Who Protects the Worker? – The Myth of the Pro-Labor Union
The eighth major argument in Free to Choose challenges the widely held belief that labor unions and government intervention have been the primary forces behind the dramatic improvement in the economic condition of the American worker. The Friedmans argue that this narrative is a myth. The true source of rising wages and better working conditions, they contend, has been the enormous increase in productivity driven by capital investment and technological innovation within a competitive free-market system.
Far from being the worker’s universal protector, labor unions are, in this view, a form of monopoly cartel. They have succeeded in raising wages for a small, privileged fraction of the labor force—their members—but they have done so primarily at the expense of other, less-privileged workers and consumers in general. Government intervention, similarly, has often harmed the very workers it was intended to help. The worker’s most effective and reliable protection, the Friedmans conclude, is not the union boss or the government bureaucrat, but the existence of a multitude of competing employers.
The Real Source of High Wages
The historical record is clear: over the past two centuries, the standard of living for the ordinary worker in the West has risen to levels unimaginable to previous generations. What accounts for this? The popular answer is the rise of powerful labor unions and pro-labor government legislation. The Friedmans argue that this gets the cause and effect backward.
In the United States, labor unions were a negligible force for most of the period of its most rapid economic growth. As late as 1900, only a tiny percentage of the workforce was unionized. Even today, fewer than one in four workers is a union member. Similarly, significant government intervention in the labor market (such as minimum wage laws and federal labor relations acts) is a relatively recent phenomenon, dating primarily from the New Deal. The vast improvements in the worker’s lot occurred long before either unions or government became powerful players in the labor market.
The real engine of progress was the increasing productivity of labor. A worker today earns more than a worker a century ago not because he is stronger or works harder—in fact, he works far less hard—but because he is equipped with vastly better tools, machinery, and technology. This accumulation of capital is the fruit of investment, which in turn is driven by the incentives of a free-market system. It is this rise in output per hour that creates a larger economic pie, allowing for higher wages for workers as well as returns to investors. Unions did not create this wealth; they are, at best, a mechanism for arguing over how to slice a pie that was baked by the market.
The Union as a Monopoly Cartel
If unions are not the source of overall wage growth, what is their actual function? The Friedmans argue that a successful union operates just like any other monopoly cartel. Its primary goal is to restrict the supply of a particular type of labor in order to raise its price (the wage rate). Just as OPEC raises the price of oil by restricting its output, a union raises the wages of its members by restricting the number of people who can do their jobs.
This reveals a crucial and often misunderstood point: the gains won by a strong union for its members are not primarily at the expense of corporate profits; they are at the expense of other workers.
Corporate profits are simply not a large enough pool to account for significant wage gains. The vast majority of national income (around 80%) is already paid out as employee compensation. The gains for union members must come from somewhere else. They come from two sources:
- Other Workers: When a union succeeds in raising the wage for, say, carpenters, the law of demand dictates that fewer carpenters will be hired. Those who are fortunate enough to get these high-paying jobs benefit. But what about the workers who are shut out? They are forced to seek employment in other, non-unionized sectors of the economy. This increases the supply of labor in those sectors, which drives down the wages for everyone working there. The result is a transfer of wealth from lower-paid, non-union workers to higher-paid, unionized workers. The Friedmans cite estimates suggesting that unions have raised the wages of their members by perhaps 10-15%, but have lowered the wages of non-union workers by about 4%.
- Consumers: Higher union wages increase the cost of producing goods and services. These higher costs are passed on to consumers in the form of higher prices. Thus, everyone in society, including other workers, pays a price for the higher wages of a privileged few.
This analysis explains why the most powerful unions are consistently found among highly skilled and already well-paid workers—airline pilots, electricians, plumbers, doctors (through the AMA). These are not the downtrodden and exploited masses of populist rhetoric. They are the “aristocrats of labor,” who use their union power to make their already high wages even higher.
The Methods of Union Power
How do unions restrict the supply of labor? Their power almost always depends on direct or indirect assistance from the government.
- Controlling Entry and Limiting Numbers: The most effective method is to make it difficult for non-members to enter the occupation. This is often achieved through government-mandated licensure. The American Medical Association (AMA) is presented as the classic example. By controlling medical school accreditation and influencing state licensing boards, the AMA for decades was able to strictly limit the number of new doctors, thereby keeping doctors’ incomes artificially high. The same principle applies to hundreds of other occupations, from lawyers and dentists to plumbers and morticians, who lobby state legislatures to create licensing requirements that serve as barriers to entry, all in the name of “protecting the consumer.”
- Enforcing High Wage Rates: Another method is to enforce a wage rate above the market-clearing level. This requires preventing employers from hiring non-union workers at a lower wage. Historically, this has involved the threat or use of violence against non-union workers (“scabs”) and employers—a level of coercion that is often implicitly tolerated by law enforcement in a way it would not be in other contexts.More effectively, unions rely on government help. The Davis-Bacon Act, for example, requires that contractors on federal construction projects pay the “prevailing wage,” which is almost always interpreted as the high union wage. This effectively closes the market to non-union competitors. The minimum wage law is another, more subtle example. While promoted as a measure to help the poor, it is strongly supported by high-wage unions (whose members earn far more than the minimum) because it prices their low-wage, non-union competition out of the market. The Friedmans label the minimum wage “one of the most, if not the most, anti-black laws on the statute books,” because it has created massive unemployment among unskilled teenagers, particularly black teenagers, by making it illegal for an employer to hire them at a wage commensurate with their skills. It prevents them from getting a foot on the first rung of the economic ladder.
- Collusion with Employers: In some cases, unions have used their exemption from antitrust laws to act as the enforcer of a business cartel. The classic case was John L. Lewis and the United Mine Workers in the 1930s. By strategically calling strikes, Lewis could control the total output of coal, keeping prices high to the benefit of the mine operators, who in return agreed to high union wages. The cost was borne by the consumer and by the thousands of miners who lost their jobs as the industry mechanized in response to the high labor costs.
Government as Protector?
If unions protect only a privileged few, has the government stepped in to protect the worker in general? The Friedmans argue that government programs have been a mixed bag at best. Some, like child labor laws, merely codified practices that the market was already making widespread as rising prosperity made child labor unnecessary. Others have had perverse effects. The Occupational Safety and Health Administration (OSHA) is singled out as a bureaucratic nightmare that has buried businesses in petty regulations, imposed enormous costs, and produced little demonstrable benefit in terms of worker safety.
The one class of worker the government protects extremely well is its own employees. Civil servants enjoy higher average pay, more generous benefits, greater job security, and better protection from inflation than their private-sector counterparts. The power of public-sector unions, which negotiate with politicians spending taxpayers’ money rather than with employers disciplined by a bottom line, has grown enormously, often with disastrous fiscal consequences, as in the case of New York City.
The Worker’s True Protector: Competition
If the union and the government are not the worker’s best friend, who is? The Friedmans’ answer is simple and powerful: other employers.
The most effective protection any worker has against being exploited by his or her employer is the existence of another employer who is willing to hire him or her. It is the competition among employers for good workers that bids up wages. If your current employer does not pay you what you are worth, you are free to seek a better offer elsewhere. This freedom of choice, this ability to “vote with your feet,” is the fundamental source of the worker’s bargaining power in a free-market system.
This principle is universal in a market economy. The consumer is protected from a greedy seller by the existence of another seller. The employer is protected from an unreasonable employee by the existence of another potential worker. And the worker is protected from a stingy employer by the existence of other employers.
This is why monopoly, in any form, is the great enemy of the worker. A company town, where one firm is the only employer, leaves the worker vulnerable. Similarly, a closed shop, where one union is the only gateway to employment, leaves the worker vulnerable to the union bosses. The more options, the more competition, the more freedom and power the individual worker possesses.
Conclusion
The narrative that portrays economic history as a heroic struggle where organized labor and benevolent government rescued the worker from the exploitation of heartless capitalists is, in the Friedmans’ view, fundamentally wrong. This view misunderstands the source of our prosperity and misidentifies the true protectors of the worker.
High wages are not a gift from a union or a government. They are earned by high productivity, which is a product of capital, technology, and innovation flourishing in a competitive market. The gains that unions win are not taken from some mythical hoard of excess profits; they are taken from the pockets of other workers and consumers. Government, far from being a neutral umpire, has consistently granted special privileges that have created a labor aristocracy at the expense of the most disadvantaged.
The conclusion is a reaffirmation of the book’s central theme. The surest path to improving the lot of the working person is not through creating cartels or expanding government bureaucracy. It is through fostering a dynamic, competitive free market. A system that maximizes the number of employers, that allows for the free entry of new businesses, and that gives every individual the freedom to sell their labor to the highest bidder is the system that has, and will continue to, provide the most effective protection and the greatest opportunity for the ordinary worker.