Sunday, May 22, 2011

Let Labor Compete: Why Does It Need NLRB Protection?

The National Labor Relations Board May 10 “notice” requires reviews of cases involving businesses that move production to curb labor costs. The May 10 notice was overshadowed by the NLRB’s ruling against Boeing’s new plant in South Carolina, but it could have a more substantial effect. While businesses can locate plants on the basis of other costs, they must think twice about locating production to take advantage of labor cost savings. It is an attempt to intimidate companies that are considering moving operations to right-to-work states. The May 10 Notice will be challenged in Congress and in the courts when it gains the attention it deserves.

The “New Theory of Unions” argued in the 1980s that union labor is more efficient than non-union labor. Its higher productivity offsets higher union wages and does not raise labor costs to employers. The upshot of this new theory was that unions should be able to compete in the marketplace against non-union labor. It would not need sympathetic regulatory agencies like the NLRB to impose higher union labor costs on employers by decree.

This New Theory of Unions challenged the traditional view. According to standard textbook accounts, unions gained higher wages through restricting supply and by collective bargaining. Craft unions used licensing, barriers to entry to the profession, and the other restrictions to drive wages above competitive levels. Industrial unions used the threat of strike to impose higher wages on reluctant employers. The traditional view of unions did not allow for unions to offer employers a “bargain” in the form of a more productive work force.

The New Theory of Unions argued that unions make their members more productive than they would have been without unions. With unions, employees gain a “voice” other than the “exit voice” – that is the sound of the employee leaving. Union seniority rules raise the loyalty of employees. Union members are more willing to train junior employees. They become more interested in the long-term health of the company. The proponents of the New Theory of Unions cited empirical studies of particular industries and professions finding that union workers indeed had higher labor productivity than non-union labor. In a number of cases, the higher productivity offset the higher union wages.

The continued decline in private-sector union membership (now below 7 percent) suggests that unions are not delivering on the promises of the New Theory of Unions. If union labor could out-compete non-union labor through higher productivity, employers would not be tempted to change to non-union labor. Unions would not require NLRB decrees to force private employers to hire their members.

The best union protection would be to deliver higher productivity workers. If they cannot, private-sector unions will continue their decline. The only role left for unions will be in the public sector where wages and employment are determined by politics, not economics.


The fact that unions need activist protection from agencies like the NLRB tells us that unions do not offer productivity advantages to offset higher union wages. If the New Theory of Unions holds any water, unions might be advised to turn their attention from politics to making their members more efficient and productive. It would be interesting to look at union budgets to see how much they spend on improving and raising the skills and motivations of their members.

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