Some answers — Insurance and Unions

Republicans are widely perceived as being opposed to unions and collective bargaining in all forms by labor, yet seem to be in support of collective bargaining between companies (e.g. private medical insurance). Is this true, and what accounts for the difference? — Themon

Themon,

Medical Insurance.

I suspect that many Republicans share my jaundiced view of the manner in which the Sherman Antitrust Act is often applied. The recent attempt against Microsoft was maddening. However, to see one industry exempted completely from its regulations should also alarm Republicans as this is usually a sure sign of special interest legislation and the power of pull.

A closer look at the insurance industry reveals no particularly compelling reason the insurance companies should have an exemption from the Act. They claim they need to share patient data in order to properly set prices when someone transfers from one company to another. I am fairly certain that car dealers would love to know what prices a particular buyer had paid for cars in the past with other dealers, too. There would certainly be an advantage to knowing that information. However, the Act was designed to prevent just that, and the insurance industry has no greater need than any other industry to be exempt from the Act. That exemption should be revoked.

That is not the entire problem, though. The insurance business has clearly become a matter of interstate commerce that fits entirely properly under the commerce clause of the U.S. Constitution. If Congress does not wish to overregulated the industry, that is fine. However, it not only exempted the industry from the antitrust laws, it has allowed the states to close their own borders against insurance companies from other states, effectively creating a government fostered monopolistic climate that would not exist under a truly free market. Idiocy. We can hardly be surprised at the outcome.

Unions.

I doubt any Republican would ever oppose a truly voluntary labor union. Unfortunately, that is like saying we would not be opposed to the idea of unicorns prancing about the world. As it is, it is safe to say that Republicans almost invariably oppose unions. I am so adamantly against them that, in those ridiculous local elections where I may not know the candidates or have much information about them, I simply look for who the unions have endorsed and then I vote for the other candidate.

I could probably spend all day telling you horror stories about the unions. This last election produced an ugly battle with the Teachers Union down in Douglas County and I still have to deal with the mess it created. However, I recently finished a book by an author who, in one small section, has managed to cogently articulate all the reasons I despise unions without any of my vitriol. He even managed to come up with a few reasons I had not yet considered. As I was so thoroughly taken with his argument, I am simply excerpting it here, though without the citations as I am dictating it:

From The Church and the Market: A Catholic Defense of the Free Economy by Thomas E. Woods, Jr. (Lanham, Maryland: Lexington books, 2005). 73-80.


Labor Unions.

What about labor unions? It is all very well to claim to favor voluntary workers’ associations, and that nothing in Catholic social teaching obligates anyone to support every decision or tactic used by a particular union. That is certainly true. What I want to suggest, however, is that in order for a labor union to accomplish its stated goal of improving the welfare of its members, the logic of the economy is such that this can be accomplished only by the use of some kind of compulsion, and that the notion of the purely voluntary union in practice turns out all too often to be a mere chimera.

The judicious use of reason and an unbiased examination of the evidence reveal that labor unions operate clearly and manifestly in opposition to the welfare of labor taken as a whole. Any suggestion that support for labor unions is somehow morally obligatory upon a Catholic must, therefore, be false, since the premise on which it rests is fallacious. A Catholic obviously cannot be forced to support a particular labor policy devised in the name of helping workers when he knows very well that it will do no such thing.

One caveat should be noted before proceeding. Although I have suggested that a purely voluntary union possesses a great tendency to coercive behavior, it is possible to imagine a union that operates on a truly voluntary basis. Henry Hazlitt, who was very much an opponent of labor unions, even acknowledged that a noncoercive strike could serve the salutary purpose of alerting the employer to the fact that he is offering a wage rate below the prevailing market wage and must therefore adjusted if he wishes to continue employing the same number of workers as before. Pope Leo XIII wrote in 1895 that “whilst it is proper and desirable to assert and secure the rights of the many, yet this is not to be done by a violation of duty; and that these are very important duties; not to touch what belongs to another; to allow everyone to be free in the management of his own affairs; not to hinder any one to dispose of his services when he please and where he please.” Those are precisely the principles of voluntary rather than coercive unionism.

The old craft guilds were quite candid about their restrictionist policies; they deliberately limited the number of people who could enter a given craft, often by imposing very high standards for membership. Since modern labor unions appear to welcome all comers, their restrictionist aspect is easily missed. “The crucial point,” Murray Rothbard explains, “is that the unions insist on a minimum wage rate higher than what would be achieved for the given labor factor without the union. By doing so… they necessarily cut the number of men whom the employer can hire.” This conclusion cannot be escaped, as a simple supply and demand-curve analysis reveals. Thus their policy has the effect of restricting the supply of labor in the given area.

In the case of an industry that is especially profitable, as the result of increased consumer demand or the introduction of some cost-cutting measure, and which would therefore be on the verge of expansion, the existence of union wage rates would not necessarily create any unemployment among workers in that industry. What it would do, however, is hamper or prevent altogether the expansion of the industry, and thus the creation of additional jobs. Production that in the absence of union coercion would have certainly taken place never does, and instead production is diverted to less urgently desired fields. This is yet another example of the importance of bearing in mind what is seen and what is not seen, since this case of Union coercion is no less destructive than any other, even if the jobs lost are only potential jobs (which of course are not seen, and therefore easily neglected in a careless analysis).

How the union achieves these artificially high wage rates is largely by means of the strike threat, as well as through various legal privileges it has been accorded by the government. Edward Chamberlain describes these privileges:

If A is bargaining with B over the sale of his house, and if A were given the privileges of a modern labor union, he would be able (1) to conspire with all other owners of houses not to make any alternative offer to B, using violence or the threat of violence if necessary to prevent them, (2) to deprive B himself of access to any alternative offers, (3) to surround the house of B and cut off all deliveries, including food (except by parcel post), (4) to stop all movement from B’s house, so that if he were for instance a doctor he could not sell his services and make a living, and (5) to institute a boycott of B’s business. All of these privileges, if he were capable of carrying them out, would no doubt strengthen A’s position. But they would not be regarded by anyone as part of “bargaining”—unless A were a labor union.

In practice, during strikes the police have typically stood aside and done nothing in the face of union intimidation and even violence against nonunion workers or those who simply wish to continue working. By means of this kind of coercion, labor unions are able to deprive employers of labor if they do not accede to union demands. The result of union activity, therefore, is to raise the money wages of their members, while at the same time relegating many workers, driven out of this line of work by the decreased quantity of labor demanded there, to other lines of work, whose money wages must decrease as a result of the greater supply of workers now forced to compete for them.

The net result of all this must be negative – that is, the gains to certain workers must be more than offset by the disabilities inflicted upon other workers. The reason is not difficult to see. When union activity reduces the number of people who can be profitably employed in skilled trades, it correspondingly increases the number of skilled laborers forced to find work in fields requiring only unskilled labor. This is why labor economist Morgan Reynolds could conclude that “unions divert labor from more productive to less productive activities, thereby impoverishing the common man.” The outcome of this displacement of skilled labor is no different from a situation in which laborers never possessed these skills in the first place. If union privilege prevents some workers from putting their skills to the proper use, the effect is the same as if they had never gone to the trouble to acquire them at all. Once again, union activity has an impoverishing effect upon society. No society can become wealthier by doing the equivalent of reducing the skills and productivity of its workers.

Reynolds has identified seven distinct ways in which a labor unionism imposes substantial costs on the economy, all of which tend to be ignored in standard calculations of the economic burden of unions:

  1. The redistribution of income (rent) from the general community to union bureaucracies and their members.
  2. The unemployment effects of unions.
  3. The consequences of union wage inflexibilities over the business cycle.
  4. The cost of union work rules.
  5. The dynamic impact of unions in discouraging research and development, investment, and entrepreneurship.
  6. The direct cost of strikes, strike threats, negotiating costs, labor consultants, National Labor Relations Board elections, bureaucratic costs, grievance costs, and related expenses.
  7. The political role of unions in increasing inflation, international trade barriers, government spending, and related forms of discoordination sustained by political action.

It is, therefore, rather difficult to calculate the precise burdens that labor unions have imposed upon the economy. But in a study published jointly in late 2002 by the National Legal and Policy Center and the John M. Olin Institute for Employment Practice and Policy, economist Richard Vedder and Lowell Galloway of Ohio University calculated that labor unions have cost the American economy an incredible $50 trillion over the past 50 years alone.

How could the figure be so high? “The deadweight economic losses are not one-shot impacts on the economy,” the study explains. “what our simulations reveal is the powerful effect of the compounding over more than half a century of what appears at first to be small annual effects.”

While the study found that unionized labor does indeed earn wages 15% higher than those of their nonunion counterparts – as is to be expected, of course, given the logic of labor unionism – wages in general suffer dramatically as a result of an economy that is 30 to 40% smaller than it would have been in the absence of labor unionism. This constitutes a staggering destruction of wealth.

Migration patterns among the states are also highly suggestive. According to Vedder and Galloway, the 11 states with the lowest unionization rates from 1990 to 1999 “had net in-migration of 3,530,108, which is more than one thousand persons a day, every day, for nine years.” Conversely, the 11 most highly unionized states suffered a drain of population of amounting to some 2,984,007 people.

Likewise, recent research reveals that between 1970 and 2000, states with so-called “right-to-work” laws (which prevent workers from being compelled to join a union as a condition of employment) created jobs at nearly twice the rate of states without such laws. In fact, the average family in a right-to-work state boasts $2,800 more in purchasing power annually. None of the seven states in which the poverty rate has increased over the past 30 years had right-to-work legislation.

The condition of the American manufacturing base is the source of much handwringing and concern, but it turns out that here, too, unionism is a likely culprit. While right-two-work states created 1.43 million manufacturing jobs over the past three decades, states without such laws lost 2.18 million manufacturing jobs.

We have already seen quite a number of reasons that such an outcome is to be expected, but let us say a bit more about union work rules. Labor unions are notorious for opposing the introduction of labor-saving machinery, since they believe (sometimes rightly) that it will lead to the unemployment of some of their members. But such machinery – in the steel industry, let us say – allows the same amount of output to be produced by fewer hands, thereby releasing into the economy a supply of labor that can now be applied to the production of goods that we could not have had before because the requisite labor had been tied up in the production of steel. This is an example of how wealth is created. The additional goods produced by the additional labor have the happy result of raising real wages, since (as we have seen) any increase in the supply of goods available will increase real wages by endowing all real incomes with greater purchasing power. Thus by opposing the introduction of labor-saving machinery, labor unions directly sabotage the very mechanism by which real wages are raised.

Labor unionism is all the more pernicious because its negative effects go essentially unnoticed, while its beneficiaries are clear and identifiable. Not equipped with the tools of sound economic analysis, the general public is hardly likely to come to spontaneous realization of the causes of the unemployment that unionism has brought about. To the contrary, workers who have been displaced from unionized sectors of the economy and have been forced into less remunerative work are likely to conclude the unionism is the solution to their lower wages. And the process continues.

The unimportance of labor unionism is empirically evident as well: at a time when unionism was numerically negligible and Federal regulation all but nonexistent, American workers were much better off than their much more heavily unionized counterparts in Europe. Real wages in manufacturing climbed an incredible 50% of the United States from 1860 to 1890 and another 37% from 1890 to 1914.

It turns out, therefore, that the testimony provided both by reason and by overwhelming empirical evidence leads inexorably to the conclusion that labor unions are in fact harmful, rather than beneficial, to the cause of labor, and the relatively anemic growth that characterizes heavily unionized economies tends to make unionism deleterious even to unionized workers themselves in the long run. Since the support for labor unionism that permeates Catholic social teaching describes it as something necessary for the economic well-being of workers who would otherwise find themselves impoverished, and since the exact opposite is in fact the case, it would at the very least be unreasonable for labor union sympathy to be portrayed as morally binding on Catholics, especially on those who know very well the profound destruction and harm that such policies have created. To be sure, the popes themselves have never claimed that a favorable attitude toward coercive labor unionism constitutes an infallible moral teaching, but it is easy to come away from much popular exposition of Catholic social teaching with that impression.

No appeal to reason is made within recent Catholic social thought to explain why those who believe in the productivity theory of wages are in fact mistaken, or why it is factually incorrect to insist that artificially imposed wage increases will lead to unemployment, or why the benefits accruing to those select workers who may enjoy the higher wages must morally outweigh the damage done to other workers who were thereby forced to find work in lower paying fields or who find no work at all. This later question certainly does contain moral implications: is it morally acceptable to favor policies that all but guarantee unemployment for some workers? But since the possibility that interventionist wage policies might create unemployment is essentially not raised, this important moral question is never addressed.

And this, ultimately, is what Catholic social teaching has not fully engaged. Suppose that the description of wage rate determination sketched earlier it is in fact correct. In that case, coercive attempts to enforce a wage rate higher than that reached on the free market must lead to unemployment (or at least to more unemployment than would have existed in the absence of such attempts), as employers substitute capital for artificially overpriced labor. There is no reason to doubt the sincerity of the popes who thought they were defending the integrity of the family, the very cell of human society, when they advocated the payment of wages sufficient to provide for a man and his family in reasonable comfort. But if material comfort is the desired outcome and decent wages the means of achieving it, the question of how wages can be increased across the board inevitably arises—a question whose answer requires that we have recourse to the sober reflection of human reason. Simply assuming that because higher wages are desirable they can be brought into effect by legislative decree, and then rendering a moral judgment on employers who do not meet these requirements, does no good to those workers now priced out of the market by the enforced payment of higher wages. The popes are obviously not incorrect to identify the well being of the family as an important and desirable end, but what are we to say about policies whose inevitable outcome is the unemployment of many heads of households, with countless more relegated to less remunerative or desirable fields than those from which artificial wage increases have shut them out of the market? The only certain method for raising wage rates permanently and across the board is to increase the productivity of the workers who earn those wages. Nothing can change this fundamental fact. These issues and questions do not receive anything like the attention they deserve in the literature of Catholic social thought, and yet they touch the heart of the whole problem of the improvement of the standard of living of the average laborer.

By any definition, it lay well beyond the competence of the Magisterium to presume to describe the workings of economic relationships. The Magisterium itself can no more tell us what makes wages rise than it can tell us how to build a skyscraper. Catholics who make this point are routinely accused of denying the Church’s right to make moral statements pertaining to economic activity. This criticism is completely baseless, and only serves to distract attention from the substantive issues at stake. Of course, the Magisterium may instruct Catholics on the moral demands of the marketplace, since how one ought to conduct oneself in the market involves the application of moral principle—an area, unlike economics, per se, in which the Church can indeed claim expertise. Thus the Church has properly emphasized the justice and indispensability of the institution of private property; she has likewise condemned fraud, dishonesty, and theft, all of which derogate from the moral order within the province of magisterial pronouncement. But the attempt to elevate such principles as the “just wage” to the level of binding doctrine is something altogether different, and indeed is fraught with error. To maintain that private property is just, or that people ought to be upright and honest in their economic activities, requires nothing more than simple reflection on the teaching of Christ, the Fathers, and the natural law itself. The same cannot be said for exhortations to employers that they pay a “just wage,” for embedded within such counsel is a set of unproven assumptions about how economic relationships work, and the belief that all that stands between the world today and the great society of tomorrow is wise legislation, rather than the capital investment which is alone capable of increasing the overall stock of wealth. “What was wrong with Catholic social thought in the nineteenth century,” writes Fr. Sadowsky, “was not so much its ethics as its lack of understanding of hoe the free market can work. The concern for the worker was entirely legitimate, but concern can accomplish little unless we know the causes and the cures for the disease.”


I hope that helped answer why Republicans dislike unions. Take care.

Julian

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