Why Small Manufacturing Companies Aren’t Unionized

By Mike Hart

Unions are a hot topic right now with the Wisconsin showdown and efforts taking place in several other states to roll back public employee union power. The pro-union side argues passionately that unions are good for workers in general and provide much needed balance against the political power of corporations.

How can unions be good for workers in general when they shrink and destroy once thriving industries, drive up prices in the industries they dominate, and negotiate with the officials they elect for lavish benefits that have brought states and municipalities across the country to the brink of bankruptcy? As Thomas Sowell points out in his recent column on “Union Myths”:

“The biggest myth about labor unions is that unions are for the workers. Unions are for unions, just as corporations are for corporations and politicians are for politicians.”

The union doesn’t care if free trade benefits workers as a whole. Not if that trade opens up competition to a unionized industry. The union doesn’t care if high labor costs escalate ticket prices of sporting events or Broadway tickets beyond the reach of working people. The union doesn’t care of incompetent teachers harm children when it places greater value on preserving tenure for all its members.

I have visited hundreds of small manufacturing companies in my career and I don’t recall any of them being unionized other than a few branch departments of large corporations. Why are virtually all small manufacturing companies non-unionized?

They aren’t unionized because they have competition. When you have competitors, the only way you survive and prosper over the long term is to be more efficient than your competition. Paying wages and benefits higher than what the free market would otherwise command puts a company at a disadvantage over non-unionized competitors. That disadvantage can be overcome with increased efficiency. But with all their work rules, restrictions, and job protections, labor unions are the antithesis of efficiency.

In the macroeconomic sense, the only way a country can improve its standard of living is to increase output per worker, which is done by increasing the efficiency of production, distribution, and services. Some try to make the argument that unions can be more efficient than a non-unionized work force, and that may be the case in rare exceptions, but in general unions are less efficient and drive up costs. Anyone who has actually worked on the floor of a union plant or warehouse knows what I am talking about.

So a union might be beneficial to its members, but it is not beneficial to its industry or to the economy as a whole. Non-union workers subsidize union workers in the form of higher prices.

If unions are so beneficial to workers as a whole, why not unionize everyone? Does anyone really think that would give the average American a higher standard of living?

I’ve seen firsthand how disastrous a highly unionized economy can be on business trips to pre-Thatcher England in the 1970’s where chronic strikes and labor unrest brought that economy to its knees. Instead of everyone benefiting from an ever-growing pie, various unions were fighting with each other over who would get a bigger share of a shrinking pie. Picture a thousand Wisconsins. It was not pretty.

Unions exploit the principle of “targeted benefits and distributed costs.” The benefits they receive in the form of higher wages, benefits, and protective work rules are lucrative to the union members, but those costs are paid by the entire economy and thus are not noticeable to the average person. Taxes work the same way.

The labor movement reached its peak in the 1950’s when about a third of the work force was unionized. Why? Because World War II devastated the world’s industrial economies except for the United States. In the postwar period, the United States had no significant competition. In this unique period in world history, labor unions could put the squeeze on major industries and get away with it.

But eventually the war-torn economies recovered and were rebuilt. Things normalized and the United States, while still the dominant economic power, lost its post war advantage and faced real competition in sector after sector. As a result, union power slowly declined. Today, unions only represent about 7% of the private sector workforce.

While union membership declined in the private sector, it grew steadily in the public sector and is now the only bright spot in the labor movement. Why the public sector growth? Because unlike the private sector, which is fiercely competitive, there is no competition in the public sector to counter-balance union power. But now that the money has run out, unions have probably peaked out in the public sector as well.

In the private sector, unionization efforts largely fail because manufacturing workers are wise to the innate destructiveness of unions. Given the choice between working in a healthy, thriving industry with good paying jobs or being protected participants in a shrinking industry, they choose the former. And that’s good common sense.

Mike Hart is the co-founder and President of DBA Software Inc., a leading provider of manufacturing software for small businesses.

Comments

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Unions may be evil, but they are a necessary evil. There has been little or no protection for workers in the US against gross exploitation and abuse by their employers. Workers, historically, have not had any recognition for the value of their time, labor, and risks they take doing their assigned work. The law has essentially designated them as slaves and employer property.
This has changed somewhat in more recent times, but every change has been a battle fought by unions. Health and safety standards, work day standards, minimum wages are all issues that have been fought tooth and nail by employers (including public service employers) anxious to save a buck at the employees' expense. The federal minimum wage is still obscenely low. Why? Because changes are fought by incompetent employers who have no respect for the people they hire. They want slaves.
More competent and enlightened employers see the value of a content workplace, and make it happen. They are hard to find, especially in public service with headline budgets. Try getting a decent school package through! Even when it's their own kids that suffer in the end, taxpayers will refuse them money. Teachers are supposed to work for free, buy all the supplies they use for the kids, and maintain a school with all that money they aren't making?
I agree that there are unions that have gone overboard. No argument at all. But union-bashing in general? Look in the mirror, you'll see the reason they exist.

Posted by: Waldo | Apr 15, 2011 at 03:24 PM