Are Labor Unions Outmoded Institutions?

On January 1, a law took effect in the union stronghold of California that poses a dire threat to the so-called “gig economy” by drastically restricting the use of independent contractors, upon which many tech companies depend. The law, referred to as AB 5, was apparently directed primarily at transportation network companies such as Uber and Lyft, which treat their drivers as contractors instead of employees. AB 5, which was promoted by labor unions wishing to organize the drivers, sought to remove the legal impediment of IC status by effectively banning the use of contractors in California. Instead of forcing Uber and Lyft to capitulate, as intended, the overly-broad law has backfired by also threatening long-established practices in the trucking industry, and even the livelihoods of freelance writers in the Golden State.

Lawsuits, adverse publicity, and even referendum campaigns to repeal the law have engulfed AB 5 in controversy and turmoil. Now in a national media spotlight, the California Labor Federation is pledging a full-blown war to defend AB 5, which unions hail as a significant worker victory. How did organized labor become embroiled in mortal combat with Silicon Valley? The answer lies in the “class struggle” origins of the labor movement, which seem oddly out of date in a 21st century digital economy.

The Industrial Revolution occurred over a century ago, but the archaic Marxist rhetoric once in vogue as a reaction to the emergence of factories continues to inspire the labor movement in America. Although the percentage of the private-sector workforce represented by unions has declined to the lowest level since the passage of the National Labor Relations Act in 1935—from a high of about 35 percent in 1954 to less than seven percent (6.4%) at present—unions maintain substantial influence due to their ability to spend members’ dues and mobilize them as foot soldiers in political campaigns. A few non-right-to-work states, including California, account for a disproportionate share of unionized employees.

The free market system rests on economic competition, enforced through Progressive Era antitrust laws— from which labor unions are inexplicably exempted. Our laws severely punish corporate collusion and price-fixing, yet both of these activities represent the theoretical foundation of the labor movement: collective bargaining and “exclusive representation” are the hallmark of the NLRA. Unions essentially operate as labor cartels, prohibiting dealings between employers and individual employees, and restricting competition among workers. In a recent article for the peer-reviewed journal The Independent Review, entitled “The Exploitation of Labor and Other Union Myths,” I explain how organized labor perpetuates the myth that employees are necessarily “exploited” by corporate employers.

This myth, which was the central premise for the New Deal-era NLRA, rests on the notion that individuals are always at an unfair disadvantage when engaged in commerce with a corporation. Because corporations are composed of shareholders (making them “combinations of capital”), union advocates contend that employees must be allowed to organize into bargaining groups—cartels, in economic terms—to maintain a fair balance. Otherwise, the inherent “inequality of bargaining power” between employee and employer would supposedly result in the “exploitation of labor.” All workers, no matter how skilled or well-educated, are helpless serfs. This is a superficial—and discredited—view of the economy. Consumers and workers are empowered by the free market, and especially by innovation and the attendant increases in productivity. Contrary to mythic labor union rhetoric, competition benefits workers, promoting economic efficiency and encouraging effort and achievement. The notion that workers are inevitably exploited by employers is a Marxist canard that looks increasingly anachronistic in our 21st century economy—a vestige of socialist opposition to industrialism.

Through withering competition, large corporations such as Walmart and Amazon have dramatically reduced the cost of consumer goods. The imagined “disparity in bargaining power” between individuals and businesses simply does not exist in a competitive market. Digital platforms (such as Airbnb, HomeAway, and VRBO), smart phone apps, and e-commerce have revolutionized the delivery of goods and services, creating unprecedented flexibility and convenience for both buyers and sellers. Disruption abounds. Unlike the situation in 1935, when the NLRA was enacted, relatively few workers are employed in factories, and many telecommute. The nation is no longer reeling from a Great Depression; unemployment is at a record low. Untethered from rigid constraints imposed by antiquated legal restrictions (such as wage and hour rules), workers in the gig economy have the opportunity to set their own hours and to decide when, where, and for whom to work. Employers must compete for qualified workers, and frequently offer lavish benefits. Even fast food jobs often start at a higher pay level than the minimum wage.

Most drivers for companies such as Uber and Lyft prefer the autonomy conferred by contractor status. On-demand workers do not consider themselves helpless, “exploited,” or needing union “protection.” They want to be left alone. Nonetheless, AB 5 would force all contract drivers to become employees, allowing unions potentially to represent them (and compel the payment of dues as a condition of employment), while sacrificing their independence and limiting the transportation options of millions of Americans who have grown to rely on them.

As the legal and political showdown over AB 5 plays out during 2020, one is entitled to question whether labor unions are outmoded institutions, standing in the way of progress.

Note: This article draws from the author’s aforementioned “The Exploitation of Labor and Other Union Myths” in the Winter 2020 issue of The Independent Review.

Reader Discussion

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on February 05, 2020 at 11:35:45 am

Would you extend this analysis to public employee unions? I'm not carrying the bag for those entities, overall, and this site is an ...ahem...dangerous place to say any nice things about public employee unions. However, I'd argue that poor/cowardly/know-nothing administration is a far greater danger to higher education than the usual conservative criticisms of "all those tenured radicals" would suggest. If you doubt this, ask yourself who has more influence on the next stage of wokeness, whatever that proves to be: obscure nutty professors, or people in positions of real power, like college administrations and corporate leaders?

In many cases, all that stands between higher education becoming even worse than it already is, are exactly these much-maligned public unions of faculty. Sure, some of the membership is crazy, but if you think public higher ed would be better without them, you should come hear the character of administration's latest great idea, the only barrier against which is the natural recalcitrance of your average faculty senate.

Don't get me wrong, I'm prepared to hear arguments that public higher ed is doomed. I'm just observing that the tone of your article here glosses over some important realities on the ground, assuming that you'd extend something like this analysis to public unions, that it.

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on February 05, 2020 at 13:20:55 pm

Read the linked article in The Independent Review.

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Image of Mark Pulliam
Mark Pulliam
on February 05, 2020 at 17:56:58 pm

The Marxist canard: Marx and later writers never established an internally coherent theory of employment and profits based on "surplus value" (profits from exploitation based on a labor theory of value). The underlying problem is the value of inputs like machinery that are affected by time preference and it lurks throughout Das Kapital, emerging in Vol. 3 as inaccurate transformation of labor values into prices. Unfortunately, the left now does not much study economics, even if Marx emphatically did. Early Austrian and neoclassical economists like Wicksteed (whose "Common Sense of Political Economy" is a gem) won the battle of ideas over gains from trade versus exploitation theories of value even as Marx's ideas were emerging into print. Much is written about the practical failure of communist societies; much more should be made of the utter failure of Marxist theory to stand within its own terms.

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Antony Dnes
on February 06, 2020 at 07:39:19 am

Your argument would be far more convincing if it was made clear that yourclaim that unions decrease the welfare of workers is more applicable in today’s labour market than it was in the 1890s or 1920s say.

How did union actions serve the greater good during the lead up and resolution of the Homestead Strike or the Ludlow Massacre? Why were unions needed to ensure worker safety and standard 8 hour days and weekends?

If you can’t answer these questions then your argument is against all organisation of labour under all historic circumstances and if so, it weakens it as merely un-nuanced rhetoric.

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Nick Firoozye
on February 06, 2020 at 11:57:37 am

Read the linked article in The Independent Review.

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Mark Pulliam
on February 06, 2020 at 13:42:47 pm

Thanks for the recommendation, I just finished reading the article. Having done so, I've got a couple of observations:

In theory, I agree with you: public employee unionization his highly problematic, largely for the sort of reasons you detail. (e.g. Private companies have to make a profit, where public entities can simply pass the costs on to the taxpayer). However, in practice, unless you want to argue that we shouldn't have public education at all, I think there are some problems with this.

A couple of examples:
1. Yes, in theory union negotiations with the state could be farcical, as you indicate in your article. In practice however, have you ever participated/observed a collective bargaining session where this mutual back scratching was in fact the case. Maybe you have, and if so, then ok, that would be good evidence. However, I can tell you from personal experience that I've observed a recent incident where the state stalled union negotiations for about a decade, culminating in nearly taking the union to the state supreme court, over a raise dispute that ended up giving me about an extra 300 bucks a month. There are many conclusions one might draw from this, but the idea that state negotiation with public employee unions are all about the state caving to demands to bilk the taxpayer isn't one of them. An extra 1000 or 1500 bucks? Ok, now lets talk about the screwing over the taxpayers.
2. Another area in which I think the impulse to generalized based on universal economic principle is understandable but unwise, is in the case of public employee unions in the education world, specifically. Do some unions deserve the opprobium you and others heap upon them? Absolutely? In fact, I could tell you some stories about my own union that would cause you head head for the rolaids. However, ask yourself: Do we really think that public education would get better, if public educators were disallowed from collective bargaining? No way. We'd just get different stupidity than the stupidity we have now.

Now that may be an argument that the whole concept of public education needs rethinking, and I'm prepared to listen to such arguments. (I'm tenured professor at a public institution, but I homeschool my kids, so I think I've got at least a little credibility here). However, I think starting off with the state of nature, the social contract, and so on, as your article does, elides a large amount of complex, on the ground reality that can't simply be ignored by pointing the finger at unions. Perhaps we should get rid of public employee unions--but doing so would entail a large number of other major adjustments which wouldn't simply follow naturally from unions' absence. More bluntly, if you want to have public higher ed that works, I think you'd discover that public unions in higher ed--as idiotically as they often behave (and believe me, I know)--are often all that stands between us and even more worthless college degrees.

My two cents, anyway.


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Image of Aaron
on March 03, 2020 at 05:56:06 am

[…] Other Union Myths” for The Independent Review. He posted an abridged version of his argument here at L&L. I accept the bulk of his analysis given his assumption of “the existence of […]

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Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.