All Commentary
Tuesday, December 1, 1992

Workers and Unions — How About Freedom of Contract?

Monopolistic labor unions are largely indifferent to their members' desires.

All but a few diehard socialists now concede that free markets serve the needs and desires of consumers far better than governmentally sanctioned monopolies or cartels. Fortunately, Americans can usually shop for the goods and services they want in more or less free markets. For only a few things must we deal with a monopoly if we want to deal at all, and in those instances, consumer dissatisfaction is high. The Postal Service immediately comes to mind as an example.

This article is about another instance of consumers being deprived of the benefits of a market: representation in dealing with employers. In the United States, the law prevents the emergence of a market for representational services employees would be willing to pay for in matter relating to their employment. Either you represent yourself or you accept representation by a labor union which may or may not be to your liking. Workers cannot shop around and then contract with the organization they believe will give them the best value for their money. It is my contention that this situation ill serves workers and is a principal explanation for the decline of labor unions in America.

The necessary conditions for the existence of a market are simple. Buyers must be free to shop around for what they regard as the best value, negotiating and entering into a contract with the seller whom they believe gives them that, Sellers must be free to offer any product or service or combination thereof which they think might appeal to prospective customers. The actions of the market participants, it must be noted, are voluntary and usually individual in nature.

One of the many services which people may want others to perform for them is the service of representing their interests in dealing with employers. Most professional athletes, for example, have contracted with agents who represent them in negotiations with team owners. And, of course, many other workers desire to have a third party represent their interests in the determination of pay and working conditions, the handling of grievances the enforcement of safety standards, and other matters concerning their employment. In the United States, labor unions have historically filled that role.

There is no more reason to object to organizations designed to provide representational services that workers are willing to pay for than there is to object to any other kind of voluntary organization. The only test any association should have to pass is the test of the marketplace: Can it pay all of its expenses out of funds given willingly to it? The test of the marketplace compels all kinds of organizations, both those run for profit and those which are non-profit, to search for the most efficient means of providing people with the goods and services they desire.

Unfortunately, labor unions as they exist under U.S. labor statutes are profoundly non-market entities. They are not voluntary associations of individuals who have common interest and willingly contract with an outsider for the rendering of services they desire. Instead, they are involuntary associations of individuals who, on the basis of majority vote in which they probably did not even participate, are required indefinitely to accept the “representation” of outsiders. It should not surprise anyone that many people shun that type of association, doubting that the benefits will be worth the costs.


How Unions Gain Exclusive Bargaining Power

For those unfamiliar with labor law, her is how the process works. Suppose that the workers at ABC Widget Company have no union and they bargain individually with the management over wages, benefits, and conditions of work. One day, an employee gets the idea that he and his fellow workers might be better off if the International Widget Assemblers Union (IWAU) represented them in collective bargaining with the management. He and some IWAU personnel begin to solicit signatures of workers on cards calling for an election. If they succeed in getting signatures from at least 30 percent of the workers, they will turn the cards in to the National Labor Relations Board (NLRB). Assuming that nothing is amiss, the NLRB will then set a date for a certification election.

In this election, the eligible workers will choose between representation by the IWAU, or no union representation. (Rarely, workers can choose between two unions or none at all. Unions seldom compete against each other.) If a majority votes in favor of the IWAU, then, under the exclusive representation provision of the law, the IWAU becomes the bargaining representative for all the workers, even those who wanted no union or some other union. Furthermore, the IWAU will remain the exclusive bargaining representative indefinitely. There are no periodic re-elections to test the continuing popularity of the union and its contract never comes up for renewal because there isn’t one. The IWAU’s relationship to the workers it represents is not one of contract, but simply of government fiat.

The law does allow for “decertification” elections. These rare phenomena, however, are not nearly sufficient to give workers anything approaching consumer sovereignty. Decertification elections only occur if at least 30 percent of the workers sign cards signifying that they desire such an election. The employer is not allowed to instigate or assist in this process. Many workers do not know that decertification is an option for them, and among those who do know, many are apprehensive about sticking their necks out in opposition to the union. And finally, to win the election, the opponents still need a majority. If they get it, those who still want the union’s services are prevented from having them. If a majority votes to keep the union, those who think they would be better off without it are compelled to put up with it.

It is unavoidable that a large number of workers will be dissatisfied under these procedures. That would not be the case if we had not collectivized what should be an individual decision.

Given their legal status which shelters them against having to compete to retain the patronage of those whom they “represent,” it is not surprising that labor unions are widely perceived as taking their members for granted. The union leaders have a virtually captive market, and act accordingly. (The Supreme Court has ruled that workers may resign from a union at will, but still must pay fees to the union equivalent to their pro rata share of the cost of collective bargaining. Unions usually calculate that this amount is only slightly less than full dues.) The price of unions “services” (dues) is subject to no competitive pressure, and therefore is set as high as the leaders think is safe. Nor is there any reason to believe that the revenues thus raised will be used mainly for the benefit of those who pay them. Huge salaries and perks for the union leaders are the norm. Moreover, vast amounts are lavished on political and ideological causes that have nothing to do with the jobs of the workers, and which many of them oppose.

And while union leaders spend money hand over fist on matters which are not germane to the welfare of the members, they find ways to unburden themselves of matters which are. Consider safety. Unions could conceivably render valuable services to their members if they actively sought out unsafe working conditions, held workshops on how to avoid accidents, and took other steps designed to promote safe working conditions. But union leaders lobbied to get the government to take over the workplace safety field, thus simultaneously saving unions money and enabling them to avoid the blame for mishaps. Similarly, the responsibility for assisting workers who have been laid off has been shunted onto the bureaucrats.

We arrive at the conclusion that unions are state-protected monopolies which act just as you would expect any protected monopolist to act. They maximize profits for their owners and poorly serve their customers. They also devote considerable resources to maintaining their monopoly position against any erosion. That is why you find union spokesmen advocating, always under a smokescreen of concern for the “public interest,” laws which limit the freedom of many Americans to buy from non-union sources. Modern unions are creatures of coercion, and do not hesitate to employ further coercion to protect themselves from other people’s desire to have nothing to do with them.


Restoring the Market Process

I suggest that it is time to reverse course. The National Labor Relations Act has politicized the entire field of labor relations. A return to the common law of contract, tort, and property rights as the governing body of law in employment relations would allow each individual worker to decide for himself if he wanted to join or contract with any organization for representation services when dealing with management. In any firm, you might find that some percentage of the workers are represented by Union X, some percentage by Union Y, and some percentage choosing no union representation at all. Unions X and Y would find themselves competing to retain their customers and expand their clientele. They would have to worry about losing business if they charged too much, or failed to satisfy the desires of those whom they represent. In short, unions would become service businesses just like any other.

Defenders of the status quo will argue that this reform would allow workers who decide against any union to be “free riders” on the pro-worker accomplishments of the unions(s). This is a proposition which is often stated, but seldom argued for. How can it be known a priori that a union will produce benefits for all the employees of the firm, much less that whatever those benefits might be, each employee would regard them as worth the cost?

If Joe Blow, a newly hired and relatively inexperienced worker, fears the union’s demands might cost him his job, and, after weighing the probable gain against the probable loss, concludes that the union is not in his best interest, why should others second-guess him and force him to join? Perhaps he gets a raise that he couldn’t otherwise have gotten and keeps his job, or perhaps he becomes unemployed. Ex ante, it cannot be known whether Joe will be a “free rider” or a victim.

But even more fundamentally, why does it follow that the government should coerce people in order to stamp out “free riding”? All sorts of voluntary activities create what economists call “positive externalites” for others. If you work to keep your home looking nice, your neighbors get a “free ride,” but does it follow that they should be taxed to help pay for your desired level of lawn and garden upkeep? If Joe Blow is a “free rider” who benefits to some extent from union endeavors he has not helped to pay for, so what? Those who are willing to pay the costs of the union are not deprived of any benefits thereby.

Of course, the argument might be made that excessive free riding could so undermine the union that it could no longer produce any benefits, but does that remote possibility justify an infringement on employee freedom? I think not. Moreover, I am aware of no instance of a union collapsing due to excessive “free riding” in the many years prior to the passage of the NLRA.

Another argument which would be raised against allowing the market to function in the field of labor relations is the unions would be far less powerful if they did not speak for all the workers. Supposedly, workers must either have monopoly representation or none at all.

Of course, competitive unions would be less “powerful” than are those invested with monopoly status, but power is not necessarily in the best interest of the worker. The power the union leaders cherish has often been wielded with recklessness and arrogance, costing workers their jobs. The good that unions can do for workers, such as improving safety conditions, can still be accomplished even if it requires cooperation among several different unions. In fact, as I have argued above, unions would probably become more effective representatives of the workers whom they serve if they faced the threat of loss of paying customers if they did not do a good job.


Freedom of Contract

The competitive market process is the only way of discovering what goods and services consumers desire enough to pay for. That process requires that consumers be free to contract according to their own values and desires.

Unfortunately, we abandoned the individualistic, market-based approach to labor relations in the 1930s. The result has been monopolistic unions which are largely indifferent to the desires of their members.

If we restored the market process to labor relations, workers would be able to contract for just the representation services they wanted with organizations competing for their favor. That would be the most pro-labor piece of legislation imaginable. It would probably lead to an abrupt reversal of those declining union fortunes. It would usher in a new era of cooperation and prosperity. And most importantly, it would restore to American workers a long-lost freedom—the freedom to make their own choices.

  • George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.