trade. As free trade expands, Sweeney-style unions must wither.

A Worker Victory or a Union Victory?

The 1997 strike of the Teamsters against UPS certainly looked like a union victory. UPS capitulated on the two key issues in the dispute—converting part-time jobs into full-time jobs and preventing UPS from withdrawing from 21 Teamster-controlled multi-employer pension funds and setting up its own fund for its own workers. However, it never looked like a victory for all UPS workers. First, the additional full-time jobs were to be created by combining large numbers of part-time jobs. Thus, many of the 75 percent of part-time workers who didn’t want full-time jobs were hurt. Second, if UPS had set up its own pension fund for its own workers, all beneficiaries would have received 50 percent higher pensions than they do in the Teamsters’ multi-employer plans.

One clear winner in the strike was, presumably, Ron Carey, whose earlier election as president of the Teamsters was under a cloud of suspicion concerning illegal campaign financing. (I guess his defense was that everyone does it.) Because of its past record of corruption, Teamster elections must be certified by a federal elections overseer. Right after the strike, the overseer, Barbara Quindel, announced that a new election had to be held. Carey knew of Quindel’s decision before he called the strike on August 4. He knew he would have to stand for re-election against his rival, James P. Hoffa, the son of the notorious Teamster leader of the 1970s. The strike was an ideal way for Carey to prove his machismo to Teamster voters. I have no doubt that was a major reason why he called the strike rather than continue negotiations. After the strike Carey also raised pension benefits in the midwestern states, the area in which Hoffa’s support is strongest. (At press time, the new election had not been held.)

Striking a Blow Against UPS Workers

Despite the general impression, the UPS strike was no long-term victory for the company’s employees. Before the strike, UPS had an 80 percent market share in package deliveries in the United States. Although it had always been unionized, it had never before been subject to a nationwide strike. It had a well-deserved reputation for dependability at competitive prices. It no longer enjoys such a reputation. During the 15-day strike most of its customers discovered that they were totally dependent on UPS. They tried desperately to find alternative ways to deliver their packages, but most of them failed. While UPS has many competitors—for example, the U.S. Postal Service, FedEx, Emery Worldwide, ETA Express, DHL Worldwide Express, RPS Inc., and even Greyhound Bus Lines—they were not able to handle anywhere near the 12 million packages that UPS shipped each day. FedEx has been UPS’s strongest and most aggressive competitor, actively trying to capture market share at UPS expense, but most of the others seem to have been resigned to UPS dominance. They no longer are.

The strike alerted existing and potential competitors to the profit opportunities in fighting UPS for market share. Apart from the Postal Service, most of the other competitors are union-free and thus are able quickly to respond to profit opportunities. They are unburdened with the yoke of union work rules and union costs. UPS inevitably will try to push its increased union costs forward onto its customers. When it does so, even more profit opportunities will open up for competitors. Since UPS customers have been reminded that it is unwise to rely on a monopoly provider of anything, they will be receptive to the blandishments of competitors.

Moreover, as this is written UPS faces the threat of another strike. The Independent Pilots Association (IPA), the union that represents the pilots who fly UPS planes, refused to cross Teamster picket lines in the August strike, and the Teamsters promised they would not cross IPA picket lines in the event it strikes. Even if IPA doesn’t strike, the reality of the strike-threat presents another opportunity for UPS competitors to remind UPS customers of how unreliable, and costly, a union-dominated firm can be.

As it becomes clear that UPS and the Teamsters are losing market share in the package delivery business, workers will realize that in this globalized, competitive economy unions are not their friends. At best, unions can generate short-run gains for workers they represent. But, since unionized firms have a competitive disadvantage in the modern economy, those same workers will eventually discover that their employers have fewer and fewer jobs to offer.

Unionism has always depended on hoary myths: that employees and employers are natural enemies, that employees have an inherent bargaining power disadvantage relative to employers, that the only way employees can gain bargaining power is through unions, and that unions are responsible for the improvements in living standards enjoyed by workers over the last one hundred years.

The UPS strike will hasten the day when most workers come to realize that competition and entrepreneurship, not unions, are the source of lasting prosperity for workers and investors alike. When that day comes, the labor movement will, at last, be free from the union movement.