Sluggish Institution in a Dynamic World: Can Unions and Industrial Competition Coexist

During the 1930s and 1940s, collective bargaining emerged as the workplace governance norm in much of the U.S. industrial sector. Following its peak in the 1950s, union density in the U.S. private sector fell steadily, to only 7.4 percent in 2006. Governance shifted from a formalized union norm to one of constrained managerial discretion. In competitive and dynamic economic environments, a union tax on company earnings and slow response to economic shocks combine to produce poor performance by union companies. Two industries – automotives and airlines – are used to illustrate these points. If worker-based institutions are to flourish, they must add value and permit companies to perform at levels similar to those obtained under evolving nonunion governance norms. *Barry T. Hirsch is W.J. Usery Chair of the American Workplace, Andrew Young School of Policy Studies, Georgia State University, and Research Fellow, IZA (Institute for the Study of Labor), Bonn, Germany. His email address is <bhirsch@gsu.edu>. He thanks Alex Bryson, Bruce Kaufman, Michael Wachter, and the journal editors for helpful comments and discussion. During the late 1930s, 1940s, and 1950s, collective bargaining emerged as the industrial workplace norm in the United States. As recently as 30 years ago, unionization was widespread among private sector production workers in U.S. manufacturing, construction, mining, transportation, communications, and utilities. But the remarkable emergence of industrial unionism was then followed by a no less remarkable, albeit gradual, union decline. In the U.S. private sector, union density has declined from one-in-four wage and salary workers being a union member in the early 1970s to under one-in-thirteen today. In manufacturing, density has fallen from two of every five workers in the early 1970s to under one-in-eight currently. This paper examines the shift away from union governance in the U.S. private sector toward the current norm of constrained employer discretion. Although declines in union density are seen in many countries (Blanchflower, 2006), discussion is focused on the United States because of substantial international differences in workplace institutions, laws, and norms. A useful starting point is to ask what U.S. unions do in the workplace. At worksites where a majority of employees have voted for representation, a union serves as workers’ exclusive bargaining agent and provides a collective voice in dealings with employers. Union goals and policies are most influenced by the preferences of the average or median voter (that is, union member) rather than the mobile or marginal worker to whom employers are most responsive in competitive labor markets. Unions seek to increase and compress compensation, improve working conditions, and influence workplace jurisprudence. As compared to nonunion establishments, union governance is highly formalized, with conditions of work and pay designated in contracts determined through collective bargaining. Bargaining power is derived from legal rights granted in the National Labor Relations Act (NLRA) and from the economic environment in product and labor markets. Competition constrains union power by increasing the elasticity of labor demand (the employment–wage tradeoff). Close substitutes in product markets limit the ability of firms to pass labor cost increases through to consumers. In factor markets, the ability to substitute capital or nonunion workers for union labor, say, through outsourcing of inputs or moving production to nonunion plants, likewise limits bargaining power. Much of the economics literature on unionism adopts the “two faces of unions” approach originated by Freeman and Medoff. A comprehensive retrospective on the body of work sparked by their 1984 book—What Do Unions Do? — is offered in Bennett and Kaufman (2007). The “good” collective-voice/institutionalresponse face emphasizes union enhancement of voice, improvements in productivity, and decreases in earnings dispersion. The “bad” monopoly face emphasizes allocative inefficiency due to union wage distortions, along with decreases in productivity due to union work rules. Although theory is informative, the effect of unions on compensation, productivity, profitability, investment, and other dimensions of performance is largely an empirical question. This paper will present U.S. evidence pointing to substantial union wage premiums. Far 1 Union density is defined as the percent of wage and salary workers who are union members. Unless otherwise stated, all union membership and density figures have been compiled from the Current Population Survey, either by myself for this paper or in collaboration with David Macpherson (Hirsch and Macpherson, 2003; database updated annually and posted at <http://www.unionstats.com>).